Getting Ahead of the Curve: Form SHO for SEC Short Sale Reporting

The Securities and Exchange Commission (SEC) has introduced a disclosure framework designed to enhance transparency in short selling. This new regulation, governed by Rule 13f-2 under the Securities Exchange Act of 1934, requires institutional investment managers to report specific details on certain short sales that exceed defined thresholds. These reports will be filed with the new Form SHO, which seeks to improve transparency while protecting investor anonymity.

Key Components of the New Rule

1. Compliance dates for investors

Investors are required to start filing Form SHO as of January 2, 2025, provided that the final rule is published in the Federal Register. New reporting requirements will take effect 12 months after the rule’s effective date, with Rule 13f-2 becoming effective 60 days after its publication.

2. Who needs to report

The reporting obligations apply to entities trading for their own accounts and to individuals or organizations exercising investment discretion over others’ accounts. Form SHO must be filed if short sale positions exceed the specific thresholds set by the SEC.

3. Scope of securities covered

Rule 13f-2 applies to the short sales of “equity securities” from both public and private companies. This includes common and preferred stocks and securities that are convertible, exercisable, or exchangeable into equity securities. Rule 13f-2’s coverage extends beyond U.S.-listed securities to include privately held companies and firms traded exclusively outside the United States. For all of these reasons, the range of covered securities is broader than those included under “Section 13(f) securities.”

Detailed Reporting Thresholds

• For reporting issuers: Investors must report short positions that represent a monthly average of at least $10 million in daily gross short positions or 2.5% of the issuer’s shares outstanding at the close of regular trading hours.
• For non-reporting issuers: A report is required if the gross short position reaches $500,000 or more at the close of regular trading hours on any settlement date within a calendar month.
• Enhancing market transparency: SEC’s new regulatory framework aims to aggregate data from Form SHO filings and disclose only aggregated information by security on a monthly basis. This approach enhances market transparency while maintaining investor anonymity. The rule’s effective date was January 2, 2024, so public aggregated reporting will begin three months after the compliance date of January 2, 2025.

Addressing Compliance Challenges

Complying with Form SHO is a complex and resource-intensive process. Asset managers need to maintain accurate records, conduct thorough monitoring, and ensure timely reporting. The dynamic nature of the securities market further complicates these challenges, which means asset managers need robust and scalable solutions to manage compliance effectively.

Streamline Compliance with the IVP Regulatory Reporting Solution

The IVP Regulatory Reporting Solution helps simplify compliance with Form SHO and many other regulatory requirements with a unique combination of automated data collection, real-time monitoring, and comprehensive reporting. By leveraging intelligent automation, this solution reduces operational workloads, improves accuracy, and ensures timely compliance.

Partnering with IVP Managed Services enhances these benefits even more, enabling asset managers to concentrate on strategic decision-making while IVP manages regulatory compliance requirements. Our comprehensive outsourcing services reduce the risk of errors and further simplify the compliance process for Form SHO and other filings.

Key takeaways for Form SHO compliance

The introduction of Form SHO under Rule 13f-2 marks a significant shift toward increased transparency in short selling. Although complying with these new regulations can be intricate, the IVP Regulatory Reporting Solution can help make the process easier, more accurate, and highly efficient.

Learn more about the IVP Regulatory Reporting Solution right now or contact sales@ivp.in to schedule a live or online demo.