75100 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

1Notice of the Text of the Amendment to the 

National Market System Plan Governing the 

Consolidated Audit Trail for Purposes of Short 

Sale-Related Data Collection, Exchange Act Release 

No. 34–98739 (Oct. 13, 2023). 

2See 17 CFR 242.200(a). 3Market liquidity is generally provided through 

short selling by market professionals, such as 

market makers, who offset temporary imbalances in 

the buying and selling interest for securities. Short 

sales effected in the market add to the selling 

interest of stock available to purchasers and reduce 

the risk that the price paid by investors is 

artificially high because of a temporary contraction 

of selling interest. Short sellers covering their sales 

also may add to the buying interest of stock 

available to sellers. See Amendments to Regulation 

SHO, Exchange Act Release No. 61595 (Feb. 26, 

2010), 75 FR 11232, 11235 (Mar. 10, 2010) (‘‘Rule 

201 Adopting Release’’). 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Parts 240 and 249 

[Release No. 34–98738; File No. S7–08–22] 

RIN 3235–AM34 

Short Position and Short Activity 

Reporting by Institutional Investment 

Managers 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Final rule. 

SUMMARY: The Securities and Exchange 

Commission (‘‘Commission’’) is 

adopting a new rule and new Form SHO 

pursuant to the Securities Exchange Act 

of 1934 (‘‘Exchange Act’’) and the DoddFrank Wall Street Reform and Consumer 

Protection Act (‘‘DFA’’). The new rule 

and related form are designed to provide 

greater transparency through the 

publication of short sale-related data to 

investors and other market participants. 

Under the new rule, institutional 

investment managers that meet or 

exceed certain specified reporting 

thresholds are required to report, on a 

monthly basis using the related form, 

specified short position data and short 

activity data for equity securities. In 

addition, the Commission is adopting an 

amendment to the national market 

system (‘‘NMS’’) plan governing the 

consolidated audit trail (‘‘CAT’’) created 

pursuant to the Exchange Act to require 

the reporting of reliance on the bona 

fide market making exception in the 

Commission’s short sale rules. The 

Commission is publishing the text of the 

amendments to the NMS plan governing 

the CAT (‘‘CAT NMS Plan’’) in a 

separate notice. 

DATES: 

Effective date: January 2, 2024. 

Compliance date: The applicable 

compliance date is discussed in Part VI 

of this release. 

FOR FURTHER INFORMATION CONTACT: 

Timothy M. Riley, Branch Chief; Patrice 

M. Pitts, Special Counsel; James R. 

Curley, Special Counsel; Jessica Kloss, 

Attorney Advisor; Brendan McLeod, 

Attorney Advisor; Roland Lindmayer, 

Attorney Advisor; Josephine J. Tao, 

Assistant Director, Office of Trading 

Practices; and Carol McGee, Associate 

Director, Office of Derivatives Policy 

and Trading Practices, Division of 

Trading and Markets, Securities and 

Exchange Commission, 100 F Street NE, 

Washington, DC 20549–8010, at (202) 

551–5777. 

SUPPLEMENTARY INFORMATION: The 

Commission is adopting new 17 CFR 

240.13f–2 (‘‘Rule 13f–2’’) and related 

form 17 CFR 249.332 (‘‘Form SHO’’) 

under the Exchange Act to require 

certain institutional investment 

managers to report, on a monthly basis 

on new Form SHO, certain short 

position data and short activity data for 

certain equity securities as prescribed in 

Rule 13f–2. 

The Commission is also adopting, in 

a separate notice published elsewhere in 

this issue of the Federal Register, an 

amendment to the CAT NMS Plan 

(‘‘CAT Amendment’’), pursuant to 17 

CFR 242.608(a)(2) (‘‘Rule 608(a)(2)’’) 

and (b)(2) (‘‘Rule 608(b)(2)’’), that 

enables the Commission to adopt a rule 

to amend any effective NMS plan. For 

the text of the amendment to the CAT 

NMS Plan, please see the Notice of the 

Text of the Amendment to the National 

Market System Plan Governing the 

Consolidated Audit Trail for Purposes of 

Short Sale-Related Data Collection.1

Table of Contents 

I. Overview 

A. Background 

B. The Proposals 

C. Overview of Proposed Rule 13f–2, 

Proposed Form SHO, Proposed Rule 205 

and Proposed CAT Amendments 

1. Overview of Comments Received 

2. Final Rule 13f–2, Form SHO and CAT 

Amendment 

II. Discussion of Final Rule 13f–2 and Form 

SHO 

A. Final Rule 13f–2 

1. Scope of Persons Covered by Final Rule 

13f–2 

2. Scope of Reported Securities 

3. Reporting Thresholds 

4. Form SHO 

B. Data Aggregation and Publication of 

Information by the Commission 

1. Proposal 

2. Comments 

3. Final Rule 

III. Proposed Amendment to Regulation SHO 

To Aid Short Sale Data Collection 

A. Proposed Rule 205 

B. Comments 

IV. Amendments to CAT 

A. Proposal To Require ‘‘Buy to Cover’’ 

Order Marking 

B. Proposal To Require Reporting of 

Reliance on Bona Fide Market Maker 

Exception 

V. Other Comments 

VI. Compliance Date 

VII. Paperwork Reduction Act Analysis 

A. Background 

B. Burdens for Managers Under Rule 13f– 

2 and Form SHO 

1. Applicable Respondents 

2. Burdens and Cost 

C. Burdens and Costs Associated With the 

Amendment to CAT 

1. Summary of Collections of Information 

2. Use of Information 

3. Respondents 

4. Total Initial and Annual Reporting and 

Record Keeping Burdens 

D. Collection of Information Is Mandatory 

E. Retention Period of Recordkeeping 

Requirement 

F. Confidentiality 

VIII. Economic Analysis 

A. Introduction 

B. Baseline 

1. Institutional Investment Managers 

2. Short Selling 

3. Current Short Selling Regulations 

4. Existing Short Selling Data 

5. Competition 

C. Economic Effects 

1. Investor Protection and Market 

Manipulation 

2. Effects on Stock Price Efficiency 

3. Effect on Market Liquidity 

4. Effect on Corporate Decision Making 

5. Effect on the Securities Lending Market 

6. Compliance Cost 

7. Effect of Certain Electronic Filing and 

Dissemination Requirements 

8. Potential Increased Use of Derivatives 

D. Efficiency, Competition and Capital 

Formation 

1. Efficiency 

2. Competition 

3. Capital Formation 

E. Reasonable Alternatives 

1. Alternative Approaches 

2. Data Modifications 

3. Threshold Modifications 

4. Other Alternatives 

IX. Regulatory Flexibility Act Certification 

X. Other Matters 

Statutory Authority 

I. Overview 

A. Background 

Short selling involves a sale of a 

security that the seller does not own, or 

a sale that is consummated by the 

delivery of a security borrowed by, or 

for the account of, the seller.2 In order 

to deliver the security to the purchaser, 

the short seller will generally borrow 

the security, usually from a brokerdealer or an institutional investor, and 

later close out the position by 

purchasing equivalent securities on the 

open market and returning the security 

to the lender. 

Short selling is generally used to 

profit from an expected downward price 

movement, to provide liquidity in 

response to unanticipated demand,3 or 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75101 

4See, Short Sales, Exchange Act Release No. 

50103 (July 28, 2004), 69 FR 48008 (Aug. 6, 2004) 

(‘‘Regulation SHO Adopting Release’’). 

5See, e.g., Phil Mackintosh, How Short Selling 

Makes Markets More Efficient, NASDAQ (Oct. 1, 

2020), available at https://www.nasdaq.com/ 

articles/how-short-selling-makes-markets-moreefficient-2020-10-01. Efficient markets require that 

prices fully reflect all buy and sell interest. Market 

participants who believe a stock is overvalued may 

engage in short sales in an attempt to profit from 

a perceived divergence of prices from true 

economic values. Such short sellers add to stock 

pricing efficiency in part because their transactions 

inform the market of their evaluation of future stock 

price performance. This evaluation is reflected in 

the resulting market price of the security. See Rule 

201 Adopting Release, 75 FR 11235 nn. 29 & 30. 

Historically, short sellers have, at times, through 

doing research, uncovered fraudulent behavior. See 

also generally discussion in infra Parts VIII.C.2 and 

VIII.C.4. 

6See, e.g., Div. Econ. Risk Analysis, Short Sale 

Position and Transaction Reporting (June 5, 2014), 

at 6–7 (‘‘DERA 417(a)(2) Study’’), available at 

https://www.sec.gov/files/short-sale-position-andtransaction-reporting0.pdf (This is a study of the 

Staff of the U.S. Securities and Exchange 

Commission, which represents the views of 

Commission staff, and is not a rule, regulation, or 

statement of the Commission. The Commission has 

neither approved nor disapproved the content of 

this study and, like all staff statements, it has no 

legal force or effect, does not alter or amend 

applicable law, and creates no new or additional 

obligations for any person.); Rule 201 Adopting 

Release, 75 FR 11235 (describing a ‘‘bear raid’’ 

where an equity security is sold short in an effort 

to drive down the price of the security by creating 

an imbalance of sell-side interest, as an example of 

unrestricted short selling that could ‘‘exacerbate a 

declining market in a security by increasing 

pressure from the sell-side, eliminating bids, and 

causing a further reduction in the price of a security 

by creating an appearance that the security’s price 

is falling for fundamental reasons, when the 

decline, or the speed of the decline, is being driven 

by other factors’’). See generally discussion infra 

Part VIII.C.1. 

7 15 U.S.C. 78j(a). 

8See Regulation SHO Adopting Release. 

9See 17 CFR 242.200(g). A broker or dealer must 

mark all sell orders of an equity security as ‘‘long,’’ 

‘‘short,’’ or ‘‘short exempt.’’ A sell order may only 

be marked ‘‘long’’ if the seller is ‘‘deemed to own’’ 

the security being sold and either (i) the security to 

be delivered is in the physical possession or control 

of the broker or dealer; or (ii) it is reasonably 

expected that the security will be in the physical 

possession or control of the broker or dealer no later 

than the settlement of the transaction. See 17 CFR 

242.200(g). A person is deemed to own a security 

only to the extent that he has a net long position 

in such security. See 17 CFR 242.200(c). Once 

marked as long, short, or short-exempt, the order 

mark should not be changed regardless of any 

subsequent changes in the person’s net position. 

See In re OZ Mgmt., Exchange Act Release No. 

75445 (July 14, 2015) (settled) (discussing where OZ 

Management submitted short sale orders to its 

executing broker, but identified such sales as long 

sales to its prime broker, causing books and records 

of the prime broker to be inaccurate), available at 

https://www.sec.gov/litigation/admin/2015/34- 

75445.pdf. 

10See 17 CFR 242.203(b)(1) and (2). The 

Regulation SHO locate requirement provides that 

broker-dealers may not accept a short sale order in 

an equity security from another person, or effect a 

short sale in an equity security for its own account, 

unless the broker-dealer has (i) borrowed the 

security, or entered into a bona-fide arrangement to 

borrow the security; or (ii) reasonable grounds to 

believe that the security can be borrowed so that it 

can be delivered on the date delivery is due; and 

(iii) documented compliance with this requirement 

(‘‘locate requirement’’). 

11See 17 CFR 242.204. ‘‘Failures to deliver,’’ or 

‘‘fails,’’ occur when a broker-dealer fails to deliver 

securities to the party on the other side of the 

transaction on the settlement date. 

12Trading center in Regulation SHO means a 

national securities exchange or national securities 

association that operates an SRO trading facility, an 

alternative trading system, an exchange market 

maker, an OTC market maker, or any other broker 

or dealer that executes orders internally by trading 

as principal or crossing orders as agent. 17 CFR 

242.200. 

13See 17 CFR 242.201. 

14See ‘‘Naked’’ Short Selling Antifraud Rule, 

Exchange Act Release No. 58774 (Oct. 14, 2008), 73 

FR 61666, 61674 (Oct. 17, 2008) (In a ‘‘naked’’ short 

sale, a seller does not borrow or arrange to borrow 

the necessary securities in time to deliver them to 

the buyer within the standard settlement period. 

Although abusive ‘‘naked’’ short selling is not 

defined in the federal securities laws, it refers 

generally to selling short without having stock 

available for delivery and intentionally failing to 

deliver stock within the standard settlement period. 

In addition, a seller misrepresenting its short sale 

locate source or ownership of shares may intend to 

fail to deliver securities in time for settlement and, 

therefore, engage in abusive ‘‘naked’’ short selling.). 

15Public Law 111–203, sec. 929X, 124 Stat. 1376, 

1870 (July 21, 2010). 

16 15 U.S.C. 78m(f)(2). 

17See, e.g., Letter from Elizabeth King, Corporate 

Secretary, NYSE Group, et al. (Oct. 7, 2015, Petition 

4–689) (stating that rulemaking under 929X 

‘‘provides an opportunity to implement meaningful 

public disclosure standards for short-sale activity, 

consistent with that currently required for 

institutional investment managers under section 

13(f) of the Exchange Act for long position 

reporting’’), available at https://www.sec.gov/rules/ 

petitions/2015/petn4-689.pdf; Letter from Edward 

S. Knight, Executive Vice President, General 

Counsel and Chief Regulatory Officer, NASDAQ 

(Dec. 7, 2015, Petition 4–691) (requesting that the 

Commission ‘‘take swift action to promulgate rules 

to require public disclosure by investors of short 

positions in parity with the disclosure regime 

applicable to long positions’’), available at https:// 

www.sec.gov/rules/petitions/2015/petn4-691.pdf 

(‘‘NASDAQ Petition’’); see also Letter from E. Carter 

Esham, Executive Vice President, Emerging 

Companies, Biotechnology Innovation Organization 

(BIO) (Mar. 11, 2016) (‘‘BIO Letter’’) (applauding 

reforms to the short disclosure framework proposed 

in the NASDAQ Petition and in the NYSE Petition 

and advocating for the promulgation of rules to 

ensure parity between public disclosures required 

of investors taking long and short positions), 

available at https://www.sec.gov/comments/4-691/ 

4691-5.pdf; Letter from Andrew D. Demott, Jr., 

Chief Operating Officer, Superior Uniform Group 

(supporting NASDAQ Petition and advocating 

adoption of disclosure requirements for short 

sellers), available at https://www.sec.gov/ 

comments/4-691/4691-10.pdf. Developments in the 

market with regard to ‘‘meme’’ stocks in early 2021, 

some of which were widely reported as involving 

large short sellers, also highlighted a need for more 

Continued 

to hedge the risk of a long position in 

the same security or a related security.4

Short selling provides the market with 

important benefits, such as providing 

market liquidity and pricing efficiency.5

While short selling can serve useful 

market purposes, such as facilitating 

price discovery, there are concerns that 

it could be used to drive down the price 

of a security, to accelerate a declining 

market in a security, or to manipulate 

stock prices.6

The Commission has plenary 

authority under section 10(a) of the 

Exchange Act to regulate short sales of 

securities as necessary or appropriate in 

the public interest or for the protection 

of investors.7 Regulation SHO, which 

became effective on January 3, 2005,8

imposes four general requirements with 

respect to short sales of equity 

securities. Under 17 CFR 242.200 (‘‘Rule 

200 of Regulation SHO’’), broker-dealers 

must properly mark sale orders as 

‘‘long,’’ ‘‘short,’’ or ‘‘short exempt.’’ 9

Under 17 CFR 242.203 (‘‘Rule 203 of 

Regulation SHO’’), a broker-dealer must 

locate a source of shares that the brokerdealer reasonably believes can be 

delivered in time for settlement 

(commonly referred to as the ‘‘locate 

requirement’’) before effecting a short 

sale.10 Under 17 CFR 242.204 (‘‘Rule 

204’’), if the broker or dealer that is a 

member of a registered clearing agency 

fails to deliver the security to the 

registered clearing agency in time for 

settlement, the broker or dealer must 

take action to close out the failure to 

deliver if that failure results from a long 

or short sale.11 Separately, under 17 

CFR 242.201 (‘‘Rule 201’’), trading 

centers 12 must have policies and 

procedures in place to restrict short 

selling when a covered security has 

triggered a short sale price test circuit 

breaker.13 In addition, the Commission 

adopted an antifraud provision, 17 CFR 

240.10b–21 (‘‘Rule 10b-21’’), to address 

failures to deliver in securities that have 

been associated with ‘‘naked’’ short 

selling.14

Section 929X of the DFA added 

section 13(f)(2) of the Exchange Act, 

entitled ‘‘Reports by institutional 

investment managers,’’ requiring the 

Commission to prescribe rules to make 

certain short sale data publicly available 

no less frequently than monthly.15

Specifically, section 13(f)(2) provides: 

‘‘[t]he Commission shall prescribe rules 

providing for the public disclosure of 

the name of the issuer and the title, 

class, CUSIP [Committee on Uniform 

Securities Identification Procedures] 

number, aggregate amount of the 

number of short sales of each security, 

and any additional information 

determined by the Commission 

following the end of the reporting 

period. At a minimum, such public 

disclosure shall occur every month.’’ 16

In addition, the Commission has 

received multiple petitions to adopt 

reporting requirements for short sellers 

similar to those required for holders of 

long positions.17


ddrumheller on DSK120RN23PROD with RULES2
75102 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

consistent and consolidated short sale information. 

See, e.g., Robert Smith et al., ‘‘Short Squeeze’’ 

Spreads as Day Traders Hunt Next GameStop, Fin. 

Times (Jan. 27, 2021), available at https://

www.ft.com/content/acc1dbfe-80a4-4b63-90dd05f27f21ceb2; Are ‘‘Meme Stocks’’ Harmless Fun, or 

A Threat to the Financial Old Guard?, Economist 

(July 6, 2021) (retrieved from Factiva database). See 

also Sharon Nunn & Adam Kulam, Short-Selling 

Restrictions During Covid–19, Yale Sch. of Mgmt., 

Program on Fin. Stability (Jan. 12, 2021), available 

at https://som.yale.edu/story/2021/short-sellingrestrictions-during-covid-19 (discussing global short 

selling regulatory responses to the Covid–19 

pandemic). 

18Short Position and Short Activity Reporting by 

Institutional Investment Managers, Exchange Act 

Release No. 34–94313 (Feb. 25, 2022), 87 FR 14950 

(Mar. 16, 2022) (‘‘Proposing Release’’). 

19Proposing Release, at 14951. 

20Because data obtained through CAT are not 

made public, the ‘‘buy to cover’’ and ‘‘bona fide 

market making’’ data reported pursuant to the 

Proposed CAT Amendments would not be made 

publicly available as a result of such reporting. 

21The comment letters on the Proposing Release 

(File No. S7–08–22) are available at https://

www.sec.gov/comments/s7-08-22/s70822.htm. Over 

98% of the over 3,000 comments received were 

from individual investors, most of whom (over 

1,900) submitted a variation of a template letter 

from ‘‘We The Investors,’’ an advocacy group for 

retail investors. The remaining comments were 

from trade associations, financial services firms— 

including institutional investment managers and 

investment management firms, broker-dealers—and 

their advisors, non-profit organizations, 

academicians, and entities other than individual 

investors. See Comment Letter from We the 

Investors, available at https://www.sec.gov/ 

comments/s7-08-22/s70822-typea.pdf (‘‘WTI 

Letter’’). 

22See, e.g., Comment from Samuel Hudock (Mar. 

2, 2022), available at https://www.sec.gov/ 

comments/s7-08-22/s70822-20118373-271244.htm; 

Comment from Michelle R. Bracke (Mar. 4, 2022) 

available at https://www.sec.gov/comments/s7-08- 

22/s70822-20118531-271417.htm; Comment from 

Joshua Barbee (Mar. 4, 2022), available at https:// 

www.sec.gov/comments/s7-08-22/s70822-20118530- 

271416.htm; Comment from Robert Ross (Mar. 14, 

2022), available at https://www.sec.gov/comments/ 

s7-08-22/s70822-20119365-272251.htm; Comment 

from David Arkules (Feb. 28, 2022), available at 

https://www.sec.gov/comments/s7-08-22/s70822- 

20118071-270876.htm; Comment from Gina 

Preziosi (Mar. 7, 2022), available at https://

www.sec.gov/comments/s7-08-22/s70822-20118726- 

271589.htm; Comment from Jessica Cooke (Mar. 9, 

2022), available at https://www.sec.gov/comments/ 

s7-08-22/s70822-20118963-271791.htm; Comment 

from Mauricio Gonzalez (Oct. 12, 2022), available 

at https://www.sec.gov/comments/s7-08-22/s70822- 

310835.htm; Comment from Liam Sutton (Oct. 19, 

2022), available at https://www.sec.gov/comments/ 

s7-08-22/s70822-311965.htm; Comment from 

Nicholas Graham (Oct. 19, 2022), available at 

https://www.sec.gov/comments/s7-08-22/s70822- 

312051.htm; Comment from Steffen Maier (Oct. 19, 

2022), available at https://www.sec.gov/comments/ 

s7-08-22/s70822-312049.htm; Comment from 

Zachary D’Elia (Oct. 19, 2022), available at https:// 

www.sec.gov/comments/s7-08-22/s70822- 

312047.htm; Comment from Stephen Leachman 

(Oct. 19, 2022), available at https://www.sec.gov/ 

comments/s7-08-22/s70822-312046.htm; Comment 

from Sergio Herrera (Oct. 19, 2022), available at 

https://www.sec.gov/comments/s7-08-22/s70822- 

312042.htm; Comment from David P. Miller Jr. (Oct. 

19, 2022), available at https://www.sec.gov/ 

comments/s7-08-22/s70822-312038.htm. 23See, e.g., Comment from William Bloxham 

(Oct. 21, 2022), available at https://www.sec.gov/ 

comments/s7-08-22/s70822-313372.htm; Comment 

from Ricardo Gomez (Oct. 29, 2022), available at 

https://www.sec.gov/comments/s7-08-22/s70822- 

316604.htm; Comment from Victor Arriaza (Oct. 29, 

B. The Proposals 

In February 2022, in an effort to 

increase transparency regarding short 

position and short activity data to both 

market participants and regulators, and 

to address the requirements of section 

13(f)(2), the Commission proposed new 

rule 13f–2 (‘‘Proposed Rule 13f–2’’) and 

related form (‘‘Proposed Form SHO’’) 

under the Exchange Act.18 Proposed 

Rule 13f–2 would require certain 

institutional investment managers 

(‘‘Managers’’) with gross short positions 

that meet certain quantitative reporting 

thresholds to report, on a monthly basis 

on new Proposed Form SHO, certain 

short position data and short activity 

data for certain equity securities. 

Proposed Form SHO included two parts: 

Information Table 1–reports of 

information including, but not limited 

to, data elements explicitly referenced 

in section 13(f)(2), gross end-of-month 

short positions in equity securities that 

meet the reporting thresholds, and 

whether such positions are fully 

hedged, partially hedged, or not hedged; 

and Information Table 2–reports of 

information including, but not limited 

to, certain daily activity data (including 

options assignments and exercises) that 

affect a Manager’s gross short positions 

during the calendar month reporting 

period. Managers would file Proposed 

Form SHO with the Commission via the 

Commission’s Electronic Data 

Gathering, Analysis, and Retrieval 

system (‘‘EDGAR’’) within 14 calendar 

days after the end of the calendar 

month. The Commission would then 

expect to publish on EDGAR aggregated 

information derived from the data 

reported on Proposed Form SHO within 

one month after the end of the reporting 

calendar month. 

In the Proposing Release, the 

Commission stated that the required 

short sale disclosures that would be 

collected under Proposed Form SHO 

and the aggregated data published 

pursuant to Proposed Rule 13f–2 would 

increase transparency and provide 

several important benefits to market 

participants and regulators. Such 

aggregated information would help 

inform market participants regarding the 

overall short sale activity by reporting 

Managers. More information about the 

short sale activity and gross short 

positions of reporting Managers may 

promote greater risk management among 

market participants and may facilitate 

capital formation to the extent that 

greater transparency bolsters confidence 

in the markets. As discussed in the 

Proposing Release, the Commission’s 

regular access to Proposed Form SHO 

data would bolster the Commission’s 

oversight of short selling, as Proposed 

Rule 13f–2 and Proposed Form SHO 

would improve the utility of 

information available to the 

Commission and other regulators.19

Additionally, to supplement the short 

sale data made available to the 

Commission in Proposed Form SHO 

filings, the Commission proposed a new 

rule at 17 CFR 242.205 prescribing a 

‘‘buy to cover’’ order marking 

requirement under Regulation SHO 

(‘‘Proposed Rule 205’’) for certain 

purchase orders effected by a brokerdealer for its own account or for the 

account of another person at the brokerdealer, if, at the time of order entry, the 

purchaser had a gross short position in 

such security in the account for which 

the purchase is being made. The 

Commission also proposed amendments 

to the NMS plan governing the CAT 

(‘‘Proposed CAT Amendments’’) to 

require the reporting of ‘‘buy to cover’’ 

order marking information and of 

reliance on the bona fide market making 

exception in Rule 203(b)(2)(iii) of 

Regulation SHO (‘‘BFMM locate 

exception’’). Proposed Rule 205 and the 

Proposed CAT Amendments were 

designed to fill an information gap for 

the Commission and other regulators by 

providing insights into the lifecycle of a 

short sale that are not available under 

existing data sources.20

C. Overview of Proposed Rule 13f–2, 

Proposed Form SHO, Proposed Rule 205 

and Proposed CAT Amendments 

1. Overview of Comments Received 

The Commission received robust 

comment on Proposed Rule 13f–2, 

Proposed Form SHO, Proposed Rule 

205, and the Proposed CAT 

Amendments (collectively, the 

‘‘Proposals’’). Comments were 

submitted by individual investors as 

well as other market participants, such 

as trade associations, institutional 

investment managers, investment 

advisers, broker-dealers, non-profit 

organizations, and academicians. These 

comments, which are discussed in 

context below, included a variety of 

different viewpoints on various aspects 

of the Proposals.21 Many commenters 

were supportive of the Proposals as a 

step toward increasing transparency 

into short sale activity.22 Many 

commenters stated that short selling is 

a particularly opaque area of the market 

and that increasing transparency 

regarding short selling would be 

beneficial to market participants.23


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75103 

2022), available at https://www.sec.gov/comments/ 

s7-08-22/s70822-316625.htm; Comment from Kyle 

Byrd (Oct. 29, 2022), available at https://

www.sec.gov/comments/s7-08-22/s70822- 

316701.htm; Comment from Tarek Elseweifi (Oct. 

29, 2022), available at https://www.sec.gov/ 

comments/s7-08-22/s70822-316706.htm; Comment 

from Clay Wyant (Oct. 29, 2022), available at 

https://www.sec.gov/comments/s7-08-22/s70822- 

316708.htm; Comment from Yin Hung Lam (Oct. 

29, 2022), available at https://www.sec.gov/ 

comments/s7-08-22/s70822-316601.htm; Comment 

from Evan Anderson (Oct. 29, 2022), available at 

https://www.sec.gov/comments/s7-08-22/s70822- 

316580.htm; Comment from Connor Judson (Oct. 

29, 2022), available at https://www.sec.gov/ 

comments/s7-08-22/s70822-316599.htm; Comment 

from Nicky (Oct. 29, 2022), available at https://

www.sec.gov/comments/s7-08-22/s70822- 

316638.htm. 

24See, e.g., Comment from Eric Mills (April 27, 

2022), available at https://www.sec.gov/comments/ 

s7-08-22/s70822-20126810-287520.htm (‘‘[T]he 

proposals will serve the mission of the SEC by 

increasing transparency regarding short selling 

activity. On-going efforts by the SEC to increase 

market transparency and relieve information 

asymmetries promote efficiency, order, fairness, 

capital formation, and public trust. The result is an 

enhancement of investor ability to assess the market 

and make more informed decisions.’’); Comment 

from Stanley Little (Mar. 8, 2022), available at 

https://www.sec.gov/comments/s7-08-22/s70822- 

20118870-271692.htm (‘‘The proposed rule is a[n] 

important missing link for investors. The ordinary 

person wishing to make money in the stock market 

should have all available information at their 

disposal to make informed decisions . . . The 

transparency rule is such a tool needed to make 

well informed decisions.’’); Comment from Brendon 

Withers (Feb, 27, 2022), available at https://

www.sec.gov/comments/s7-08-22/s70822-20118078- 

270936.htm (supported ‘‘immediate 

implementation [of the proposals] to improve the 

US Stock Market and provide a more fair and free 

system in which market participants can have 

accurate information and make informed decisions 

based on CURRENT AND ACCURATE data.’’). 

25See, e.g., Letter from Stephen W. Hall, Legal 

Director and Securities Specialist, Better Markets, et 

al. (Apr. 26, 2022), at 12, available at https://

www.sec.gov/comments/s7-08-22/s70822-20126822- 

287528.pdf (‘‘[T]the SEC should eliminate the 

proposed thresholds so as to reduce or eliminate the 

risk that unknown, hidden short positions could 

pose to investors and the markets.’’) (‘‘Better 

Markets Letter’’); Comment from Matthew Sinex 

(Oct. 31, 2022), available at https://www.sec.gov/ 

comments/s7-08-22/s70822-317106.htm; Comment 

from Noah Tewahade (Oct. 30, 2022), available at 

https://www.sec.gov/comments/s7-08-22/s70822- 

317046.htm; Comment from Luke Dansie (Oct. 31, 

2022), available at https://www.sec.gov/comments/ 

s7-08-22/s70822-317081.htm; Comment from Mike 

Flowers (Oct. 30, 2022), available at https://

www.sec.gov/comments/s7-08-22/s70822- 

317245.htm; Comment Letter from Katherine 

Lander (Oct. 30, 2022), available at https://

www.sec.gov/comments/s7-08-22/s70822- 

317266.htm; Comment from Marco Alvarenga (Oct. 

31, 2022), available at https://www.sec.gov/ 

comments/s7-08-22/s70822-316992.htm; Comment 

Letter from Erikka Jehle (Oct. 31, 2022), available 

at https://www.sec.gov/comments/s7-08-22/s70822- 

316930.htm. 

26E.g., Comment Letter from Robert Toomey, 

Managing Director and Associate General Counsel, 

Securities Industry and Financial Markets 

Association, et al. (Apr. 26, 2022), at 3, available 

at https://www.sec.gov/comments/s7-08-22/s70822- 

20126803-287514.pdf (‘‘SIFMA Letter’’) (‘‘SIFMA is 

concerned that such an expansive reporting regime 

would impose burdens and costs on reporting 

parties that would materially outweigh the benefit 

of the information they might yield, and that the 

SEC has not provided justification for why such 

information is necessary and/or cannot already be 

obtained through other means available to the 

SEC’’); see also, Comment Letter from Thomas M. 

Merritt, Deputy General Counsel, Virtu Financial 

(Apr. 26, 2022), available at https://www.sec.gov/ 

comments/s7-08-22/s70822-20126856-287588.pdf 

(‘‘Virtu Letter’’); Comment Letter from Thomas 

Deinet, Executive Director, Standards Board for 

Alternative Investments (Apr. 26, 2022), available 

at https://www.sec.gov/comments/s7-08-22/s70822- 

20126850-287575.pdf (‘‘SBAI Letter’’); Comment 

Letter from Matthew B. Siano, Managing Director 

and General Counsel, Two Sigma (Apr. 26, 2022), 

available at https://www.sec.gov/comments/s7-08- 

22/s70822-20126808-287518.pdf (‘‘Two Sigma 

Letter’’); Comment Letter from Richard F. Kerr, 

Partner, K&L Gates LLP (Apr. 26, 2022), available 

at https://www.sec.gov/comments/s7-08-22/s70822- 

20126848-287571.pdf (‘‘K&L Gates Letter’’). 

27See, e.g., SIFMA Letter, at 6 n. 15 (‘‘SIFMA is 

concerned that the SEC’s economic analysis of the 

Proposed Rules does not adequately consider that 

the sum total of the proposed requirements may 

result in a burden that far exceeds the SEC’s 

estimates with respect to each individual 

component . . .’’); Comment Letter from Jennifer 

Han, Executive Vice President, Chief Counsel and 

Head of Regulatory Affairs, Managed Funds 

Association (Apr. 26, 2022), at 7, 19, available at 

https://www.sec.gov/comments/s7-08-22/s70822- 

20126815-287523.pdf (‘‘MFA Letter’’) (‘‘[T]he SEC’s 

economic analysis and, specifically, the Proposal’s 

estimated costs are materially understated.’’); 

Comment Letter from Mark A. Steffensen, Senior 

Executive Vice President and General Counsel, 

HSBC North American Holdings Inc. and HSBC 

Bank USA, N.A. (Jan. 24, 2023), at 15 n. 53, 

available at https://www.sec.gov/comments/s7-08- 

22/s70822-20155771-324031.pdf (‘‘HSBC Letter’’) 

(‘‘We [ ] do not believe that the Commission’s 

economic analysis adequately considers the costs of 

Proposed Rule 13f–2 to market makers.’’). 

28Rule 13f–2 and Form SHO, as adopted, are 

responsive to the policy recommendations to 

increase transparency around short selling activities 

and improve short sale data of participants in the 

Government-Business Forums on Small Business 

Capital Formation held by the Commission in 

recent years. See, e.g., Report on the Report on the 

41st Annual Small Business Forum, at 22, available 

at 2022 OASB Annual Forum Report (sec.gov); 

Report on the Report on the 40th Annual Small 

Business Forum, at 25, available at https://

www.sec.gov/files/2021_OASB_Annual_Forum_

Report_FINAL_508.pdf. 

29See infra Part II.A.4. See also Proposing 

Release, at 14964–65. 

Some of these commenters stated that 

the increased information regarding 

short sales would allow investors to be 

better informed and make better 

investment decisions.24 A number of 

these commenters urged the 

Commission to strengthen the proposed 

reporting requirements further by, for 

example, lowering or eliminating the 

thresholds triggering reporting 

obligations under Proposed Rule 13f– 

2.25

As discussed in further detail below, 

some commenters recommended 

changes to the Proposals in response to 

their concerns about: the scope of 

Proposed Rule 13f–2; the underlying 

approach and levels of the proposed 

thresholds that would trigger a reporting 

obligation under Proposed Rule 13f–2; 

the feasibility of operationalizing 

Proposed Rule 205 in a manner that 

would result in the gathering of 

meaningful short sale-related data; and 

the necessity for the Proposed CAT 

Amendments. 

Some commenters stated that the 

Commission did not sufficiently 

articulate the benefits of, or regulatory 

justification for, the Proposals and did 

not accurately estimate or adequately 

justify the costs and impacts of the new 

reporting requirements.26 Some of these 

commenters expressed concern that the 

Proposing Release’s Economic Analysis 

did not adequately estimate the costs 

and burdens of the Proposals.27

2. Final Rule 13f–2, Form SHO and CAT 

Amendment 

For the reasons discussed more fully 

in Parts II–IV below, and to balance 

implementation and compliance costs 

and burdens with the Commission’s 

goal of enhancing transparency 

regarding short selling, the Commission 

is adopting Rule 13f–2 and related Form 

SHO with certain modifications in 

response to comments.28 The new 

reporting regime of Rule 13f–2 provides 

disclosures that supplement the short 

sale-related information that currently is 

publicly available or accessible for a fee 

from existing short sale reporting 

regimes provided by some registered 

national securities exchanges 

(‘‘exchanges’’) and registered national 

securities associations (‘‘RNSAs’’).29

Final Rule 13f–2 will require 

Managers (defined in section 13(f)(6)(A) 

of the Exchange Act) to report to the 

Commission, on a monthly basis on 

related Form SHO, certain short 

position data and short activity data for 

certain equity securities. In particular: 

• On the Cover Page of Form SHO, 

Managers will be required to report 

certain basic information including its 

name, mailing address, business 

telephone number and business email, 

as well as the name, title, business 

telephone number and business email of 

the Manager’s contact employee for the 

Form SHO report; and the date the 

report is filed. The Manager will also 

provide its non-lapsed Legal Entity 

Identifier (‘‘LEI’’) if it has one. If other 

Managers are required to be listed in the 

‘‘Other Manager(s) Reporting for this 

Manager’’ section of the Cover Page, the 

Manager will also be required to include 

the name and non-lapsed LEI of each 

such ‘‘Other Manager’’ listed, if the LEI 

of such ‘‘Other Manager(s)’’ is available 

to the Manager filing the Form SHO 

report. 

• With regard to each individual 

equity security reported on by Managers 


ddrumheller on DSK120RN23PROD with RULES2
75104 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

30See infra nn. 36 & 218. 

31 15 U.S.C. 78l. 

32 15 U.S.C. 78o(d). 

33Because the proposed rule and form called for 

publication of only ‘‘net’’ activity based on the 

information reported in Information Table 2, this 

change in information reported on Form SHO as 

adopted does not affect the information published 

by the Commission from information derived from 

the Form SHO reports. 

34Specifically, we made a non-substantive 

revision to change the word ‘‘including’’ to ‘‘such 

as’’ and removed the amphibological comma. 

35To affirm that the Rule 13f–2 requirements 

apply to each class of an equity security about 

which information is being reported on Form SHO, 

and to more accurately indicate that classes of 

securities, not issuers, are registered pursuant to 

section 12 of the Exchange Act, Rules 13(a)(1) and 

Rule 13(a)(2) have been revised to refer to ‘‘each 

equity security that is of a class of securities’’ rather 

than ‘‘each equity security of an issuer . . . .’’ This 

distinction by class of security is also consistent 

with CUSIP procedures, under which, we 

understand, different classes of stock have distinct 

identifying codes. Rule 13f–2 requires that 

Managers provide CUSIP numbers for equity 

securities for which information is reported on 

Form SHO. 

36For greater precision in the terminology used 

in Form SHO as adopted, an LEI that is currently 

in effect is referred to as a ‘‘non-lapsed LEI,’’ rather 

than an ‘‘active LEI’’ (the terminology used in 

Proposed Form SHO), of a Manager. A non-lapsed 

LEI is an LEI for which the Manager is current on 

its periodic renewal fees needed to maintain the 

LEI. Further, to avoid any suggestion that a Manager 

filing a Form SHO report has an obligation to 

monitor the status of an issuer’s LEI, Instructions 

8.c and 9.c of Form SHO—‘‘Column 3. Issuer LEI. 

If the issuer has an LEI, enter the issuer’s active 

LEI’’—have been revised to remove the term 

‘‘active.’’ 

37The required Form SHO Cover Page contact 

information for the reporting Manager and its 

‘‘Contact Employee’’ has been updated to reflect the 

greater reliance on the communication technology 

of email rather than facsimile. 

in the Information Tables of Form SHO, 

Managers will report: the issuer’s name 

and LEI if it has one, and the equity 

security’s title of class, CUSIP, and 

Financial Instrument Global Identifier 

(‘‘FIGI’’) (if any has been assigned).30

• With regard to Information Table 1 

of Form SHO, the Manager will also 

report the number of shares of the 

reported equity security that represent 

the Managers’ gross short position at the 

close of the last settlement date of the 

calendar month reporting period, as 

well as the corresponding U.S. dollar 

value of this reported gross short 

position. 

• With regard to Information Table 2 

of Form SHO, for each reported equity 

security, for each individual settlement 

date during the calendar month 

reporting period, a Manager will report 

‘‘net’’ activity in the reported equity 

security. The net activity reported by a 

Manager will be expressed by a single 

identified number of shares of the 

reported equity security, and will reflect 

offsetting purchase and sale activity by 

Managers. A positive number of shares 

identified will indicate net purchase 

activity in the equity security on the 

specified settlement date, while a 

negative number of shares identified 

will indicate net sale activity in the 

equity security on the specified 

settlement date. 

Managers will report such 

information regarding each equity 

security if the following thresholds are 

met: 

• With respect to any equity security 

that is of a class of securities that is 

registered pursuant to Exchange Act 

section 12 31 or for which the issuer of 

that class of securities is required to file 

reports pursuant to Exchange Act 

section 15(d) 32 (a ‘‘reporting company 

issuer’’) in which the Manager meets or 

exceeds either: (1) a monthly average of 

daily gross short positions at the close 

of regular trading hours in the equity 

security with a U.S. dollar value of $10 

million or more, or (2) a monthly 

average of daily gross short positions at 

the close of regular trading hours as a 

percentage of shares outstanding in the 

equity security of 2.5 percent or more 

(‘‘Threshold A’’). 

• With respect to any equity security 

that is of a class of securities of an issuer 

that is not a reporting company issuer 

as described above (a ‘‘non-reporting 

company issuer’’) in which the Manager 

meets or exceeds a gross short position 

in the equity security with a U.S. dollar 

value of $500,000 or more at the close 

of regular trading hours on any 

settlement date during the calendar 

month. (‘‘Threshold B’’). 

The Commission will then publish 

aggregate information as follows: 

• With regard to Information Table 1 

of Form SHO, the Commission will 

publish, for each class of equity 

securities, as an aggregated number of 

shares across all reporting Managers, the 

number of shares of the reported equity 

security that represent the Managers’ 

gross short position at the close of the 

last settlement date of the calendar 

month, as well as the corresponding 

aggregated U.S. dollar value of this 

reported gross short position. 

• With regard to Information Table 2 

of Form SHO, for each reported equity 

security, for each individual settlement 

date during the calendar month, the 

Commission will publish the net 

activity in the reported equity security, 

as aggregated across all reporting 

Managers. 

The Commission is also adopting, 

substantially as proposed, the 

amendment to the CAT NMS Plan to 

require broker-dealers with a reporting 

obligation to CAT, to report whether an 

original receipt or origination of an 

order to sell an equity security is a short 

sale for which a market maker is 

claiming the BFMM locate exception. 

However, for the reasons discussed 

below, the Commission is not adopting 

Proposed Rule 205 or the CAT ‘‘buy to 

cover’’ reporting requirements. 

Changes Made to the Proposals: In 

response to comments, and as discussed 

in more detail below, the Commission is 

modifying the proposal generally by: 

• Streamlining Form SHO reports by 

not adopting as proposed the 

requirement to report hedging 

classifications on Information Table 1, 

and by requiring a lower level of 

granularity of reporting on Information 

Table 2; 33

• Adjusting the calculation of the 

dollar value prong of the reporting 

threshold for equity securities of 

reporting company issuers (i.e., 

Threshold A) to be based on a monthly 

average of daily gross short positions 

rather than the proposed daily 

calculation; 

• Requiring in Rule 13f–2 and in the 

instructions to Form SHO that, for 

purposes of determining whether a 

Manager meets or exceeds a reporting 

threshold, a Manager shall determine its 

gross short position ‘‘at the close of 

regular trading hours’’ in the equity 

security, rather than at the ‘‘end of day’’ 

as was provided for in the instructions 

to Proposed Form SHO; 

• Not adopting Proposed Rule 205 

and, consequently, not adopting the 

Proposed CAT Amendment requiring a 

‘‘buy to cover’’ order mark in order 

receipts and order origination reports 

submitted to the CAT; and 

• Making modifications to the text of 

Rule 13f–2 and the instructions to Form 

SHO to provide context and enhance 

comprehensibility, such as—adding a 

reference in the definition of ‘‘gross 

short position’’ to ‘‘short sales’’ as 

defined in Rule 200(a) of Regulation 

SHO and making minor adjustments to 

phrasing in the definition; 34 adding 

language to the rule text to more 

precisely describe the equity securities 

for which information is reported in 

final Form SHO; 35 deleting the 

superfluous word ‘‘collectively’’ from 

the rule text to enhance overall 

readability; replacing the term ‘‘active 

LEI’’ on Proposed Form SHO with ‘‘nonlapsed LEI’’ 36 on final Form SHO; 

updating the contact information to be 

provided on the final Form SHO cover 

page,37 and making corresponding 

modifications to conform the text of 

Rule 13f–2 and the instructions to Form 

SHO. 

• Making non-substantive, technical 

changes to correct inadvertent 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75105 

38Specifically, the preposition ‘‘for’’ was added 

before ‘‘a short sale’’ to clarify that reporting is 

required for a short sale in which the bona fide 

market maker exception is claimed, the article 

‘‘the’’ was added before ‘‘exception,’’ and the 

preposition ‘‘in’’ was added before ‘‘Rule 

203(b)(2)(iii)’’ to clarify that the BFMM locate 

exception is found in Rule 203(b)(2)(iii). 

39 15 U.S.C. 78m(f). 

40See Proposed Rule 13f–2(b)(3). 

41See Proposed Rule 13f–2(b)(1). 

42See also Instructions to Form 13F. 

43See 17 CFR 240.13f–1(b). 

44See infra discussion in Part II.A.3.a. 

45See Form 13F (sec.gov), available at https://

www.sec.gov/pdf/form13f.pdf. 

46See Comment Letter from the Alternative 

Investment Management Association Ltd (Apr. 26, 

2022), at 10–11, available at https://www.sec.gov/ 

comments/s7-08-22/s70822-20126829-287533.pdf 

(‘‘AIMA Letter’’); see also SBAI Letter, at 3 (stating 

that the proposed reporting only includes 

Managers, which would not provide a complete 

perspective of shorting activity). In raising concerns 

about reporting and monitoring burdens imposed 

by the reporting regime of Proposed Rule 13f–2, 

other commenters, however, did not question the 

application of the proposed rule to institutional 

investment managers. 

47AIMA Letter, at 11. 

48 Id. 

49See Comment Letter from Valerie Dahiya, 

Partner, Perkins Coie LLP (Apr. 26, 2022), at 3, 

available at https://www.sec.gov/comments/s7-08- 

22/s70822-20126839-287549.pdf (‘‘Perkins Coie 

Letter’’) (stating that ‘‘for institutional investment 

managers that only selectively utilize short 

positions, or who only do so passively, these 

additional compliance costs in relation to the 

institutional investment manager’s usage of short 

positions could in turn impose untended risks to 

the manager’s underlying investors if the 

institutional investment manager must divert 

additional time and resources for compliance and 

oversight’’). 

grammatical errors in the text of the 

adopted amendment to the CAT NMS 

Plan that requires a broker-dealer with 

a reporting obligation to CAT to indicate 

whether an order is a short sale effected 

by a market maker in connection with 

bona fide market making activities for 

which the BFMM locate exception is 

claimed.38

II. Discussion of Final Rule 13f–2 and 

Form SHO 

A. Final Rule 13f–2 

1. Scope of Persons Covered by Final 

Rule 13f–2 

a. Proposal 

Exchange Act section 13(f) pertains to 

‘‘Reports by Institutional Investment 

Managers.’’ 39 Proposed Rule 13f–2 

would have required Managers to 

collect and file with the Commission via 

EDGAR certain short sale-related data 

on proposed Form SHO, within fourteen 

(14) calendar days after the end of each 

calendar month, with regard to each 

equity security over which the Manager 

and all accounts over which the 

Manager (or any other person under the 

Manager’s control) has investment 

discretion 40 that meet or exceed a 

quantitative reporting threshold 

(‘‘Reporting Threshold’’). 

As defined in section 13(f)(6)(A) of 

the Exchange Act and for purposes of 

Proposed Rule 13f–2, ‘‘institutional 

investment manager’’ includes any 

person, other than a natural person, 

investing in or buying and selling 

securities for its own account, and any 

person exercising investment discretion 

with respect to the account of any other 

person.41 As such, the term 

‘‘institutional investment manager’’ 

typically can include brokers and 

dealers, investment advisers, banks, 

insurance companies, pension funds 

and corporations.42

Proposed Rule 13f–2(b)(3) states that 

‘‘investment discretion’’ has the same 

meaning as in 17 CFR 240.13f–1(b) 

(‘‘Rule 13f–1(b) under the Exchange 

Act’’),43 and Rule 13f–1(b) states that 

‘‘investment discretion’’ has the same 

meaning as in section 3(a)(35) of the 

Exchange Act. Rule 13f–1(b)’s definition 

is comprehensive in that it covers all 

accounts over which the Manager, or 

any person under the Manager’s control, 

has investment discretion. This same 

definition of investment discretion was 

used by the Commission in adopting 17 

CFR 240.10a–3T (‘‘interim final 

temporary Rule 10a–3T’’) in 2008, 

which required certain Managers to file 

weekly nonpublic reports with the 

Commission on Form SH regarding 

short sales and positions.44 In addition, 

the Rule 13f–1(b) definition of 

investment discretion is used for Form 

13F ‘‘long’’ position reporting by certain 

Managers.45

b. Comments and Final Rule 

One commenter encouraged the 

Commission to expand the scope of 

market participants subject to reporting 

under Proposed Rule 13f–2 ‘‘beyond just 

Managers.’’ 46 This commenter believed 

the Commission’s determination ‘‘to 

omit a large group of market 

participants from Proposed Rule 13f–2’s 

scope will negatively affect the 

completeness and analytical sufficiency 

of the aggregated and disclosed short 

sale data, impeding the Commission’s 

ability to accurately reconstruct 

significant or unusual market events.’’ 47

This commenter believed that omitting 

a large group of market participants 

would ‘‘not provide the Commission 

with full visibility into the short sale 

market that it could otherwise achieve 

pursuant to Proposed Rule 13f–2’’ and 

believed that an ‘‘artificially narrow 

scope will not further the Commission’s 

stated goals of providing greater 

transparency and filling the information 

gaps for market participants and 

regulators.’’ 48 This commenter, 

however, did not identify what market 

participants were being omitted under 

the proposal and that should otherwise 

be included. 

As a potential alternative to Proposed 

Rule 13f–2, however, this commenter 

suggested, in part, that the current 

FINRA short interest reporting regime 

could be enhanced, and subsequently 

codified, to address potential limitations 

in the currently available short salerelated data. However, because FINRA’s 

short interest reporting is applicable 

only to broker-dealers that are FINRA 

member firms, Managers represent a 

more diverse group of market 

participants than is required under 

FINRA reporting (as was suggested as a 

potential alternative by the commenter). 

As stated above, Managers typically can 

include various market participants, 

including brokers and dealers, as well as 

investment advisers, banks, insurance 

companies, pension funds and 

corporations. Accordingly, the 

Commission is adopting as proposed 

Rule 13f–2(b)(1) to define institutional 

investment managers as having the same 

meaning as in Exchange Act section 

13(f)(6)(A). Short sale-related data 

reported by Managers on Form SHO will 

provide additional context to, and 

otherwise supplement, currently 

available data by, for example, 

distinguishing directional short selling 

of Managers from short sale activity 

effected by market makers and liquidity 

providers. This approach should reduce 

the reporting of non-directional, 

‘‘transient’’ short sales activity and 

provide market participants with more 

focused information on substantial short 

positions held by Managers. 

Another commenter suggested that 

the Commission consider an exemption 

for certain types of Managers that do not 

regularly utilize short positions or that 

only utilize short positions for passive 

investing purposes.49 By capturing short 

sale-related data from Managers who 

hold substantial gross short positions— 

regardless of the purpose for which they 

utilize short positions, the reporting 

regime of Rule 13f–2 will enhance 

transparency and provide useful 

information to market participants 

regarding overall short sale activity. 

Furthermore, having the reporting 

obligation under Rule 13f–2 triggered by 

a reporting threshold that is calculated 

based on a monthly average of daily 

gross short positions in certain equity 

securities, rather than the proposed 


ddrumheller on DSK120RN23PROD with RULES2
75106 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

50See infra Part II.A.3 for more discussion of the 

reporting thresholds in Proposed Rule 13f–2 and 

Rule 13f–2 as adopted. 

51See infra Part VIII.B.1. Registered investment 

advisers, particularly those managing hedge funds, 

are the primary Managers likely to be affected by 

Rule 13f–2. 

52 15 U.S.C. 78l. 

53 15 U.S.C. 78o(d). 

54Section 3(a)(11) of the Exchange Act defines 

‘‘equity security’’ as any stock or similar security or 

any security future on any such security; or any 

security convertible, with or without consideration, 

into such a security, or carrying any warrant or right 

to subscribe to or purchase such a security; or any 

such warrant or right; or any other security which 

the Commission shall deem to be of similar nature 

and consider necessary or appropriate, by such 

rules and regulations as it may prescribe in the 

public interest or for the protection of investors, to 

treat as an equity security. 15 U.S.C. 78c(a)(11). 

55See Proposing Release, at 14956 n.59. 

56See Regulation SHO Adopting Release, at 

48012. 

57Proposing Release, at 14958. 

58As stated in the Proposing Release, the 

Commission believed this proposed approach 

balances Managers’ reporting costs with the utility 

such data provides to regulators. See Proposing 

Release, at 14962. 

59Comment from Samuel Meadows (Mar. 26, 

2022), at 1, available at https://www.sec.gov/ 

comments/s7-08-22/s70822-273456.htm (‘‘Samuel 

Meadows Comment’’). 

60See, e.g., MFA Letter, at 11–12 (recommending 

that, to simplify compliance, provide clarity, and 

reduce costs, Commission should limit the 

reporting requirements to stocks of U.S. reporting 

company issuers, and exclude derivatives and 

ETFs); SIFMA Letter, at 20 (recommending 

reduction of compliance costs by creating a list of 

equity securities that would be subject to Proposed 

Rule 13f–2 reporting requirements that would 

exclude ‘‘extraneous securities, such as options, 

warrants, convertibles, and ETFs’’); Comment Letter 

from Frank Vivirito, Compliance Officer, XR 

Securities LLC (Apr. 25, 2022), at 2 (‘‘XR Securities 

Letter’’) (stating ‘‘I feel strongly that highly liquid, 

higher priced, active and efficient ETFs (and 

perhaps even some single name equities) with 

limited or no settlement issues’’ should be excluded 

from Proposed Rule 13f–2 reporting requirements). 

61See, e.g., Comment Letter from Nick Dougherty 

(Mar. 27, 2022), at 2, available at https://

www.sec.gov/comments/s7-08-22/s70822-20121466- 

273451.pdf (‘‘Nick Dougherty Letter’’); 

Anonymously Submitted Comment (Mar. 21, 2022), 

at 1, available at https://www.sec.gov/comments/s7- 

08-22/s70822-20120739-272894.pdf. See generally, 

Anonymously Submitted Comment (Mar. 21, 2022), 

at 2, available at https://www.sec.gov/comments/s7- 

08-22/s70822-20122297-278355.htm 

(recommending that ‘‘[a]ll securities, including 

ETFs, OTC stocks, swaps etc. should have their 

positions data recorded and submitted to the SEC 

daily’’); Samuel Meadows Comment, at 1 (‘‘I 

strongly believe that all different securities and 

ETFs should be required to report all short sale 

data.’’). 

62MFA Letter, at 12. 

daily calculation,50 is designed in part 

to alleviate concerns for Managers who 

only occasionally meet or exceed the 

prescribed reporting thresholds. 

In addition, the Commission did not 

receive any comments regarding the 

definition of ‘‘investment discretion’’ as 

proposed. The Commission is adopting 

Rule 13f–2(b)(3) as proposed to define 

the term ‘‘investment discretion’’ as 

having the same meaning as in Rule 

13f–1(b) (which, among other things, 

incorporates the definition in section 

3(a)(35) of the Exchange Act). In 

addition, Managers that will file reports 

on adopted Form SHO likely have 

experience reporting on Form 13F, for 

which this same definition is used.51

2. Scope of Reported Securities 

a. Proposal 

Under the proposed rule, a Manager 

would have had to file a Form SHO 

report with regard to: 

• Any equity security of an issuer that 

is registered pursuant to section 12 of 

the Exchange Act 52 or for which the 

issuer is required to file reports 

pursuant to section 15(d) of the 

Exchange Act 53 in which the Manager 

meets or exceeds either (1) a gross short 

position in the equity security with a 

U.S. dollar value of $10 million or more 

at the close of regular trading hours on 

any settlement date during the calendar 

month; or (2) a monthly average gross 

short position as a percentage of shares 

outstanding in the equity security of 2.5 

percent or more (Threshold A); and 

• Any equity security of an issuer that 

is not a reporting company issuer as 

described above in which the Manager 

meets or exceeds a gross short position 

in the equity security with a U.S. dollar 

value of $500,000 or more at the close 

of regular trading hours on any 

settlement date during the calendar 

month (Threshold B). 

As proposed, the reporting thresholds 

in Rule 13f–2(a)(1) and (2) (each a 

‘‘Proposed Reporting Threshold’’) 

applied to equity securities, as the term 

‘‘equity security’’ is defined in section 

3(a)(11) of the Exchange Act 54 and 17 

CFR 240.3a11–1 (‘‘Rule 3a11–1’’).55 This 

scope, which included both exchangelisted and over-the-counter securities, is 

consistent with the securities to which 

Rules 200, 203, and 204 of Regulation 

SHO apply.56 The proposed scope 

would have included exchange-traded 

fund (‘‘ETF’’) securities, but would not 

have required Managers, in calculating 

a Proposed Reporting Threshold or 

Form SHO data, to consider short 

positions the ETF held in individual 

underlying equity securities.57 And 

because the Proposed Reporting 

Thresholds were based on a Manager’s 

gross short position in the underlying 

equity security itself, the proposed rule 

would not have required the Manager to 

account for derivative exposure as part 

of the threshold calculation for the 

underlying equity security, but would 

have required Managers to report certain 

changes in their gross equity short 

positions derived from acquiring or 

selling the equity in connection with 

derivative activity, such as exercising an 

option.58

b. Comments and Final Rule 

The Commission received several 

comments on Proposed Rule 13f–2’s and 

Proposed Form SHO’s proposed scope 

of securities, with commenters 

expressing a variety of views. Most 

commenters took an expansive view, 

exemplified by one such commenter’s 

statement that ‘‘all different securities 

and ETFs should be required to report 

all short sale data. The more 

information that is available to every 

investor and the Commission the 

better.’’ 59 As discussed below, other 

commenters, by contrast, recommended 

narrowing the universe of ‘‘in scope’’ 

securities by, for example, aligning with 

similar Commission reporting and 

public dissemination regimes, limiting 

the scope to securities of U.S. reporting 

companies, or excluding ETFs, options 

and warrants and other convertibles, 

and derivatives. Some commenters 

focused on the impact on 

implementation and compliance costs 

related to Proposed Rule 13f–2 reporting 

requirements and recommended that 

derivatives, options, warrants and other 

convertibles, and ETFs be excluded 

from the scope of equity securities 

subject to Proposed Rule 13f–2 reporting 

requirements.60

Comments on the Scope of Covered 

Securities 

Most commenters supported the 

applicability of Proposed Rule 13f–2 to 

short positions in ETFs, some 

expressing specific concerns about 

‘‘improper’’ use of ETFs to leverage 

short positions.61 However, one 

commenter advocating for the exclusion 

of ETFs from the universe of ‘‘in-scope’’ 

securities stated that, in most 

circumstances, Managers short ETFs 

largely for hedging purposes and not for 

the same reasons that Managers short 

stocks of reporting company issuers; 

this commenter stated that such 

information ‘‘will provide the public, 

and the SEC, very little in terms of 

useful information.’’ 62

The Commission disagrees with the 

commenter that reporting about gross 

short positions in ETFs will not provide 

useful information to the public and the 

Commission. Establishing short 

positions in an ETF can provide short 

exposure to a diverse set of equity 

securities or create a directional short 

strategy such as leveraged shorting. 

Because of their multipurpose nature, 

ETFs are a substantial piece of the shortVerDate Sep<11>2014 22:05 Oct 31, 2023 Jkt 262001 PO 00000 Frm 00008 Fmt 4701 Sfmt 4700 E:\FR\FM\01NOR2.SGM 01NOR2

ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75107 

63ETFs are a popular trading tool that can be used 

in various ways, including, for example, to hedge 

a long position, or to establish a directional short 

position. See Exchange-Traded Funds, Investment 

Company Act Release No. 33646 (Sept. 25, 2019), 

84 FR 57162 (Oct. 24, 2019) (‘‘[ETFs] have become 

a popular trading tool, making up a significant 

portion of secondary market equities trading.’’). See 

also Giovanny Moriano & Brian Baker, Best inverse 

and short ETFs—here’s what to know before buying 

them, Bankrate (Feb. 16, 2023), available at https:// 

www.bankrate.com/investing/best-inverse-etfs/ 

(describing traders’ use of short ETFs to hedge 

against falling prices in other positions, to make 

directional bets on securities or indexes, or to 

magnify returns through leveraged short ETFs); The 

Renaissance of ETFs, Oliver Wyman (2023), 

available at https://www.oliverwyman.com/ourexpertise/insights/2023/may/exchange-tradedfunds-are-fueling-market-opportunities.html 

(stating ‘‘As of the end of December 2022, total ETF 

assets under management (AUM) have reached $6.7 

trillion across the US and Europe, growing at 

approximately 15% compound annual growth rate 

(CAGR) since 2010. . . . We expect a significant 

part of this growth to come from active ETFs.’’). 

Active ETFs can include inverse and short ETFs 

that seek to use short strategies or leverage. 

64See Experiences of US Exchange-Traded Funds 

During the COVID–19 Crisis, Inv. Co. Inst. (Oct. 

2020), available at https://www.sec.gov/comments/ 

credit-market-interconnectedness/cll10-2.pdf 

(‘‘Early in 2020, . . . ETF trading volume accounted 

for between 20 and 30 percent of total stock market 

trading on a daily basis . . . .’’); see also Richard 

B. Evans et al., ETF Short Interest and Failures-toDeliver: Naked Short-Selling or Operational 

Shorting?, U. Pa. Wharton Sch. (Jan. 2018), 

available at https://

jacobslevycenter.wharton.upenn.edu/wp-content/ 

uploads/2018/08/ETF-Short-Interest-and-Failuresto-Deliver.pdf (stating that ETFs constitute roughly 

10% of U.S. equity market capitalization but over 

20% of short interest, and that short interest for the 

ETF market has increased steadily over several 

years). 

65See, e.g., Nick Dougherty Letter (Mar. 27, 2022), 

at 3 (stating that ‘‘fixed income securities should be 

included under Proposed rule 13f–2’’); 

Anonymously submitted Comment (Mar. 21, 2022), 

at 1, available at https://www.sec.gov/comments/s7- 

08-22/s70822-20120739-272894.pdf. 

66Anonymously submitted Comment (Mar. 21, 

2022), at 1, available at https://www.sec.gov/ 

comments/s7-08-22/s70822-20120739-272894.pdf. 

67See Proposing Release, at 14956 n.59. 

68See id. at 14956. 

69SIFMA Letter, at 20. 

70See, e.g., Better Markets Letter, at 9 (stating that 

‘‘[i]n order for the final rule to actually serve its 

purpose, it must require that institutional 

investment managers include their short interest 

that arises from derivatives positions’’); WTI Letter, 

at 4 (stating that not including derivatives contracts 

such as options and security-based swaps is a ‘‘huge 

hole that must be remedied’’ and ‘‘will inevitably 

result in firms exploiting the loophole . . .’’); 

Samuel Meadows Comment, at 1 (stating that ‘‘[a]ny 

and all Short positions resulting from derivatives 

should be included in whether they meet a 

Reporting Threshold’’). 

71See supra nn. 54 & 55 and accompanying text; 

see generally Part II.A.2.a. 

72 Id. 

73See, e.g., Comment Letter from Oliver Davies, 

Apr. 20, 2022, available at https://www.sec.gov/ 

comments/s7-08-22/s70822-20124155-280554.htm 

(expressing concern that ‘‘funds are using complex 

derivative positions like options and swaps to hide 

their true short positions’’); Anonymously 

submitted Comment, Mar. 14, 2022, available at 

https://www.sec.gov/comments/s7-08-22/s70822- 

20119368-272254.htm (positing that excluding 

derivative positions can create opportunities to 

avoid triggering the reporting thresholds through 

other economically equivalent instruments). 

74See infra Part VIII.C.8; see also Proposing 

Release, at 15001. 

75See infra n. 285. 

76See infra Part II.A.4. 

77Option exercises or assignments can result in 

a short sale. See, e.g., Rule 201 Adopting Release, 

at 11263 n. 433 (explaining that short sales that 

result from option exercises or assignments are 

short sales but are not covered by the Rule 201 of 

Continued 

side market.63 ETFs are subject to the 

requirements of Regulation SHO, and 

there is a benefit to applying the Rule 

13f–2 reporting requirements to the 

same universe of securities subject to 

the Commission’s short sale rules. 

Further, short sale-related data 

regarding ETFs will provide important 

transparency to a significant segment of 

market activity to both the marketplace 

and regulators alike.64

Some commenters recommended that 

fixed-income securities be added to the 

proposed scope of securities.65 These 

commenters believed that all investment 

vehicles, including fixed income 

securities, should be included within 

the scope of securities subject to 

potential reporting. These commenters 

generally believed that short positions 

in fixed income securities would 

provide additional transparency to the 

marketplace. One of these commenters 

believed that fixed income securities 

should be included under the rule 

because ‘‘bonds play a large role in 

market activities, along with the repo 

market’’ and that ‘‘corporate bond 

borrowing data provides an 

unparalleled insight into short 

positioning at a security and issuer 

level.’’ 66

Fixed income securities are not 

subject to the Commission’s short sale 

rules. Market participants, including 

Managers, are currently accustomed to 

complying with the short sale rules with 

regard to equity securities that meet the 

definition of short sales in Rule 200(a) 

of Regulation SHO.67 Further, the selfregulatory organizations (‘‘SROs’’) 

currently collect and provide data on 

short sales of equity securities as 

defined by Rule 200(a) of Regulation 

SHO. Consistent with the discussion in 

the Proposing Release, the aggregated 

short sale-related data that will be 

published by the Commission under 

Rule 13f–2 will provide additional 

context to market participants regarding 

equity securities that are subject to the 

requirements of Regulation SHO.68 For 

these reasons, the Commission is not 

including fixed income securities. 

Some commenters also recommended 

excluding options, warrants, and other 

convertibles from the rule.69 Other 

commenters recommended that 

derivatives be included within the 

scope of Proposed Rule 13f–2 70– 

including those not within the 

definition of equity security in section 

3(a)(11) of the Exchange Act and Rule 

3a11–1 thereunder.71

Certain derivatives, options, warrants, 

and convertibles are themselves equity 

securities for purposes of section 

3(a)(11) of the Exchange Act and Rule 

3a11–1 thereunder, and therefore for 

purposes of final Rule 13f–1.72

Derivatives and other securities that are 

not equity securities within the 

definitions of section 3(a)(11) of the 

Exchange Act and Rule 3a11–1 

thereunder, are not within the scope of 

the rule. Managers are currently 

accustomed to complying with 

requirements for equity securities under 

Rule 200(a) of Regulation SHO. The 

Commission is not including derivatives 

and other securities that are not equity 

securities under the definitions of 

section 3(a)(11) of the Exchange Act and 

Rule 3a11–1 thereunder. Many 

commenters who requested that 

derivatives be included expressed 

concern that derivatives could be used 

to create substantial economic short 

positions, while avoiding Proposed Rule 

13f–2’s reporting requirements.73 The 

Commission recognizes, as it did in the 

Proposing Release, that there is a risk 

that Rule 13f–2 could be a catalyst for 

growth in markets of economic 

equivalents of underlying equity 

securities as short sellers look for new 

avenues to take the economic equivalent 

of short positions while avoiding these 

proposed reporting requirements.74

Managers do not have to account for 

economic exposure to an underlying 

equity security created through the use 

of equity derivatives when calculating 

the reporting thresholds for reporting 

short sales of that underlying equity 

security. However, once a Manager 

meets or exceeds a reporting threshold 

for an underlying equity security, the 

Manager will then be required to report 

certain short activity for each settlement 

date during the reporting calendar 

month, and that disclosure will take 

into account activity in options, 

tendered conversions, secondary 

offering transactions,75 and other equity 

derivatives or activity that might affect 

the reported short positions on Form 

SHO, as discussed further below.76

Managers must also report gross short 

positions of each equity security 

resulting from short sales as defined in 

Rule 200(a) of Regulation SHO to the 

extent the Manager’s positions meet the 

relevant thresholds.77 Finally, large 


ddrumheller on DSK120RN23PROD with RULES2
75108 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

Reg. SHO’s price test because there is no national 

best bid). 

78FINRA Rule 2360 requires FINRA member 

firms to report large options positions to the Large 

Options Positions Report (‘‘LOPR’’), which FINRA 

uses to surveil for potentially manipulative 

behavior, including attempts to corner the market 

in the underlying equity, leverage an option 

position to affect the price, or move the underlying 

equity to change the value of a large option 

position. 

79See Regulation SBSR, 17 CFR 242.900 through 

242.909. 

80 15 U.S.C. 78m(f)(4). 

81Comment Letter from Sarah A. Bessin, 

Associate General Counsel & Nhan Nguyen, 

Assistant General Counsel, Investment Company 

Institute (Apr. 26, 2022), available at https://

www.sec.gov/comments/s7-08-22/s70822-20126820- 

287527.pdf (‘‘ICI Letter’’) at 9 n.28; see also MFA 

Letter, at 13 (positing that having an ‘‘official list’’ 

of securities subject to Form SHO reporting would 

reduce the burden on Managers to make judgments 

about whether a particular security is in-scope for 

Form SHO reporting and would reduce 

inconsistencies among reporting Managers in 

making such judgments in the absence of such a 

list); see also SIFMA Letter, at 20 (suggesting that 

the ‘‘Form SHO List’’ include securities that are 

included on the 13F List while excluding securities 

that should not be covered by Form SHO, as well 

as the total shares outstanding for each security). 

82Rule 10a–3T and Form SH focused on certain 

section 13(f) securities and excluded options that 

are reportable on Form 13F. 

83HSBC Letter, at 13–14 (recommending that 

Commission align the reporting requirements of 

Proposed Rule 13f–2 to a narrower set of 

securities—e.g., the securities prescribed in Rule 

13f–1—rather than with securities that are ‘‘inscope’’ with Regulation SHO). 

84See Proposing Release, at 14956. 

85Section 13(f)(1) of the Exchange Act (15 U.S.C. 

78m(f)(1)) requires any institutional investment 

manager exercising investment discretion over 

accounts holding at least $100 million in fair 

market value of certain equity securities to file 

reports on Form 13F with the Commission at the 

times set forth in 17 CFR 240.13f–1 (‘‘Rule 13f–1’’). 

The statute directs the Commission to make 

available to the public, for a reasonable fee, a list 

of all equity securities described in section 13(d)(1) 

of the Exchange Act and to disseminate to the 

public the information contained in the reports. 

86See, e.g., MFA Letter, at 11–12; Letter from 

Leigh R. Fraser, Partner, Ropes & Gray LLP (Apr. 26, 

2022), at 9, available at https://www.sec.gov/ 

comments/s7-08-22/s70822-20126853-287579.pdf 

(‘‘Ropes & Gray Letter’’). Cf. SIFMA Letter, at 5 

(recommending, rather than separate reporting 

thresholds for reporting company issuers and nonreporting company issuers, a single threshold apply 

to U.S. equity securities included in a ‘‘Form SHO 

List’’ akin to the 13F List that ‘‘would include 

securities that are included on the 13F List, while 

also excluding certain extraneous securities, such as 

options, warrants, convertibles, and ETFs that 

should not be covered by Proposed Form SHO 

reporting’’). 

87See, e.g., Ropes & Gray Letter, at 9 (stating that 

a requirement to report short sale-related data 

regarding equity securities of U.S. private 

companies would represent a ‘‘significant 

expansion’’ of reporting requirements imposed in 

investors beyond what currently is required under 

existing reporting regimes under Exchange Act 

sections 13(d), 13(f)(1), 13(g), 13(h), and 16). 

88See, e.g., MFA Letter, at 11–12 (stating that 

because non-reporting company issuer securities 

are not publicly traded, information about 

transactions in such securities would not likely 

have an effect on price efficiency or market 

liquidity, but could have negative consequences for 

Managers—e.g., increasing the risk of exposing 

Managers, their short positions, and trading 

strategies, which could facilitate retaliatory and 

manipulative trading strategies). 

positions in options are currently 

reportable under a separate 

requirement.78 In addition, there is a 

separate reporting regime for securitybased swaps,79 which may also lessen 

the likelihood of Managers attempting to 

avoid the requirements of Rule 13f–2 by 

using these instruments. 

Comments on Creating a List 

Some commenters recommended 

narrowing the universe of ‘‘in-scope’’ 

securities to lessen the burden on 

Managers and to help to ensure 

compliance with Proposed Rule 13f–2. 

Certain commenters recommended that 

the Commission create and publish a 

list of securities subject to Form SHO 

reporting, much like the Commission’s 

Official List of Section 13(f) Securities 

(‘‘13F List’’) required by statute to be 

made available to the public pursuant to 

section 13(f)(4) of the Exchange Act 80

for use in the preparation of quarterly 

reports filed with the Commission for 

purposes of long position reporting 

under Rule 13f–1. One such commenter 

suggested that providing such a list 

would ‘‘promote greater efficiency in 

validating reported short positions and 

consistency in reporting of those 

positions among managers.’’ 81 Another 

commenter recommended aligning 

Proposed Rule 13f–2 with the scope of 

other similar reporting and public 

dissemination regimes (e.g., Rule 13f–1, 

and prior Rule 10a–3T82) that are 

focused on a narrower set of securities, 

namely certain section 13(f) securities 

that are included on the 13F List.83

Narrowing the scope of securities to 

the 13F List would effectively exclude 

certain equity securities that are subject 

to the requirements of Regulation SHO, 

which the Commission continues to 

believe would be inconsistent with the 

Commission’s objective to publish short 

sale-related data under Rule 13f–2 that 

will provide additional context to 

market participants regarding securities 

that are subject to the Commission’s 

current short sale rules.84 As stated 

above, market participants, including 

Managers, are currently accustomed to 

complying with the short sale rules with 

regard to equity securities generally, so 

narrowing the scope to the 13F List that 

periodically changes, or to a list created 

for purposes of Rule 13f–2 that is 

similar in concept to the 13F List, could 

result in reduced Rule 13f–2 reporting 

and, consequently, less transparency of 

short sale-related data. Narrowing the 

scope to securities that are included on 

the 13F List could also result in 

additional administrative costs and 

burdens to Managers to the extent that 

Managers have to perform additional 

monitoring to ensure that their Form 

SHO reports cover, and the calculations 

required to determine whether a 

reporting obligation under Rule 13f–2 

has been triggered because a Reporting 

Threshold has been met, apply to, only 

the narrower scope of securities (a 

subset of the equity securities currently 

subject to the Commission’s short sale 

rules). Such an outcome is inconsistent 

with the Commission’s objective of 

enhancing transparency, while 

balancing the interests of gathering and 

disclosing data that provides additional 

context to market participants regarding 

securities that are subject to the 

requirements of Regulation SHO against 

the potential costs to reporting 

Managers. 

Additionally, with respect to long 

position reporting, section 13(f)(1) 

expressly provides that the Commission 

shall make available to the public a list 

of all equity securities that are subject 

to such reporting.85 However, section 

13(f)(2) does not require publication of 

such a list. Further, existing short salerelated reporting to exchanges and 

RNSAs does not rely on a published list 

of securities. For these reasons, it is not 

necessary to compile and periodically 

provide a list of securities covered by 

Rule 13f–2. 

Comments To Limit Scope to Equity 

Securities of U.S. Reporting Company 

Issuers 

Some commenters recommended 

tailoring the scope of securities subject 

to Rule 13f–2 reporting to the equity 

securities of U.S. reporting company 

issuers.86 Many of these commenters 

raised concerns about the costs to 

Managers of developing new systems to 

capture trading of equity securities of 

non-reporting company issuers. Certain 

commenters focused on how a 

requirement to report short sales of 

equity securities of non-reporting 

company issuers would represent an 

expansion of reporting requirements 

beyond what is currently required under 

existing reporting regimes under 

Exchange Act sections 13(d), 13(f)(1), 

13(g), and 16.87 Other commenters 

believed that requiring Managers to 

report short position information in 

equity securities of non-reporting 

company issuers would be extremely 

costly and provide little public 

benefit.88 Another such commenter 

stated that because securities of nonreporting company issuers can be held 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75109 

89Ropes & Gray Letter, at 8–9. 

90MFA Letter, at 11–12. 

91See Proposing Release, at 14956. 

92See, e.g., Publication or Submission of 

Quotations Without Specified Information, 

Exchange Act Release No. 89891 (Sept. 16, 2020) 

(‘‘Adopting Release for Amendments to Rule 15c2– 

11’’), 85 FR 68124, 68125 (Oct. 27, 2020) 

(‘‘However, in other cases, there is no or limited 

current public information available about certain 

issuers of quoted OTC securities to allow investors 

or other market participants to make informed 

investment decisions.’’). 

93See, e.g., Publication or Submission of 

Quotations Without Specified Information, 

Exchange Act Release No. 89891 (Sept. 16, 2020), 

85 FR 68124, 68125 (Oct. 27, 2020) (citing to 

Andrew Ang, et al., Asset Pricing in the Dark: The 

Cross-Section of OTC Stocks, 26 Rev. Fin. Studs. 

2985–3028 (2013) (‘‘Securities that trade in the OTC 

market are primarily owned by retail investors[,]’’); 

see also Unraveling the Mystery of Over-the-Counter 

Trading, FINRA Inv’r Insights (Jan. 4, 2016), 

available at https://www.finra.org/investors/ 

insights/unraveling-mystery-over-counter-trading 

(‘‘OTC equities are largely owned by retail 

investors, according to a 2013 study from Columbia 

University, who may be attracted to the low price 

of many OTC equities, including so-called ‘‘penny 

stocks’’ that trade at under $5 a share. That activity 

is typically very speculative.’’). 

94See id. See also infra Part VIII.C.6 for a 

discussion of costs related to tracking non-reporting 

companies, and infra Part II.A.3 for discussion of 

possible benefit. 

95See, e.g., Adopting Release for Amendments to 

Rule 15c2–11, 85 FR 68124, at 68185. 

96HSBC Letter, at 13–14 (recommending that the 

reporting requirements of Proposed Rule 13f–2 be 

limited to equity securities of reporting company 

issuers that are traded on a Commission-registered 

trading platform). 

97See, e.g., Regulation SBSR—Reporting and 

Dissemination of Security-Based Swap Information, 

Exchange Act Release No. 74244 (Feb. 11, 2015), 80 

FR 14563, 14649 (Mar. 19, 2015) (‘‘2015 Regulation 

SBSR Adopting Release’’) (discussing the territorial 

approach to the cross-border application of Title VII 

requirements for regulatory reporting and public 

dissemination of security-based swap transactions). 

98 561 U.S. 247. See, e.g., Abitron Austria GmbH 

v. Hetronix Int’l, Inc, 600 U.S. **, **, 2023 WL 

4239255, at *4 (June 29, 2023) (stating that ‘‘[the 

Supreme Court has] repeatedly and explicitly held 

that courts must ‘‘identif[y] ‘the statute’s ‘‘focus’’ ’ 

and as[k] whether the conduct relevant to that focus 

occurred in United States territory’’). 

99See Regulation SHO Adopting Release, at 

48012. 

by only a small number of U.S. 

investors, cannot be traded on U.S. 

securities exchanges, and can often be 

subject to contractual restrictions on 

transfer, short sales in such securities 

are rare due to the limitations on the 

number of shares available to borrow.89

Another commenter stated that trading 

(including short selling) in securities of 

non-reporting company issuers is 

limited, which potentially makes 

Managers that file Form SHO reports 

with respect to such securities more 

susceptible to retaliatory and 

manipulative trading strategies.90 As 

stated above, the Commission is 

adopting Rule 13f–2 and Form SHO to 

help enhance transparency regarding 

short selling in equity securities— 

including both exchange-listed and 

over-the-counter securities, and ETFs— 

that are already subject to Regulation 

SHO. Consistent with the discussion in 

the Proposing Release, through the 

publication of short sale-related data to 

investors and other market participants, 

the information published under Rule 

13f–2 will provide additional context to 

market participants regarding equity 

securities that are subject to the 

requirements of Regulation SHO.91 To 

that end, the Commission continues to 

believe that transparency regarding 

short selling in over-the-counter 

(‘‘OTC’’) equity securities, many of 

which are non-reporting company 

issuers,92 is important to investors 

generally, including many retail 

investors. The Commission has 

previously stated that securities ‘‘that 

trade in the OTC market are primarily 

owned by retail investors.’’ 93 Consistent 

with this view, it is important from a 

transparency perspective to include, as 

proposed, non-reporting issuers for 

purposes of reporting under Rule 13f–2. 

While the Commission is cognizant that 

information on non-reporting company 

issuers will be more difficult to obtain 

and more costly to report than 

information on reporting company 

issuers, the Commission disagrees there 

would be little benefit to the public 

from such information, particularly 

given the extent of trading in OTC 

market securities by retail investors.94

Furthermore, OTC securities typically 

have lower prices, lower trading 

volume, and are by definition not traded 

on exchanges, making them potentially 

more prone to fraud.95 In addition, as 

discussed further below, publication of 

aggregated data approximately one 

month following the reporting calendar 

month will alleviate concerns regarding 

potential retaliation against reporting 

Managers. 

Other commenters raised questions as 

to whether the Commission’s 

jurisdiction extended to equity 

securities not traded in the U.S. One 

such commenter, highlighting the 

disparity between Proposed Rule 13f–2 

reporting and reporting of long positions 

in the same securities, questioned why 

it would be in the public interest to 

require more expansive disclosure with 

respect to short positions than long 

positions, and stated that the ‘‘proposed 

scope of the rule would provide U.S. 

investors with information that is of 

limited value, particularly with respect 

to non-U.S. securities.’’ 96

Exchange Act section 13(f)(2)’s crossborder reach is based on the territorial 

approach that the Commission has 

applied when crafting rules to 

implement other provisions of the 

Exchange Act.97 Consistent with that 

territorial approach (which is based on 

Supreme Court precedent, including 

Morrison v. National Australia Bank, 

Ltd. and its progeny) the Commission 

examines the relevant statutory 

provision to determine the domestic 

conduct that is covered by the 

provision.98 The Commission 

understands section 13(f)(2), by its 

terms, to apply to any institutional 

investment manager already subject to 

U.S. reporting requirements. This 

indicates that the relevant domestic 

conduct under section 13(f)(2) is being 

an institutional investment manager 

operating in the U.S. securities markets 

such that the investment manager is 

subject to filing reports with the 

Commission. Thus, when that relevant 

domestic conduct is present here in the 

United States, section 13(f)(2)’s 

regulatory reporting obligation will 

generally apply. 

The Commission is adopting Rule 

13f–2 and Form SHO to help enhance 

transparency regarding short selling in 

equity securities—including both 

exchange-listed and over-the-counter 

securities, and ETFs. The Commission 

continues to believe that, through the 

publication of short sale-related data to 

investors and other market participants, 

the information reported by Managers 

will provide important additional 

context to market participants regarding 

short sale activity in these equity 

securities by Managers. The 

Commission disagrees that the reported 

information would be of ‘‘limited value’’ 

as was suggested by a commenter. 

Transparency regarding short selling by 

Managers of securities of U.S. and nonU.S. issuers is important regardless of 

where those sales occur. 

Final Rule 

For the reasons discussed above, the 

Commission is adopting the scope of 

securities as originally proposed. 

Specifically, the final rule will cover 

equity securities as defined in section 

3(a)(11) of the Exchange Act and Rule 

3a11–1 thereunder. This scope of 

securities includes both exchange-listed 

and OTC equity securities, including, 

inter alia, ETFs, certain derivatives, and 

options, warrants and other 

convertibles, which is consistent with 

the equity securities to which Rules 200, 

203, and 204 of Regulation SHO 

apply.99


ddrumheller on DSK120RN23PROD with RULES2
75110 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

100As discussed above, an issuer of a class of 

securities that is registered pursuant to Exchange 

Act section 12 or for which the issuer is required 

to file reports pursuant to Exchange Act section 

15(d) is referred to herein as a reporting company 

issuer; issuers not meeting those criteria are referred 

to herein as non-reporting company issuers. 

101Proposed Rule 13f–2(a)(1). See Proposing 

Release, at 14962 (describing in detail the design of 

Threshold A). 

102Proposed Rule 13f–2(a)(2). See Proposing 

Release, at 14962 (describing in detail the design of 

Threshold B). 

103 Disclosure of Short Sales and Short Positions 

by Institutional Investment Managers, Exchange Act 

Release No. 58785 (Oct. 15, 2008), 73 FR 61678 

(Oct. 17, 2008). The rule extended the reporting 

requirements established by the Commission’s 

Emergency Orders dated Sept. 18, 2008, Sept. 21, 

2008, and Oct. 2, 2008, with some modifications. 

See Emergency Order Pursuant to Section 12(k)(2) 

of the Securities and Exchange Act of 1934 Taking 

Temporary Action to Respond to Market 

Developments, Exchange Act Release No. 58591 

(Sept. 18, 2008), 73 FR 55175 (Sept. 24, 2008); 

Amendment to Emergency Order Pursuant to 

Section 12(k)(2) of the Securities Exchange Act of 

1934 Taking Temporary Action to Respond to 

Market Developments, Exchange Act Release No. 

58591A (Sept. 21, 2008), 73 FR 55557 (Sept. 25, 

2008) (amending the Sept. 18, 2008 Emergency 

Order (‘‘Order’’) to clarify certain technical issues 

and when the information filed by the institutional 

investment managers on a nonpublic basis would 

be made public by the Commission on a delayed 

basis); Amendment to Order and Order Extending 

Emergency Order Pursuant to Section 12(k)(2) of the 

Securities Exchange Act of 1934 Taking Temporary 

Action to Respond to Market Developments, 

Exchange Act Release No. 58724 (Oct. 2, 2008), 73 

FR 58987 (Oct. 8, 2008) (extending effectiveness of 

the Order through Oct. 17, 2008, and stating that the 

Forms SH filed under the Order would remain 

nonpublic to the extent permitted by law). 

104See Proposing Release, at 14963–65 

(discussing the analysis of Form SH data). 

105Rule 10a–3T remained in effect through July 

2009, at which time the Commission stated that it 

and its staff would be working with several SROs 

to make certain short sale volume and transaction 

data publicly available through SRO websites. See 

Proposing Release, at 14954 (providing background 

on Rule 10a–3T and related Form SH). 

106See Proposing Release, at 14964 n.82 (‘‘This 

analysis was performed using data from OTC 

Markets Group Inc. available through Wharton 

Research Data Services, https://wrdswww.wharton.upenn.edu/pages/about/datavendors/otc-markets-group/. The data were filtered 

to only include equities that had a closing price and 

short interest on September 30, 2020. 

Approximately 13% of the data did not have total 

shares outstanding available, representing 

approximately 14% of the dollar value of short 

interest. We use these data without shares 

outstanding as a proxy for non-reporting issuers. 

The Commission used September 2020 because that 

is the most recent date in which a dataset 

containing total shares outstanding for a broad set 

of OTC equities was available.’’). 

107 Id. at 14962. 

108 Id. 

109 Id. 

110 Id. at 14962–63. 

111Proposing Release, at 14962–63. 

112 Id. at 14962. 

3. Reporting Thresholds 

a. Proposal 

To balance the interests of gathering 

and disclosing data and the potential 

costs to reporting Managers, the 

Commission proposed separate 

thresholds for short positions in 

reporting company issuers, or Threshold 

A, and non-reporting company issuers, 

or Threshold B.100 Threshold A, in 

Proposed Rule 13f–2(a)(1), involved a 

two-pronged approach that would have 

required reporting by Managers that 

have, with regard to each equity security 

of a reporting company issuer, either (i) 

a gross short position with a U.S. dollar 

value of $10 million or more at the close 

of regular trading hours on any 

settlement date during the calendar 

month, or (ii) a 2.5 percent or higher 

monthly average gross short position as 

a percentage of shares outstanding.101

Threshold B, in Proposed Rule 13f– 

2(a)(2), involved a single-pronged 

approach that would have required 

reporting by Managers that have, with 

regard to each equity security of a nonreporting company issuer, a U.S. dollar 

value of $500,000 or more at the close 

of regular trading hours on any 

settlement date during the calendar 

month.102 The Proposed Reporting 

Thresholds were based on comment 

letters and analysis of Form SH data 

collected under Rule 10a–3T, an interim 

temporary rule adopted by the 

Commission in October 2008, which 

required certain institutional investment 

managers to file weekly nonpublic 

reports with the Commission on Form 

SH regarding their short sales and short 

positions in certain section 13(f) 

securities, other than options.103 Rule 

10a–3T required reporting of short 

positions that were either greater than 

0.25 percent of shares outstanding or 

$10 million in fair market value.104 This 

temporary rule was adopted in the wake 

of the 2008 financial crisis in response 

to concerns about high levels of 

volatility associated with short 

selling.105 Proposed Threshold B was 

developed based on an analysis of OTC 

Markets data.106 The Proposed 

Reporting Thresholds were structured to 

make it more difficult for Managers with 

substantial gross short positions to 

avoid disclosure by trading below a 

Proposed Reporting Threshold, 

particularly with lower market 

capitalization securities. 

The approach to Threshold A, as 

described in the Proposing Release, was 

designed to ensure that a substantial 

short position in either a small 

capitalization security or a large 

capitalization security could potentially 

trigger a reporting obligation under 

Threshold A.107 For example, it would 

be difficult for a Manager to trigger only 

a dollar threshold in a given security if 

the market capitalization of the 

reporting company issuer is small; 

likewise, it would be difficult for a 

Manager to trigger only a percentage 

threshold in a given security if the 

market capitalization of the reporting 

company issuer is large. The 

Commission believed that this would 

help to ensure transparency into short 

sale-related activity that would be 

beneficial to both market participants 

and regulators. As stated above, the 

Proposed Reporting Thresholds were 

structured to make it more difficult for 

Managers with substantial gross short 

positions to avoid disclosure by trading 

below a Reporting Threshold, 

particularly with lower market 

capitalization securities. The proposed 

U.S. dollar value-based prong was 

designed to capture Managers with a 

substantial short position, even if the 

position was relatively small compared 

to the market capitalization of the 

issuer.108 The prong based on 

percentage of shares outstanding was 

designed to capture Managers with gross 

short positions that are large relative to 

the size of the issuer and, therefore, 

could have a significant impact on the 

issuer.109

Regarding Threshold B, as discussed 

in the Proposing Release, a $500,000 or 

more threshold for non-reporting 

company issuer securities is similar to 

the median dollar value of a position of 

2.5 percent of the market capitalization 

of OTC stocks for which the 

Commission was able to obtain 

information on total shares 

outstanding.110 The Commission 

believed that this approach with regard 

to non-reporting company issuers would 

help to ensure added transparency into 

short sale-related activity that would be 

beneficial to both market participants 

and regulators, because, as discussed in 

the Proposing Release, it would capture 

Managers with substantial short 

positions in an equity security of a nonreporting company issuer, even if such 

positions are relatively small compared 

to the market capitalization of the 

issuer.111 Rather than a two-pronged 

reporting threshold for equity securities 

of non-reporting company issuers, 

however, the Commission proposed a 

single-pronged, dollar value-based, 

reporting threshold for non-reporting 

company issuer securities given its 

understanding that the number of total 

shares outstanding for non-reporting 

company issuers may not be readily and 

consistently accessible to Managers.112

As discussed in the Proposing 

Release, to determine whether the 

proposed dollar value prong of 

Threshold A (Proposed Rule 13f– 

2(a)(1)(i)) or Threshold B (Proposed 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75111 

113 Id. at 14957. 

114 Id. 

115 Id. 

116See, e.g., ICI Letter, at 9–10 (supporting a 

higher threshold, stating that ‘‘a higher threshold 

would still provide the Commission with 

information on such large positions, while reducing 

the burdens on managers of reporting smaller 

positions that likely would have a lesser market 

impact’’); K&L Gates Letter, at 4–5 (supporting a 

higher threshold, and stating that ‘‘[u]nless the 

Reporting Thresholds are modified, we anticipate 

that the Commission will be inundated with reports 

providing significant detail about positions that, in 

many cases, are not sufficiently sizable to impact 

the larger markets or raise the type of concerns that 

the Proposal was intended to address’’); but see 

WTI Letter (stating that ‘‘it is important to set the 

threshold as low as possible to mitigate any effects 

and impacts from firms attempting to game the 

threshold’’). 117See, e.g., SIFMA Letter, at 20 (stating that 

‘‘while certain SIFMA members believe that the 

threshold should be higher, other SIFMA members 

did not object to the proposed threshold of 2.5 

percent of the issuer’s TSO or $10 million fair 

market value’’); Schulte Roth & Zabel LLP Letter 

(Apr. 26, 2022), at 3, available at https://

www.sec.gov/comments/s7-08-22/s70822-20126845- 

287561.pdf (‘‘Schulte Roth & Zabel Letter’’) (stating 

that ‘‘[w]e believe that the 2.5 percent threshold 

identifies those situations where a short position 

could lead to market manipulation’’). 

118Rule 13d–1 (requiring long-side equity 

securities holders to file a Schedule 13D or 

Schedule 13G if the security holder owns over 5% 

of an issuer’s equity securities). 

119See Prohibition Against Fraud, Manipulation, 

or Deception in Connection With Security-Based 

Swaps; Prohibition Against Undue Influence Over 

Chief Compliance Officers; Position Reporting of 

Large Security-Based Swap Positions, Exchange Act 

Release No. 93784 (Dec. 15, 2021), 87 FR 6652, 6678 

(Feb. 4, 2022) (‘‘Rule 10B–1 Proposal’’). See also 

Reopening of Comment Period for Position 

Reporting of Large Security-Based Swap Positions, 

Exchange Act Release No. 97762 (June 20, 2023), 88 

FR 41338 (June 26, 2023) (proposing to require any 

person holding security-based swap positions to file 

a proposed Schedule 10B if they hold in excess of 

$300 million in equity security-based swap 

positions or if the notional value of those securitybased swap positions is 5% of the outstanding 

number of shares of a class of equity securities, 

whichever is less). 

120See, e.g., Ropes & Gray Letter, at 6 

(recommending increasing the threshold to 5% in 

order to ‘‘mitigate costs to investors and provide 

consistency with other reporting regimes’’); K&L 

Gates Letter, at 5 (stating that 2.5% does not 

‘‘represent a significant portion of an issuer’s 

outstanding equity securities,’’ and recommending 

increasing the threshold to more than 5% of an 

issuer’s voting equity securities in order to be 

consistent with the existing reporting requirements 

of Rule 13d–1); Perkins Coie Letter, at 6 

(recommending alignment with requirements of 

Rule 13d–1(a) that require filing of Schedule 13D 

or 13G upon crossing a 5% threshold of ownership 

of any class of an equity security); ICI Letter, at 10 

(stating that Commission identified 5% as a 

threshold over which a position could have a 

meaningful market impact in ‘‘recent’’ Rule 10B–1 

proposal). 

121 K&L Gates Letter, at 5; see also ICI Letter, at 

9–10 (‘‘However, we believe that a higher threshold 

would still provide the Commission with 

information on such large positions, while reducing 

the burdens on managers of reporting smaller 

positions that likely would have a lesser market 

impact.’’). 122One commenter believed that the proposed 

Rule 13f–2 reporting regime was overly expansive 

and ‘‘asymmetric’’ to existing or other proposed 

reporting regimes in multiples ways, such as the 

proposed percentage reporting threshold of 2.5% 

being lower than the 5% threshold in Rules 13d– 

1 and 10B–1. See SIFMA Letter, at 3–4 (stating that 

there is ‘‘no empirical evidence’’ that short selling 

requires an ‘‘asymmetric’’ reporting regime and that 

‘‘[t]his conclusion is consistent with the SEC’s own 

reported enforcement actions, i.e., any reported 

instances of ‘short-side’ manipulation (e.g., ‘short 

and distort’ campaigns) are dwarfed by the 

instances of ‘long-side’ manipulation (e.g., ‘pump 

and dumps’). There thus is simply no basis for such 

asymmetric regulation.’’). 

123See, e.g., Virtu Letter, at 2 (positing that dollar 

value thresholds ‘‘are significantly lower than is 

necessary’’); Perkins Coie Letter, at 2 (finding the 

$10 million (USD) gross short position threshold of 

Threshold A too low); XR Securities Letter, at 2 

(citing circumstance illustrating that $10M prong of 

Threshold A may be too low). 

124Schulte Roth & Zabel Letter, at 3. 

125See supra nn. 121 & 122. 

Rule 13f–2(a)(2)) is met, a Manager 

would be required to determine its end 

of day gross short position on each 

settlement date during the calendar 

month and multiply that figure by the 

closing price at the close of regular 

trading hours on the relevant settlement 

date.113 In circumstances where such 

closing price was not available in 

calculating Threshold B, a Manager 

would be required to use the price at 

which it last purchased or sold any 

share of that security, which would be 

readily available to the Manager.114

As discussed in the Proposing 

Release, to determine whether the 

second prong of Threshold A (Proposed 

Rule 13f–2(a)(1)(ii))—2.5 percent or 

higher monthly average gross short 

position as a percentage of shares 

outstanding in the equity security—is 

met, the Manager would be required to 

(a) identify its gross short position in the 

equity security at the close of each 

settlement date during the calendar 

month of the reporting period, and 

divide that figure by the number of 

shares outstanding in such security at 

the close of that settlement date, then (b) 

add together the daily percentages 

during the calendar month as 

determined in (a) and divide the 

resulting total by the number of 

settlement dates during the calendar 

month reporting period. The number of 

shares outstanding of the security for 

which information was being reported 

would have been determined by 

reference to an issuer’s most recent 

annual or quarterly report, and any 

subsequent update thereto, filed with 

the Commission.115

b. Comments and Final Rule 

As discussed below, the Commission 

received numerous comments regarding 

various aspects related to the Proposed 

Reporting Thresholds. Generally, these 

comments varied, with some 

commenters recommending, for 

example, that the Commission raise the 

thresholds (which would trigger less 

gross short position reporting) and 

others recommending the Commission 

lower or eliminate the thresholds 

(which would trigger additional gross 

short position reporting).116 Some 

commenters expressed general support 

for the Proposed Reporting Thresholds, 

or expressed support for certain aspects 

of those thresholds.117

Comments To Raise Threshold A 

Some commenters recommended 

increasing the proposed Reporting 

Threshold A by, for example, doubling 

the percent of shares outstanding 

threshold from 2.5 percent to 5 percent 

so as to be consistent with the existing 

reporting requirements of 17 CFR 

240.13d–1 (‘‘Exchange Act Rule 13d– 

1’’) 118 and the proposed reporting 

requirements of 17 CFR 240.10B–1 

(‘‘Exchange Act Rule 10B–1’’) 119 related 

to large positions in security-based 

swaps.120 Other commenters also 

recommended doubling that same 

percentage of shares outstanding 

threshold from 2.5 percent to 5 percent, 

because the commenters believed that 

the proposed 2.5 percent threshold was 

not sufficiently sizable to have a market 

impact.121 Additionally, one commenter 

believed that the lack of any reported 

instances of ‘‘short-side’’ manipulation 

did not justify a lower percentage 

threshold compared to Rule 13d–1 and 

proposed Rule 10B–1.122

Other commenters proposed that the 

U.S. dollar value-based threshold of 

Threshold A be raised.123 One 

commenter suggested that it be 

increased from the proposed $10 

million to $100 million because a $100 

million threshold would capture more 

substantial short positions and be 

consistent with the adjustment to the 

proposed percentage of shares 

outstanding threshold as compared to 

former Form SH (i.e., a tenfold increase 

from 0.25 percent under Form SH to 2.5 

percent under Proposed Form SHO).124

For reasons set forth below and 

discussed more fully in Part VIII, 

increasing the proposed Threshold A 

percentage-based threshold from 2.5 

percent or more of total shares 

outstanding to 5 percent (e.g., to be 

consistent with the existing 5 percent 

reporting threshold of Exchange Act 

Rule 13d–1 and the proposed reporting 

requirements of Exchange Act Rule 

10B–1), as suggested by some 

commenters,125 is not warranted or 

appropriate. In this regard, because the 

rules are designed for different purposes 

and utilize different reporting 

thresholds to meet their respective 


ddrumheller on DSK120RN23PROD with RULES2
75112 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

126See, e.g., Filing and Disclosure Requirements 

Relating to Beneficial Ownership, Release No. 34– 

14693 (Apr. 21, 1978), 43 FR 18501, 18484 (Apr. 28, 

1978) (stating that the ‘‘legislative history [of 

Exchange Act section 13(d)] reveals that it was 

intended to provide information to the public and 

the affected issuer about rapid accumulations of its 

equity securities in the hands of persons who 

would then have the potential to change or 

influence control of the issuer’’). 

127See Proposing Release, at 14961–64. 

128See infra Part VIII.C.1 (discussing market 

manipulations) and Part VIII.E.3 (discussing how 

thresholds are triggered at various dollar amounts). 

129See infra Part VIII.E for discussion of different 

threshold options. 

130See Short Interest in Decline, Nasdaq (Mar. 3, 

2022), available at https://www.nasdaq.com/ 

articles/short-interest-in-decline. 

131As discussed in the Proposing Release, the 

Proposed Reporting Thresholds were based on 

comment letters and analysis of Form SH data 

collected under Rule 10a–3T. Proposing Release, at 

14963–64. Rule 10a–3T required reporting of short 

positions that were either greater than 0.25% of 

shares outstanding or $10 million in fair market 

value. Comment letters to Rule 10a–3T itself 

generally concurred with the dollar reporting 

obligation but expressed concerns that the 

percentage obligation was too low. Suggestions for 

a percentage reporting obligation ranged from 1% 

to 5% of shares outstanding. See, e.g., Seward 

Kissel LLP, available at https://www.sec.gov/ 

comments/s7-31-08/s73108-43.pdf; Investment 

Adviser Association, available at https://

www.sec.gov/comments/s7-31-08/s73108-38.pdf; 

and Securities Industry and Financial Markets 

Association, available at https://www.sec.gov/ 

comments/s7-31-08/s73108-52.pdf. 

132See, e.g., Comment from Peter Stauduhar (Mar. 

6, 2022), available at https://www.sec.gov/ 

comments/s7-08-22/s70822-20118728-271591.htm 

(stating that ‘‘[t]he thresholds are a critical part of 

the success of this rule, and I urge the Commission 

to worry less about the burden the reporting will 

have on short sellers’’). 

133See, e.g., Comment from Travis Donovan (Mar. 

14, 2022), available at https://www.sec.gov/ 

comments/s7-08-22/s70822-272287.htm; Comment 

from Steve B. (Mar. 14, 2022), available at https:// 

www.sec.gov/comments/s7-08-22/s70822-20119335- 

272221.htm (‘‘SteveB.Comment’’); Anonymously 

Submitted Letter (Apr. 2, 2022), available at https:// 

www.sec.gov/comments/s7-08-22/s70822-20122297- 

278355.htm (‘‘I believe that all short sales should 

be recorded and reported. The minimum threshold 

should be a single short sale.’’). 

134Better Markets Letter, at 12. 

135See Virtu Letter, at 2–3. 

objectives, the Commission does not 

believe, as one commenter states, that 

comparing Rule 13f–2 with long-side 

Rule 13d–1, as well as comparing 

perceived instances of ‘‘short-side’’ and 

‘‘long-side’’ manipulation, is an accurate 

assessment by which to determine Rule 

13f–2’s Reporting Thresholds. Reporting 

under Exchange Act section 13(d) is 

intended to provide information to the 

public and the affected issuer about 

rapid accumulations of its equity 

securities in the hands of persons who 

have the potential to change or 

influence control of the issuer.126

Reporting under Rule 13f–2, in contrast, 

is intended to capture Managers with 

gross short positions that are large 

relative to the size of the issuer and 

could therefore have a significant 

impact on the issuer, especially for 

issuers with a small market 

capitalization where the dollar-based 

threshold is less likely to be 

breached.127 An increase in the 

percentage-based prong of Threshold A, 

from 2.5 percent to 5 percent, would 

reduce transparency into short positions 

in smaller stocks. Specifically, 

increasing the percentage from 2.5 

percent to 5 percent would reduce 

transparency into stocks with less than 

a $400 million market capitalization. 

This reduction could be meaningful 

given that, short and distort campaigns 

and other market manipulations are 

more likely to occur in stocks with 

lower market capitalizations and less 

public information.128 As a result, the 

appropriate threshold for Rule 13d–1 is 

not necessarily the appropriate 

threshold for Rule 13f–2. Instead, the 

Commission continues to believe that a 

broader coverage of short position 

reporting (i.e., using a 2.5 percent 

reporting threshold) is more appropriate 

for Rule 13f–2, especially given that the 

reported data are aggregated and 

anonymized before public 

dissemination with a delay. Here, the 

Commission is designing a reporting 

threshold that is appropriate for the 

purposes of section 13(f)(2). Based on 

analysis of Form SH, a 2.5 percent or 

higher monthly average gross short 

position is an appropriate threshold.129

For example, one exchange estimates 

that median short interest for small-cap 

issuers is only about 3 percent,130

indicating that a single Manager 

breaching the 2.5 percent threshold 

would be significant for many issuers. 

Thus, a percentage-based Threshold A is 

appropriate to adopt as proposed. 

Nor does the Commission believe that 

raising the dollar-based threshold of 

Threshold A from $10 million to $100 

million to be consistent with the tenfold 

increase in percentage threshold is 

warranted or appropriate. Based on its 

analysis of Form SH data as discussed 

in the Proposing Release,131 as well as 

the need to balance costs with the rule’s 

ultimate goal of transparency, $10 

million strikes an appropriate balance of 

limiting costs of reporting to Managers, 

while increasing transparency into short 

positions, especially for equity 

securities of issuers with mid or large 

market capitalizations that may not be 

captured under the percentage 

threshold. While issuers with small 

market capitalizations may have only 

one or a few large short sellers, issuers 

with mid or large market capitalizations 

may have tens or even hundreds of large 

short sellers, which diffuses the 

percentage of short interest for each 

short seller. The Commission 

considered this when setting a dollarbased threshold of Threshold A such 

that large short sellers are captured for 

all equity issuers. 

Comments To Lower or Eliminate 

Reporting Thresholds 

Other commenters recommended that 

the Proposed Reporting Thresholds be 

reduced or eliminated. Some of these 

commenters were concerned that the 

Proposed Reporting Thresholds could 

be too lenient and under-inclusive,132

and some of those commenters 

supported removing the thresholds 

entirely because of the possibility of 

Managers intentionally maintaining 

short positions just below the thresholds 

to avoid reporting.133 One commenter 

stated that the final rule should 

‘‘eliminate the proposed thresholds so 

as to reduce or eliminate the risk that 

unknown, hidden short positions could 

pose to investors and the markets.’’ 134

However, eliminating thresholds to 

capture all short sale data may result in 

the inclusion of ‘‘transient’’ short 

sales,135 such as short sales due to 

market making or customer facilitation 

activity rather than directional short 

sales. By providing a properly calibrated 

threshold this type of ‘‘noise’’ should be 

reduced and allow market participants 

to instead focus on substantial short 

sales that are more likely to be 

directional. The reduction of ‘‘noisy’’ 

short position information also sets Rule 

13f–2 apart from existing short sale data 

regimes, such as those provided by 

FINRA and the exchanges, which do not 

have thresholds. On the other hand, the 

threshold cannot be set so high that 

substantial short sales by Managers are 

out of scope. The Reporting Thresholds, 

as adopted, will help ensure added 

transparency into short sale-related 

activity that would be beneficial to both 

market participants and regulators, and 

will result in reporting by Managers 

with a substantial gross short position in 

both reporting and non-reporting 

company issuers. 

Recommendations to Base Reporting 

Thresholds on a Single Metric 

Some commenters, often in 

conjunction with recommendations to 

increase the Proposed Reporting 

Thresholds, suggested applying a single 

threshold metric. One commenter 

proposed the Commission adopt a single 

U.S. dollar value-based threshold for all 

issuers in order to limit the impact of 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75113 

136See MFA Letter, at 4 (stating that ‘‘[a] dollarbased approach would be more simple and less 

costly for managers to employ’’). 

137See, e.g., ICI Letter, at 8–9 (stating ‘‘we 

recommend that the Commission adopt a single 

reporting threshold level that is an average short 

position in an equity security based on a percentage 

of shares outstanding rather than on a dollar 

value’’); see also K&L Gates Letter, at 5 

(recommending a threshold triggered only by ‘‘a 

position representing more than 5 percent of an 

issuer’s voting equity’’). 

138Proposing Release, at 14962. 

139 Id. 

140See SIFMA Letter, at 19–20 (stating that ‘‘the 

proposed distinction between the thresholds that 

would apply to Reporting Company securities and 

Non-Reporting Company securities would be 

unnecessarily complicated and burdensome’’). 

141 Id. 

142SIFMA suggested that the ‘‘Form SHO List’’ 

include securities that are included on the 13F List, 

while excluding securities that should not be 

covered by Form SHO. Id. at 20. SIFMA further 

suggested that the ‘‘Form SHO List’’ include, for 

each security, the total shares outstanding. 

143See supra Part II.A.2. 

144Section 13(f)(1) of the Exchange Act (15 U.S.C. 

78m(f)(1)) requires any institutional investment 

manager exercising investment discretion over 

accounts holding at least $100 million in fair 

market value of certain equity securities to file 

reports on Form 13F with the Commission at the 

times set forth in Rule 13f–1. The statute directs the 

Commission to make available to the public, for a 

reasonable fee, a list of all equity securities 

described in section 13(d)(1) of the Exchange Act 

and to disseminate to the public the information 

contained in the reports. 

145See, e.g., Virtu Letter, at 2 (‘‘the dollar value 

thresholds referenced in the Proposal are 

significantly lower than is necessary’’); MFA Letter, 

at 4 (recommending a single, dollar-based threshold 

only); SIFMA Letter, at 5 (recommending 

elimination of different thresholds for reporting and 

non-reporting companies in favor of one uniform 

threshold for U.S. equity securities); ICI Letter, at 

9 (recommending a single, percentage-based 

threshold for both reporting and non-reporting 

company issuers); Ropes & Gray Letter, at 2 

(recommending that all thresholds ‘‘be determined 

using average positions over a month rather than 

daily positions.’’). 

146See, e.g., MFA Letter, at 10–11; see also ICI 

Letter, at 5 (stating that Proposed Rule 13f–2 would 

require a Manager to continuously monitor and 

record any activity that could potentially be subject 

to future reporting on Form SHO). While the costs 

would likely be higher if Managers choose to 

monitor daily, Rule 13f–2 does not require daily 

monitoring, either for reporting or non-reporting 

company issuers. Managers may choose to do this 

threshold calculation on a rolling basis, or to do the 

calculation after the month has ended. While some 

Managers may choose to incur the higher costs of 

daily tracking and calculation for purposes of 

compliance with Rule 13f–2, the final rule’s 

Reporting Threshold for reporting company issuers 

is not based on a Manager’s gross short position on 

Continued 

any potential ambiguity around 

identifying the number of shares 

outstanding for non-reporting company 

issuers.136 Another commenter, 

however, recommended that the 

Commission adopt a single threshold 

based on percentage of shares 

outstanding, stating that it would 

‘‘mitigate unnecessary operational and 

cost burdens on Managers,’’ as the 

commenter believed that a U.S. dollar 

value-based threshold would require 

more difficult system buildouts.137

The Reporting Thresholds are 

designed to require the filing of Form 

SHO by Managers with substantial gross 

short positions. The two-pronged 

approach of Threshold A measures the 

size of a Manager’s short position 

relative to both dollar amount and 

number of shares. The dollar valuebased prong (Rule 13f–2(a)(1)(i)) 

captures Managers with substantial 

short positions, even if such positions 

are relatively small compared to the 

market cap of the issuer. The percentage 

of total shares outstanding-based prong 

(Rule 13f–2(a)(1)(ii)) captures Managers 

with gross short positions that are large 

relative to the size of the issuer and, 

therefore, could have a significant 

impact on the issuer. With respect to 

securities of non-reporting company 

issuers, however, the Commission 

understands that the number of total 

shares outstanding may not be readily 

and consistently accessible.138 For this 

reason, a single-pronged, dollar valuebased Reporting Threshold is an 

efficient way for Managers to determine 

whether they trigger Threshold B (Rule 

13f–2(a)(2)) that avoids the additional 

cost and complexity of locating the 

number of total shares outstanding for 

the securities of a non-reporting 

company issuer that may be difficult or 

impossible to locate.139

Comments Recommending the Use of 

the Same Threshold for Reporting 

Company and Non-Reporting Company 

Issuers 

Another commenter recommended 

not having differing thresholds for 

reporting company issuers and nonreporting company issuers.140 This 

commenter believed having two 

different reporting thresholds ‘‘would be 

unnecessarily complicated and 

burdensome.’’ 141 Furthermore, the 

commenter stated as an alternative the 

creation of a ‘‘Form SHO List’’ akin to 

the 13F List that would include total 

shares outstanding of each security to 

assist in threshold calculations.142 As a 

result of the potential difficulties in 

accessing the total shares outstanding 

for non-reporting company issuers 

discussed above, using a percent of total 

shares outstanding-based approach 

would not be appropriate for nonreporting company issuers. Requiring 

total shares outstanding for both 

thresholds would be operationally 

difficult, potentially inaccurate and 

therefore costly for Managers to 

determine for some non-reporting 

companies. Requiring a dollar-based 

metric for both thresholds could be both 

under-inclusive and over-inclusive, as 

the markets for reporting and nonreporting companies differ. For 

example, a high dollar threshold (e.g., 

$10 million) for both thresholds would 

under-include many non-reporting 

companies while a low dollar threshold 

(e.g., $500,000) would over-include 

reporting companies. For these reasons, 

the Commission is adopting Threshold 

B as proposed. 

For similar reasons, and as discussed 

in the ‘‘Scope of Reported Securities’’ 

section above, the Commission will not 

be publishing a ‘‘Form SHO List’’ with 

total shares outstanding to assist in 

Manager calculations, as one commenter 

suggested. The thresholds as adopted 

are designed to reduce operational 

burdens while capturing substantial 

short positions in both reporting and 

non-reporting company issuers. 

Adopting a much lower dollar threshold 

for non-reporting company issuers than 

that for reporting company issuers 

results in Managers not being required 

to determine percentages of total shares 

outstanding and, due to sparse data in 

non-reporting company issuer markets, 

Managers would avoid the difficulty of 

having to do so. A ‘‘Form SHO List’’ 

with total shares outstanding would not 

be necessary for Managers reporting 

positions in reporting company issuers 

because, unlike Rule 13f–1 securities, 

Rule 13f–2 covers equity securities as 

discussed above,143 rendering 

additional guidance on what securities 

qualify unnecessary. Additionally, as 

discussed above in the Scope of 

Reported Securities section, section 

13(f)(1) expressly provides that the 

Commission shall make available to the 

public a list of all equity securities that 

are subject to such reporting,144 while 

section 13(f)(2) does not require 

publication of such a list. 

Comments Regarding Other Concerns 

Related to Thresholds 

Implementation and Compliance Costs 

Some commenters stated that the 

Proposing Release did not adequately 

account for the burdens associated with 

monitoring for whether a Reporting 

Threshold is met, i.e., whether a 

Manager has a Form SHO reporting 

obligation.145 Specifically, these 

commenters stated that the Proposing 

Release did not address the costs of 

those Managers who would need to 

develop and implement reporting 

systems to monitor for whether a 

Reporting Threshold is met or exceeded, 

that may or may not ultimately result in 

a reportable gross short position.146 The 


ddrumheller on DSK120RN23PROD with RULES2
75114 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

a single trading date, reducing the need for daily 

tracking. See infra Part VIII.C.6.b. 

147See, e.g., Virtu Letter, at 3 (stating that ‘‘the 

requirement to report such positions on a gross 

rather than net basis would likely distort the actual 

degree of short positions as it will capture 

circumstances where a firm is net long but may 

have short positions among its accounts.’’); Perkins 

Coie Letter, at 3–4, 6. (recommending that ‘‘[r]ather 

than set a low threshold and over capture short 

position information, the SEC should revise the 

requirement to $10 million net short position as 

opposed to gross.’’); Schulte Roth & Zabel Letter, at 

2 (stating that ‘‘net short position data would more 

accurately reflect actual positions taken by 

institutional investment managers and provide 

useful transparency to the Commission and to the 

marketplace.’’); ICI Letter, at 10 (recommending that 

‘‘the Commission streamline and simplify how 

managers account reflect hedging positions by 

adopting a net short position threshold and 

eliminating the required indication of whether a 

position is hedged or not in Form SHO.’’); Comment 

Letter from Anonymous Fund Manager at 1–2, 

available at https://www.sec.gov/comments/s7-08- 

22/s70822-20126773-287490.pdf (‘‘Anonymous 

Fund Manager Letter’’) (recommending that the 

Commission ‘‘modify the proposed threshold 

requirements to reference short positions on a net 

‘delta-adjusted’ basis as opposed to a gross basis or, 

in the alternative, exclude from the reporting 

obligations under the Proposed Rules ‘bona fide 

hedging activity’ as such term would be defined in 

the final rules.’’). 

148See, e.g., Comment from Josh Allen (Mar. 14, 

2022), available at https://www.sec.gov/comments/ 

s7-08-22/s70822-272295.htm; Comment from An 

Investor (Apr. 4., 2022), available at https://

www.sec.gov/comments/s7-08-22/s70822-20122297- 

278355.htm (supported including both net and 

gross short positions in reporting). 

149Perkins Coie Letter, at 4 (stating that ‘‘the SEC 

should consider amending its proposal to require 

net position reporting by certain types of managers 

that do not regularly utilize short positions. For 

instance, the SEC could require net short position 

reporting by filers that are solely reporting on Form 

SHO with regards to one issuer. For any filer 

reporting more than one issuer, the SEC could 

require gross short position reporting.’’). 

150HSBC Letter, at 16 (stating that ‘‘[b]ecause 

Proposed Rule 13f–2 requires disclosure of gross 

positions, market makers could be required to 

report large positions, even if a market makers’ [sic] 

net position is close to zero (i.e., because such short 

positions are typically hedged via options or 

swaps). Subjecting market makers to Proposed Rule 

13f–2 may, therefore, result in market participants 

receiving unhelpful and misleading information 

about the short sale market.’’). 

151See Samuel Meadows Comment, at 2 (stating 

that ‘‘Market Makers should NOT be except [sic] 

from reporting for any reason. Market Makers 

should report short sales the same as everyone else 

should they pass the Reporting Threshold.’’). 152See SIFMA Letter, at 11–12 (stating that 

‘‘[h]owever, as the Proposing Release notes, 

requiring Institutional Investment Managers to 

consider intraday short sale activity, which would 

not be captured in the ‘gross short position’ as 

reflected on their trade date stock records, in 

determining whether the threshold has been 

exceeded, would be incredibly onerous— 

particularly, for example, for market makers that 

generally may not carry large overnight short 

positions.’’). 

153Proposing Release, at 14956. 

154 In addition, commenters stated they would be 

uncertain how to ‘‘offset’’ positions when 

discussing the hedging indicator. See infra Part 

II.A.4.d.iii.(B). Netting would raise similar 

concerns. 

155See, e.g., Short Interest—What It Is, What It Is 

Not, FINRA Inv’r Insights (Jan. 25, 2023), available 

at https://www.finra.org/investors/insights/shortinterest (‘‘The short interest data is just a snapshot 

that reflects short positions held by brokerage firms 

at a specific moment in time on two discrete days 

each month. The Short Sale Volume Daily File 

reflects the aggregate volume of trades within 

certain parameters executed as short sales on 

individual trade dates.’’). 

156See, e.g., Frequently Asked Questions (FAQ) 

about Short Interest Reporting, FINRA, available at 

https://www.finra.org/filing-reporting/regulatoryfiling-systems/short-interest/faq (‘‘Q1: Rule 4560 

applies to short interest positions resulting from: (1) 

a ‘‘short sale,’’ as defined by Regulation SHO Rule 

200(a); or (2) where the transaction that caused the 

short position was marked ‘‘long,’’ consistent with 

Regulation SHO Rule 200(g), due to the firm’s or the 

customer’s net long position at the time of the 

transaction. For example, a sale may be marked as 

‘‘long’’ because the overall net position in the 

security within an aggregation unit is long at the 

time of the sale. If the execution results in a short 

position in a specific account (or subaccount) held 

within the aggregation unit, this position is 

reportable pursuant to Rule 4560.’’; Q11: ‘‘Where, 

as part of a strategy, an account holds both a short 

and long position in the same security 

simultaneously, the short position is reportable as 

short interest pursuant to Rule 4560 and must be 

reported in full, i.e., not netted against the long 

position.’’). 

157SIFMA Letter, at 24. 

comments are addressed in the 

Economic Analysis, in Part VIII below. 

‘‘Gross’’ Short Position versus ‘‘Net’’ 

Short Position 

Some commenters requested that the 

Reporting Thresholds be calculated 

based on ‘‘net’’ short position rather 

than ‘‘gross’’ short position as proposed. 

Multiple commenters expressed concern 

that using a gross short position 

calculation would not accurately reflect 

risk in the markets.147 However, other 

commenters supported the use of the 

proposed gross short position data 

either instead of or in conjunction with 

net short position data.148 One 

commenter proposed requiring net short 

position reporting by Managers that are 

solely reporting on Form SHO with 

regard to one issuer while requiring 

gross short position reporting for 

Managers with short positions in more 

than one issuer.149 One commenter 

proposed that, if a gross short position 

calculation is used, market makers 

should not be subject to adopted Rule 

13f–2’s reporting requirements.150

However, another commenter supported 

applying the rule’s requirements to 

market makers.151 One commenter 

stated that, even though market makers 

do not typically carry overnight 

positions and would likely not trigger 

the Proposed Reporting Thresholds, 

market makers would still incur the 

costs of end-of-day calculations to 

determine whether they meet or exceed 

the Proposed Reporting Thresholds.152

As discussed in the Proposing 

Release, under the proposal, a Manager 

would report its ‘‘gross’’ short position 

in an equity security without offsetting 

such gross short position with ‘‘long’’ 

shares of the equity security or 

economically equivalent long positions 

obtained through derivatives of the 

equity security.153 For example, if a 

Manager has investment discretion over 

multiple accounts, some of which have 

long positions in an equity security and 

some have short positions in the same 

equity security, only the total gross 

short position in the ‘‘short accounts’’ is 

reported, without being offset by the 

long positions in the ‘‘long accounts.’’ 

Requiring a Manager to report its daily 

gross short position in a security will 

provide a more complete view of short 

positions held by Managers in a 

security, particularly once the data is 

aggregated for publication.154 Permitting 

Managers to ‘‘net’’ positions would 

dilute the usefulness of the data in 

providing market participants with a 

sense of substantial short positions. For 

example, requiring net short position 

reporting by Managers that are solely 

reporting on Form SHO with regard to 

one issuer, or for other types of 

Managers infrequently using short 

positions, as one commenter suggested, 

would provide minimal cost savings 

and create misleading data that could be 

difficult to aggregate and confusing to 

market participants. Further, the data 

collected and provided by FINRA 155

and the exchanges is not netted.156 By 

providing aggregate gross positions 

reported by Manager in a security, the 

final rule will supplement such existing 

short sale information with additional 

context on substantial gross short sale 

positions. 

In addition, the Commission is 

making additional modifications, 

discussed further below, that should 

alleviate burdens on market makers that 

may otherwise need to undertake the 

obligation of calculating reporting 

thresholds despite generally holding 

positions below such thresholds. 

Specifically, the Commission is 

modifying the threshold calculations to 

a monthly average of daily gross short 

positions rather than a single daily 

position, as discussed under the 

subheading ‘‘When the Reporting 

Obligation is Triggered’’ below. Further, 

as discussed in Part III below, the 

Commission is not adopting the 

proposed requirement to report ‘‘buy to 

cover’’ activity, which a commenter 157

stated would be more difficult if gross 

positions are required to be reported. 

The Commission, in adopting Rule 13f– 

2, will require a Manager to report its 

‘‘gross’’ monthly short position as 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75115 

158See, e.g., Virtu Letter, at 3 (stating that ‘‘[w]e 

also object to the reporting requirement being 

triggered by the existence of a short position on any 

settlement date within a reporting period.’’); Ropes 

& Gray Letter, at 2 (stating that ‘‘[a]ll filing 

thresholds should be determined using average 

positions over a month rather than daily 

positions.’’). 

159SIFMA Letter, at 15 (advocating ‘‘that the 

proposed monthly reporting under Information 

Table 1 of Proposed Form SHO should be triggered 

only if the Institutional Investment Manager holds 

a gross short position in an equity security, as of 

the last day of such month, in excess of the 

threshold(s) for reporting.’’). 

160See Virtu Letter, at 2. 

161See SIFMA Letter, at 4. 

162See Ropes & Gray Letter, at 6–7. 

163This change to ‘‘monthly average’’ is 

responsive, in part, to commenters’ concerns about 

certain aspects of the U.S. dollar value-based 

Reporting Thresholds. For reasons discussed below, 

however, the Commission is adopting Threshold B 

as proposed (Proposed Rule 13f–2(a)(2)), which 

employs an ‘‘at the close of regular trading hours 

on any settlement during the calendar month’’ 

approach. The Form SHO ‘‘Instructions For 

Calculating Reporting Threshold,’’ discussed below, 

explain in detail the method for determining 

whether the modified threshold is met. 

164To determine whether this Reporting 

Threshold has been met, a Manager shall determine 

its gross short position at the close of regular 

trading hours in the equity security (as defined in 

Rule 13f–2) on each settlement date during the 

calendar month and multiply that figure by the 

closing price at the close of regular trading hours 

on the settlement date (‘‘end of day dollar value’’). 

The Manager shall then add all end of day dollar 

values during the calendar month and divide that 

sum by the number of settlement dates in the month 

to arrive at a ‘‘monthly average’’ for each equity 

security the Manager traded during that calendar 

month reporting period. 

165The methods of calculation of the Reporting 

Thresholds are prescribed in ‘‘Instructions for 

Calculating Reporting Threshold’’ in Form SHO. 

Rule 13f–2 and the instructions in Form SHO, 

require that for purposes of determining whether a 

Manager meets or exceeds a Reporting Threshold, 

a Manager shall determine its gross short position 

‘‘at the close of regular trading hours’’ in the equity 

security, rather than at the ‘‘end of day’’ as was 

provided for in the instructions to Proposed Form 

SHO. Accordingly, the Commission is making a 

modification to the instructions for calculating 

Threshold A and replacing ‘‘end of day gross short 

position’’ with ‘‘gross short position at the close of 

regular trading hours.’’ Addressing any potential 

ambiguity in terminology should facilitate more 

consistency in reporting by Managers and more 

comparability of the data reported on Form SHO. 

With this change, the calculation instructions for 

Threshold A provide that to determine whether the 

percentage threshold of Threshold A has been met, 

a Manager shall (a) determine its gross short 

position at the close of regular trading hours in the 

equity security (as defined in Rule 13f–2) on each 

settlement date during the calendar month, and 

divide that figure by the number of shares 

outstanding in such security at the close of regular 

trading hours on the settlement date, and (b) add 

up the daily percentages during the calendar month 

as determined in (a) and divide that sum by the 

number of settlement dates in the month to arrive 

at a ‘‘monthly average’’ for each equity security the 

Manager traded during that calendar month 

reporting period. The number of shares outstanding 

of the security for which information is being 

reported shall be determined by reference to an 

issuer’s most recent annual or quarterly report, and 

any subsequent update thereto, filed with the 

Commission. 

166See supra n. 135 and accompanying text. 

167See Proposing Release, at 14953. 

168Proposing Release, at 14962 (‘‘In addition, the 

Commission believes that requiring the reporting of 

short positions with a 2.5% or higher monthly 

average gross short position would capture 

Managers with gross short positions that are large 

relative to the size of the issuer, and could therefore 

have a significant impact on the issuer. Using a 

monthly average gross short position, rather than an 

end of month gross short position, is also designed 

to prevent the scenario where a Manager engages in 

trading activity on the last day of the month in 

order to avoid reporting.’’). 

169 In addition, the Commission is making a 

modification to specify in Rule 13f–2 and in the 

instructions in Form SHO that, for purposes of 

determining whether a Manager meets or exceeds 

Threshold A, a Manager shall determine its gross 

short position ‘‘at the close of regular trading 

hours’’ in the equity security, rather than at the 

‘‘end of day’’ as was provided for in the instructions 

to Proposed Form SHO. Reducing any potential 

ambiguity in terminology should facilitate more 

consistency in reporting by Managers and more 

comparability of the data reported on Form SHO. 

proposed under Proposed Rule 13f– 

2(b)(4). 

When the Reporting Obligation Is 

Triggered 

To ease reporting burdens and reduce 

costs, some commenters proposed 

decreasing the frequency of certain 

aspects of the U.S. dollar value-based 

aspects of the Reporting Thresholds by 

instead using monthly average 

positions, instead of the proposed 

‘‘close of regular trading hours on any 

settlement date’’ frequency.158

Alternatively, one commenter suggested 

that the proposed monthly reporting 

requirement should only be triggered if 

a Manager holds a short position in 

excess of the Proposed Reporting 

Thresholds as of the last settlement day 

of the month.159 Commenters stated that 

by using average monthly positions 

rather than the proposed rule’s use of 

any settlement date within the reporting 

period, the reporting burden required of 

Managers would be substantially 

lessened, since Managers may 

transiently cross the reporting 

thresholds through activities such as 

market making, hedging, and customer 

facilitation activity.160 Requiring 

reporting for Managers who temporarily 

cross these thresholds on an intraday 

basis through such activity, one 

commenter stated, would not adhere to 

the legislative intent of DFA section 

929X.161 Commenters stated that 

transiently crossing these thresholds 

would not produce reported data that 

would be valuable to the Commission; 

for example, short-term market 

disruptions may trigger reporting under 

the proposed frequency for Managers 

that do not hold substantial short 

positions.162 For reasons discussed 

below, the Commission is modifying 

Proposed Rule 13f–2(a)(1)(i) (the U.S. 

dollar value-based prong of Threshold 

A) to trigger reporting requirements 

when a Manager has a monthly average 

of daily gross short positions (‘‘monthly 

average’’) with a U.S. dollar value of $10 

million or more at the end of the 

calendar month, rather than, as 

proposed, a $10 million or more gross 

short position at the close of regular 

trading hours on any settlement date 

during the calendar month.163

Threshold A, as adopted, will require 

reporting by Managers that have, for 

each equity security of a reporting 

company issuer, either (1) a monthly 

average gross short position at the close 

of regular trading hours in the equity 

security with a U.S. dollar value of $10 

million or more,164 or (2) a monthly 

average gross short position at the close 

of regular trading hours as a percentage 

of shares outstanding in the equity 

security of 2.5 percent or more.165 Using 

a ‘‘monthly average’’ dollar value for 

reporting company issuers will result in 

Form SHO reporting by Managers that 

consistently carry large gross short 

positions during the reporting month. 

This approach should reduce the 

reporting of non-directional, ‘‘transient’’ 

short sales activity 166 and provide 

market participants with more focused 

information on substantial short 

positions held by Managers. The 

modification should also reduce the 

burdens of certain Managers, 

specifically those Managers, including 

market makers, that periodically meet or 

exceed the $10 million or more 

threshold on a given settlement date 

during a calendar month, but that do not 

typically carry a large gross short 

position throughout the month that will 

meet or exceed the monthly average 

reporting threshold, by eliminating the 

need to calculate (and potentially 

trigger) the threshold on a daily basis. 

This will help the Commission to 

distinguish directional short selling of 

Managers from short sale activity 

effected by market makers and liquidity 

providers.167

In addition, similar to the discussion 

in the Proposing Release regarding the 

use of a monthly average gross short 

position of 2.5 percent or more of total 

shares outstanding,168 the Commission 

continues to believe that using a 

monthly average gross short position at 

the close of regular trading hours of $10 

million or more, rather than an end of 

each settlement date calculation as was 

originally proposed, will reduce the risk 

that a Manager may time its short sales 

to avoid triggering the adopted reporting 

threshold.169


ddrumheller on DSK120RN23PROD with RULES2
75116 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

170The methods of calculation of the Reporting 

Thresholds are prescribed in ‘‘Instructions for 

Calculating Reporting Threshold’’ in Form SHO. To 

determine the dollar value-based Reporting 

Threshold described in Threshold B has been met, 

a Manager shall determine its gross short position 

at the close of regular trading hours in the equity 

security (as defined in Rule 13f–2) on each 

settlement date during the calendar month and 

multiply that figure by the closing price at the close 

of regular trading hours on the settlement date. If 

such closing price is not available, a Manager shall 

use the price at which it last purchased or sold any 

share of that security. 

171See infra Part VIII.E.3 (discussing difficulty in 

obtaining information on non-reporting company 

issuers, and that data is often stale and inaccurate). 

172Comment Letter from Barbara Bliss, Associate 

Professor of Finance, et al. (Apr. 25, 2022), at 3, 

available at https://www.sec.gov/comments/s7-08- 

22/s70822-20126591-287247.pdf (‘‘Law and 

Finance Professors Letter’’) (‘‘we believe the 

Commission could and should more robustly 

support its rationale for these thresholds before 

adopting any final rule.’’); see also AIMA Letter, at 

11–12 (commenter was critical of Reporting 

Thresholds based on ‘‘stale and limited’’ data). For 

a discussion of Form SH applicability to the current 

period, see infra Part VIII.C.6.a. 

173See, e.g., AIMA Letter, at 12 (stating that the 

Commission should ‘‘review and analyze current 

short interest market data for reporting issuers to 

ensure that any final threshold based on a gross 

position’s dollar value accounts for the latest and 

most complete data’’); Law and Finance Professors 

Letter, at 3 (stating that the Commission should 

‘‘consider more carefully whether the stated 

disclosure thresholds are appropriate, based on 

more recent data and analysis, and whether there 

should be a mechanism that would permit these 

thresholds to change over time’’); Two Sigma Letter, 

at 7 (stating that Form SH burden estimates are an 

‘‘unrealistic benchmark’’). 

174Proposing Release, at 14963 n.80. 

175Proposing Release, at 14963–64, 15007. 

176See AIMA Letter, at 11–12. 

177While there are various limitations to be 

considered when using Form SH data, Form SH 

data are the most relevant and applicable source of 

data available for the purposes of estimating the 

costs of the design and analysis of Rule 13f–2. 

There are no other data sources, public or 

regulatory, which specifically track Managers’ short 

position activities in the U.S. See infra Part 

VIII.C.6.a. 

178The National Bureau of Economic Research 

considers the global financial crisis as having 

officially started Dec. 2007 and ended June 2009. 

See, e.g., Nat’l Bureau of Econ. Research, Business 

Cycle Dating, available at https://www.nber.org/ 

research/business-cycle-dating. 

179See discussion of Form SH in Part VIII.C.6.a. 

180See Proposed Rule 13f–2(a)(3) (providing that 

‘‘Form SHO and any amendments thereto must be 

filed with the Commission via the Commission’s 

Electronic Data Gathering, Analysis, and Retrieval 

System (‘‘EDGAR’’), in accordance with Regulation 

S–T. Certain information regarding each such 

equity security reported by institutional investment 

managers on Form SHO and filed with the 

Commission via EDGAR will be published by the 

Commission on an aggregated basis.’’). 

181EDGAR filing is mandatory for all public Form 

13F submissions. See Rulemaking for EDGAR 

System, Exchange Act Release No. 34–40934 (Jan. 

12, 1999), 64 FR 2843 (Jan. 19, 1999); see also 

Electronic Submission of Applications for Orders 

under the Advisers Act and the Investment 

Company Act, Confidential Treatment Requests for 

Filings on Form 13F, and Form ADV–NR; 

Amendments to Form 13F, Exchange Act Release 

No. 34–95148 (June 23, 2022), 87 FR 38943 (June 

30, 2022). 

182See, e.g., About EDGAR, available at https:// 

www.sec.gov/edgar/about; see also Important 

Threshold B, as proposed, and as 

adopted, will require reporting by 

Managers that have, for each equity 

security of a non-reporting company 

issuer, a gross short position in the 

equity security with a U.S. dollar value 

of $500,000 or more at the close of 

regular trading hours on any settlement 

date during the calendar month.170 A 

single, dollar-based prong approach 

(using the $500,000 or more on any 

settlement date metric) for securities of 

non-reporting company issuers (Rule 

13f–2(a)(2)) will capture Managers with 

large gross short positions, even if such 

positions are relatively small compared 

to the market capitalization of the 

issuer. As discussed above, the markets 

for non-reporting company issuers are 

more opaque and could benefit more 

from transparency. Additionally, due to 

their lower liquidity, equity securities of 

non-reporting companies can be more 

sensitive to strategic trading than those 

of reporting companies.171 As a result, 

for those securities, a single dollar 

threshold that can be triggered on any 

day of a month is more appropriate than 

the two-prong threshold calculated as 

monthly averages for equity securities 

issued by reporting companies. 

Basing Reporting Thresholds on Form 

SH Data 

Some commenters maintained that 

the Commission should not have based 

the Proposed Reporting Thresholds on 

Form SH data, as the Form SH data was 

collected during ‘‘a period of abnormal 

market conditions that does not reflect 

recent changes in the markets,’’ and 

urged the Commission to more robustly 

support its rationale for selecting the 

Reporting Thresholds.172 These 

commenters essentially suggested that 

the use of Form SH data was unrealistic, 

and suggested that the Commission 

consider whether the Reporting 

Thresholds are appropriate based on 

more recent data and analysis.173 In the 

Proposing Release, the Commission 

stated that to perform the underlying 

Reporting Thresholds analysis, Form SH 

data on daily short positions for 

November 2008 through February 2009 

were filtered and matched to Center for 

Research in Security Prices, LLC for 

daily closing prices and Compustat for 

daily shares outstanding. The 

Commission recognized that the results 

of an analysis of Form SH data may not 

fully reflect the status quo but that the 

analysis used appropriate data because 

it involved the same type of entities 

(Managers) and the same activity (short 

positions).174 As discussed in the 

Proposing Release, the Commission 

believed that it struck a reasonable 

balance in proposing the Reporting 

Thresholds with regard to the 

fundamental economic tradeoff of the 

value of the data versus the cost of 

collecting the data.175

The Commission disagrees with one 

commenter that stated that Form SH 

data was ‘‘stale and limited.’’ 176 The 

Commission continues to believe that 

Form SH data is highly relevant for 

determining the Reporting Thresholds. 

Form SH is the only existing data source 

of individual Manager-level short sale 

positions.177 Form SH data was 

collected from October 17, 2008, until 

August 1, 2009, and the Commission 

analyzed daily data submitted from 

November 2008 until February 2009 as 

representative of short positions held by 

Managers. By the time Form SH was in 

effect, the global financial crisis was 

winding down, and is considered by 

some to have calmed by approximately 

June 2009.178 Thus, data was analyzed 

for several months during which the 

economy was returning to normalcy. 

Although the commenter suggested such 

data does not address ‘‘recent changes 

in the financial markets,’’ the 

commenter did not elaborate on what 

‘‘recent changes’’ would have impacted 

an analysis of the Form SH data or the 

time period in which the data was 

analyzed. Markets undergo periods of 

volatility and stability and are 

constantly evolving over time. The data 

from Form SH involves the same type of 

entities (Managers) and the same 

activity (short positions) as Form SHO. 

The time period for which the Form SH 

data was studied is sufficiently 

informative to provide a reasonable 

assessment of appropriate reporting 

thresholds for purposes of Form 

SHO.179

4. Form SHO

a. Reporting via EDGAR

i. Proposal

To enhance transparency of short

sale-related data reported and published 

pursuant to Proposed Rule 13f–2, 

Proposed Rule 13f–2(a)(3) provided that 

Managers would file Form SHO (and 

any amendments thereto) with the 

Commission on EDGAR.180 The 

Commission believed that most 

Managers should be familiar with filing 

forms on EDGAR—for example, Form 

13F 181—and relying on EDGAR to 

access registration statements, periodic 

reports, and other filings with the 

Commission that are made publicly 

available.182 The Commission believed 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75117 

Information about EDGAR, available at https://

www.sec.gov/edgar/searchedgar/aboutedgar.htm#

:∼:text=EDGAR%2C%20the%20Electronic

%20Data%20Gathering,and%20Exchange

%20Commission%20(SEC) (‘‘The [EDGAR] system 

processes about 3,000 filings per day, serves up 

3,000 terabytes of data to the public annually, and 

accommodates 40,000 new filers per year on 

average.’’). 

183Proposing Release, at 14957. 

184 Id. 

185See, e.g., K&L Gates Letter, at 5–6 (any final 

rule or final Form SHO should ensure 

‘‘indefinitely’’ the confidentiality of information 

that could reveal the identity of the reporting 

Manager). 

186See, e.g., AIMA Letter, at 14 (stating that the 

Commission has not explained how it will protect 

the commercially sensitive data that will be 

reported on Proposed Form SHO or acknowledged 

that its systems are susceptible to data breaches); 

MFA Letter, at 8 (positing that ‘‘the risk of increased 

cyberattacks or other breaches of confidential 

account information far outweigh any incremental 

benefit associated with requiring [Managers] to 

individually report short position information’’); 

Two Sigma Letter, at 3–5 (cautioning that 

information on Proposed Form SHO reports ‘‘will 

be private only so long as the Commission does not 

have its systems breached, its personnel do not 

misappropriate the information, the information is 

not unintentionally released, or policies do not 

change retroactively’’); SIFMA Letter, at 22 n.60 

(citing cyber security, theft, and inadvertent data 

breach concerns as chief among the risks of 

providing sensitive and confidential information 

regarding short positions and short activity). 

187See Annual Report on SEC website 

Modernization Pursuant to Section 3(d) of the 21st 

Century Integrated Digital Experience Act (Dec. 

2022), available at https://www.sec.gov/files/21stcentury-idea-act-report-2022-12.pdf. 

188 Id. 

189Proposing Release, at 14956. 

190 Id. at 14955. 

191See id. at 14955. The filing options described 

for Proposed Form SHO are consistent with other 

EDGAR filings that are filed in form-specific XMLbased languages. See, e.g., Regulation of NMS Stock 

Alternative Trading Systems, Exchange Act Release 

No. 83663 (July 18, 2018), 83 FR 38768 (Dec. 9, 

2021) (requiring new EDGAR Form ATS–N to be 

filed in an XML-based language specific to that 

Form). 

192See Proposing Release, at 14997 (‘‘By requiring 

a structured machine-readable data language and a 

centralized filing location (EDGAR) for the 

disclosures on Proposed Form SHO, the 

Commission would be able to access and download 

large volumes of Proposed Form SHO disclosures 

in an efficient manner.’’). 

193See, e.g., Proposing Release at 14960, 14999 

(first citing Form 13F, available at https://

www.sec.gov/pdf/form13f.pdf) (then citing 

Regulation of NMS Stock Alternative Trading 

Systems, Exchange Act Release No. 83663 (July 18, 

2018), 83 FR 38768 (Aug. 7, 2018)) (requiring new 

EDGAR Form ATS–N to be filed in an XML-based 

language specific to that Form); see also Money 

Market Fund Reforms, Investment Company Act 

Release No. 34441 (Dec. 15, 2021), 87 FR 7248 (Feb. 

8, 2022) (Form N–CR); Securities Offering Reform 

for Closed-End Investment Companies, Exchange 

Act Release No. 88606 (Apr. 8, 2020), 85 FR 33290 

(June 1, 2020) (Form 24F–2). 

194The Commission stated in the proposing 

release that the XML schema (i.e., the set of 

technical rules associated with Proposed Form 

SHO-specific XML) for Proposed Form SHO would 

incorporate validations of each data field on 

Proposed Form SHO to help ensure consistent 

formatting and completeness. For example, letters 

instead of numbers in a field requiring only 

numbers, would be flagged by EDGAR as a 

‘‘technical’’ error that would require correction by 

the reporting Manager in order to complete its 

Proposed Form SHO filing. Field validations act as 

an automated form completeness check when a 

Manager files Proposed Form SHO through EDGAR; 

they do not verify the accuracy of the information 

Continued 

that requiring Proposed Form SHO to be 

reported via EDGAR would enhance the 

accessibility, usability, and quality of 

the Proposed Form SHO disclosures for 

the Commission, and would allow the 

Commission to download disclosures 

from Form SHO directly, facilitating 

efficient access, organization, and 

evaluation of the reported 

information.183 The Commission further 

believed that the improved quality and 

scope of information available for the 

Commission’s use in examining market 

behavior and recreating market events 

would bolster the Commission’s 

oversight of short selling activity and 

enhance investor protections.184

ii. Comments and Final Rule 

Several commenters raised concerns 

about how the confidentiality of the 

data reported on Form SHO via EDGAR 

would be preserved.185 Most of these 

commenters spoke of a need to establish 

robust data security protocols for the 

‘‘valuable and proprietary’’ information 

that would be reported on Proposed 

Form SHO via EDGAR. Several such 

commenters expressed concerns about 

cyberattacks or other breaches of 

account information.186

While no technology system or 

infrastructure is impervious to 

cyberattack, the Commission employs 

an array of actions to safeguard and 

protect the confidentiality and security 

of all information reported to EDGAR, 

which will include data reported on 

Form SHO.187 The Commission has 

stated that it has ‘‘engaged in a multiyear, multi-phase effort to modernize 

the EDGAR system, including both 

internal and public-facing components. 

Security and modernization 

enhancements were deployed in June 

2020, focusing on technology upgrades 

internal to the system.’’ 188 Moreover, as 

discussed in Part I.A.4.f.ii below, the 

Commission is adopting an approach to 

the confidential treatment of 

information provided on Form SHO 

reports that all such information will be 

deemed subject to a confidential 

treatment request under 17 CFR 200.83 

(‘‘Rule 83’’). Accordingly, the 

Commission is adopting Rule 13f– 

2(a)(3) as proposed. 

b. Filing Form SHO Reports 

i. Proposal 

As described in the Proposing 

Release, Managers would use Proposed 

Form SHO for reports to the 

Commission required by Proposed Rule 

13f–2. The Commission proposed that 

Managers would file a report on 

Proposed Form SHO with the 

Commission within 14 calendar days 

after the end of each calendar month 

with regard to each equity security in 

which the Manager meets or exceeds a 

Reporting Threshold.189 The 

Commission proposed that Managers 

would file the Form SHO with the 

Commission via the Commission’s 

EDGAR system in an eXtensible Markup 

Language (‘‘XML’’) specific to Form 

SHO (‘‘custom XML’’ or ‘‘Form SHOspecific XML’’),190 a structured 

machine-readable data language. The 

Commission also proposed that 

Managers would either be able to file 

Form SHO using a fillable web form the 

Commission would provide on EDGAR 

to input Form SHO disclosures, or a 

Manager could use its own software tool 

to file Form SHO to EDGAR directly in 

Form SHO-specific XML.191 Reporting 

via EDGAR, as described in the 

Proposing Release, would facilitate 

efficient access, organization, and 

evaluation of reported information by 

the Commission. 

The Commission stated in the 

Proposing Release that requiring Form 

SHO to be filed in custom XML format, 

since it is a structured, machinereadable data language, would facilitate 

more thorough review and analysis of 

the reported short sale disclosures by 

the Commission, which would increase 

the efficiency and effectiveness with 

which the Commission could identify 

manipulative short selling strategies.192

Furthermore, the Commission stated 

most Managers have experience filing 

EDGAR forms that use similar EDGAR 

Form-specific XML-based data 

languages, such as Form 13F and Form 

ATS–N.193

As proposed, if a Manager uses the 

web-fillable Proposed Form SHO on 

EDGAR and encounters a technical error 

when filling out the form, such Manager 

would be required to correct the 

identified technical error before being 

permitted to file the Proposed Form 

SHO through EDGAR. If a Manager uses 

its own software tool to file a Proposed 

Form SHO filing to EDGAR directly in 

Proposed Form SHO-specific XML, and 

a technical error is identified by EDGAR 

after the filing is sent, such Manager 

would receive an error message that the 

filing has been suspended, and would 

be required to correct the identified 

technical error and re-file the Proposed 

Form SHO through EDGAR.194


ddrumheller on DSK120RN23PROD with RULES2
75118 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

filed in Proposed Form SHO filings. Proposing 

Release, at 14960 n.72. 

195See Proposing Release, at 15010–11. 

196See id. 

197See id. 

198See id. 

199Proposing Release, at 15012. 

200Comment Letter from Campbell Pryde, 

President and CEO, XBRL US (Apr. 26, 2022), at 1 

(‘‘XBRL Letter’’), available at https://www.sec.gov/ 

comments/s7-08-22/s70822-20126860-287597.pdf. 

201See id. at 2. 

202See id. at 2–5. 

203See id. 

204Comment from An Investor (Apr. 4, 2022), 

available at https://www.sec.gov/comments/s7-08- 

22/s70822-20122297-278355.htm. 

205See, e.g., Regulation of NMS Stock Alternative 

Trading Systems, Exchange Act Release No. 83663 

(July 18, 2018), 83 FR 38768 (Dec. 9, 2021) 

(requiring EDGAR Form ATS–N to be filed in an 

XML-based language specific to that Form). 

206See Form 13F, available at https://

www.sec.gov/pdf/form13f.pdf. 

As an alternative, the Commission 

also discussed whether Proposed Form 

SHO should be required to be filed in 

Inline eXtensible Business Reporting 

Language (‘‘Inline XBRL’’).195 The 

Commission stated that, compared to 

the proposal, the Inline XBRL 

alternative, which is both machinereadable and human-readable, would 

provide more sophisticated validation, 

presentation, and reference features for 

filers and data users.196 However, the 

Commission stated that given the fixed 

and constrained nature of the 

disclosures to be reported on Proposed 

Form SHO, the benefits of the Inline 

XBRL alternative would be muted, and 

therefore Managers would not be able to 

take advantage of customization and 

presentation features.197 Furthermore, 

the Commission stated in the Proposing 

Release that the alternative Inline XBRL 

approach would create greater initial 

implementation costs, such as licensing 

XBRL filing preparation software, 

because many Managers may not have 

prior experience structuring data in 

Inline XBRL.198

ii. Comments and Final Rule 

The Commission received some 

comments about the use of Form SHOspecific XML in filing Form SHO. In 

response to Q39 in the Proposing 

Release,199 which asked whether the use 

of Form SHO-specific XML would make 

the reported data more useful to users, 

one commenter stated that data 

prepared in consistent, structured 

format would be ‘‘significantly more 

functional and useful.’’ 200 Regarding 

the costs and benefits of an Inline XBRL 

requirement as compared to Proposed 

Form SHO-specific XML, this 

commenter supported using XBRL in a 

comma-separated value (‘‘CSV’’) format, 

which is a text file that uses delimiters 

such as commas to separate data 

fields.201 The commenter stated that this 

would be the most appropriate standard 

‘‘for capturing high volume, granular 

data in a compact format,’’ and urged 

the Commission to adopt XBRL rather 

than custom XML.202 The commenter 

stated that XBRL–CSV has several 

advantages over the Commission’s 

proposed use of a custom XML format, 

such as reducing preparation costs and 

processing costs, as well as improving 

validation.203 In addition, the 

commenter disagreed with the 

Commission’s view in the Proposing 

Release that the benefits of the 

additional features of XBRL would be 

muted if used for Form SHO due to the 

fixed and constrained nature of the 

disclosures to be reported. The 

commenter stated that several other 

agencies, such as the FDIC and FERC, 

have recently adopted XBRL format over 

custom XML format. However, the 

commenter acknowledges that initial 

implementation costs will be higher and 

familiarization with the format will take 

longer for reporting entities. 

Alternatively, another commenter 

supported the use of Form SHO-specific 

XML, stating that ‘‘XML is a widely 

used language and therefore 

implementation and maintenance 

would keep costs low and efficiency 

high,’’ and thought it would allow for 

efficient review of the reported data.204

The Commission is adopting the 

custom XML data reporting requirement 

as proposed. As explained in the 

Proposing Release, the filing options for 

Form SHO are consistent with other 

EDGAR filings that are filed in Formspecific XML-based languages.205 The 

Commission also continues to believe 

that because many Managers have been 

using custom XML-based languages 

through other releases, they are more 

familiar with this language than other 

languages, such as XBRL, so the use of 

XML will promote efficiency in filing 

and review of Form SHO reports. 

Familiarity with custom XML formats 

will reduce implementation and 

ongoing compliance costs when 

compared to introducing XBRL-based 

formats that may be unfamiliar to 

Managers. Managers’ greater familiarity 

with custom XML formats should also 

reduce the possibility of data input 

errors when compared to XBRL formats. 

The above noted commenter likewise 

stated that XBRL formats would entail 

higher initial implementation costs and 

that familiarization with the XBRL 

formats would take longer for reporting 

entities. The costs of using XBRL 

formats in implementation and user 

retraining, along with the 

inconsistencies relative to other filings 

that use Form-specific XML-based 

languages, do not justify the potential 

data formatting benefits of XBRL. 

Further, the commenter stated a 

preference for using XBRL specifically 

in CSV format. In addition to the above 

concerns about XBRL-based languages 

generally, the Commission believes that 

custom XML format is more appropriate 

than an XBRL–CSV format for the 

purposes of Form SHO because XML 

format is more human-readable than 

CSV format, and XML is more flexible 

when using more complex data. 

Finally, the Commission’s XML 

schema is designed to include 

validations for each data field on Form 

SHO to help ensure consistent 

formatting and completeness. The 

Commission continues to believe that 

requiring Form SHO to be filed via 

Form-SHO specific XML, a structured 

machine-readable data language, will 

facilitate more thorough review and 

analysis of the reported short sale 

disclosures by the Commission, 

increasing the efficiency and 

effectiveness of the Commission’s 

understanding of short selling and 

systemic risk. Additionally, most 

Managers have experience filing EDGAR 

forms that use similar EDGAR Formspecific XML-based data languages, 

such as Form 13F.206

c. Timing of Reporting by Managers and 

Publication by Commission 

i. Proposal 

Under Proposed Rule 13f–2(a), a 

Manager would have been required to 

file the required information on Form 

SHO with the Commission within 14 

calendar days after the end of each 

calendar month. Proposed Rule 13f– 

2(a)(3) provides that certain information 

reported on Proposed Form SHO would 

be published by the Commission on an 

aggregated basis. No time frame for 

publication by the Commission was 

provided in Proposed Rule 13f–2. In the 

Proposing Release, however, the 

Commission estimated that it would 

publish the aggregated information 

within one month after the end of the 

calendar month. 

ii. Comments and Final Rule 

Comments on the frequency of 

reporting and publication varied. Some 

commenters called for more frequent 

reporting by Managers and, by 

implication, more frequent publishing 

by the Commission of information from 

Form SHO reports. Several of these 

commenters suggested that technology 

permits more frequent—i.e., daily, if not 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75119 

207See, e.g., Comment from Regina Murrell (Mar. 

25, 2023) available at https://www.sec.gov/ 

comments/s7-08-22/s70822-20121170-273336.htm 

(suggesting that technology be used to report short 

positions daily); Anonymously Submitted Comment 

(Mar. 14, 2022) (calling for reporting to regulators 

within twenty-four hours); Anonymously 

Submitted Comment (Apr. 26, 2022) (calling for 

daily, if not intraday, Form SHO reporting rather 

than monthly reporting, as proposed); 

Anonymously Submitted Comment (Mar. 17, 2022) 

(stating that technology permits more frequent 

reporting and release of short sale-related data to 

the public in shorter timeframes); see also Better 

Markets Letter, at 13 (predicting that the 

Commission’s ‘‘fairly significant delay’’ in 

publishing the aggregated information derived from 

Form SHO reports will lead to published 

information that is ‘‘less timely and less 

informative’’). 

208See, e.g., Comment of Estaban Oliveras (Mar. 

14, 2022) available at https://www.sec.gov/ 

comments/s7-08-22/s70822-20119372-272258.htm 

(commenting ‘‘If data is neither accurate nor timely, 

then what is the point of collecting data?’’). 

209See Proposing Release, at 14956. 

210 ICI Letter, at 12 (stating that aligning Form 

SHO reporting requirements with those of Form NPort, for example, would give Managers 30 days, 

rather than the proposed 14 days, after the end of 

a calendar to file a Form SHO). 211See Perkins Coie Letter, at 3 (stating a request 

to extend the initial filing period to within 28 

calendar days upon crossing the threshold in order 

‘‘to reduce the monitoring and compliance burdens 

for infrequent short position users’’). 

212MFA Letter, at 18. 

213See, e.g., FINRA, Short Interest Reporting, 

available at https://www.finra.org/filing-reporting/ 

regulatory-filing-systems/short-interest (presenting 

‘‘due dates’’ for reporting short interest to FINRA 

and publication of short interest data by FINRA). 

FINRA Rule 4560 requires FINRA member firms to 

report their short positions in exchange-listed and 

over-the-counter equity securities to FINRA twice 

each month. FINRA publishes the short interest 

reports it collects from member firms for all such 

equity securities. 

214Publication of the aggregated information may 

be delayed for an initial period following 

effectiveness of Rule 13f–2 and Form SHO. 

215See infra Part II.A.4.d.ii. 

216See infra Part II.A.4.d.iii. 

217See infra Part II.A.4.d.iv. 

monthly—reporting.207 Several of these 

comments also expressed concern that 

the Commission’s estimated month-long 

delay in publishing the aggregated 

information would produce stale data 

that would undermine the goal of 

greater transparency in the markets.208

The Commission acknowledges that the 

technology exists for frequent reporting 

of transactions and faster data 

processing. The Commission is 

concerned, however, about the accuracy 

of the data reported by Managers and 

the aggregated data published by the 

Commission pursuant to Rule 13f–2 

reporting requirements. The 

Commission believes that the data 

reported by Managers on Form SHO is 

more likely to be complete and accurate 

if Managers are afforded sufficient time 

to gather, assemble, and review the 

reported data.209 The Commission 

continues to believe that 14 calendar 

days after the end of each month 

provides a reasonable period of time for 

Managers to meet their Rule 13f–2 

reporting requirements. The 

Commission is also concerned that 

increasing the frequency of Commission 

publication of aggregated data may 

increase the risk of short squeezes or 

other manipulative activities that could 

interfere with the price discovery 

function of equity markets. The 

timeframes as proposed and as adopted 

balance such concerns with some 

commenters’ desire for faster 

transparency. 

Commenters taking the opposite view 

recommended that additional time be 

given for Manager reporting and 

Commission publication. One such 

commenter recommended that the 

Commission align the proposed 

timelines for preparing and filing Form 

SHO reports with existing filing 

requirements for other Commission 

reports and forms, to allow for better 

coordination of the process of including 

short sale-related data in multiple 

reporting frameworks.210 Another such 

commenter suggested an initial filing 

period be extended to within 28 

calendar days upon crossing the 

threshold and then 14 calendar days for 

any subsequent filing.211 Another 

commenter suggested that a minimum 

of 45 days before publication of 

aggregated data by the Commission was 

necessary to protect Managers from the 

risk that their positions and strategies 

would be used in a ‘‘short squeeze or 

other market-driven reaction’’ or as part 

of a copycat strategy.212

While adopting the proposed 

timeframes will delay the public 

dissemination of aggregate short 

positions by about a month, the 

Commission believes a longer delay 

such as 28 days for initial filings or 45 

days for all filings is unnecessary. 

FINRA’s current short interest reporting, 

for example, is published twice a 

month, resulting in a delay of about two 

weeks.213 The final rule here requires 

slightly more time than FINRA’s current 

reporting regimes because Managers 

need additional time following 

determination of whether they meet a 

Reporting Threshold at the end of each 

calendar month to prepare and file the 

data on Form SHO through EDGAR. 

Additionally, the Commission believes 

that providing Managers with a 

reasonable period of time to file 

complete and accurate short sale-related 

information in the first instance will 

reduce the need for Managers to file 

amendments to Form SHO. However, 

having an asymmetric filing deadline of 

28 days for initial filing and 14 days 

thereafter, as one commenter suggested, 

would create negligible cost savings for 

Managers. Meanwhile, it may have 

detrimental effects on the timing of data 

aggregation and publication, which 

could unnecessarily affect the timing 

and quality of aggregated published 

data. 

Final Rule 

After considering comments, the 

Commission is adopting Rule 13f–2(a) 

as proposed, and continues to estimate 

that it will publish aggregated data 

derived from Form SHO reports within 

one calendar month after the end of the 

reporting calendar month.214 For 

example, for data reported by Managers 

on Form SHO for the month of October, 

the Commission expects to publish 

aggregated information derived from 

such data no later than the last day of 

November. The Commission continues 

to believe that 14 calendar days after the 

end of each calendar month provides 

Managers with sufficient time for 

Managers that meet the Reporting 

Threshold to prepare and file Form SHO 

data. 

d. Contents of Form SHO 

Form SHO, as proposed, consists of 

two parts: Cover Page and Information 

Tables. As discussed more fully below: 

• The Cover Page presents certain 

identifying information about the 

Manager(s) filing the Form SHO report, 

the calendar month for which the 

Manager is reporting, the type of Form 

SHO report being made, and whether 

the Manager is filing the Form SHO 

report as an amendment; 215

• Information Table 1 presents a 

Manager’s monthly gross short position 

in the equity security on which 

information is being reported, as well as 

certain identifying information about 

that security and about the issuer of that 

security; 216 and 

• Information Table 2 presents daily 

activity affecting a Manager’s gross short 

position during a calendar month 

reporting period, as well as certain 

identifying information about that 

security and about the issuer of that 

security.217

i. Financial Identifiers 

(A) Proposal 

The Commission proposed that a 

Manager provide the active LEI, if any, 

of each Manager listed on the Cover 

Page. The Commission also proposed 

that a Manager report on each of the 

Proposed Form SHO Information Tables 

the FIGI and CUSIP number of each 

security on which information is being 

reported, and the active LEI, if any, of 


ddrumheller on DSK120RN23PROD with RULES2
75120 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

218FIGI and LEI each serve different functions. 

FIGIs identify securities, whereas LEIs identify 

entities. Thus, a single issuer’s LEI could be 

associated with multiple FIGIs. Conversely, 

multiple FIGIs could be associated with the same 

issuer’s LEI. Furthermore, identifying reporting 

Managers on Form SHO would require an entity 

identifier (LEI) rather than a security identifier 

(FIGI). 

219See, e.g., Comment Letter from CUSIP Global 

Services (Apr. 25, 2022), available at https://

www.sec.gov/comments/s7-08-22/s70822-20126577- 

287237.pdf (‘‘CUSIP Letter’’); Comment Letter from 

American Bankers Association (Apr. 26, 2022), 

available at https://www.sec.gov/comments/s7-08- 

22/s70822-20126641-287311.pdf (‘‘ABA Letter’’). 

220 Jennifer Han, Executive Vice President, Chief 

Counsel and Head of Regulatory Affairs, Managed 

Funds Association (June 15, 2023), at 9, available 

at https://www.sec.gov/comments/s7-08-22/s70822- 

206120-414822.pdf (‘‘MFA Letter 2’’). 

221See Letter from Anonymous Fund Manager, at 

9. 

222See Comment Letter from Gregory Babyak, 

Glob. Head Regul. Affs., Bloomberg L.P., at 5 (May 

2, 2022), available at https://www.sec.gov/ 

comments/s7-08-22/s70822-20127745-288932.pdf. 

223Public Law 111–203, sec. 929X, 124 Stat. 

1376, 1870 (July 21, 2010). 

224See, e.g., Fast Answers: CUSIP Number, 

available at https://www.sec.gov/answers/cusip 

(referencing CUSIP Global Services). 225See, e.g., Chad Langager, How to Locate the 

CUSIP Number for a Stock, Investopedia (Apr. 6, 

2022), available at https://www.investopedia.com/ 

ask/answers/06/cusipforspecificstock.asp. 226See, e.g., Fees for CUSIP Assignment, CUSIP 

Glob. Servs., available at https://www.cusip.com/ 

pdf/FeesforCUSIPAssignment.pdf (‘‘For an offering 

requiring a single CUSIP identifier, the assignment 

fee is $200.’’). 227See, e.g., Unlock the Power of Efficiency with 

Open Symbology, OpenFIGI, available at https://

www.openfigi.com/. 228This practice is in keeping with current 

requirements of other Commission forms. For 

example, the registrant filing Form N–PORT need 

not report LEIs for counterparties that do not have 

one. In addition, as noted above, to avoid any 

suggestion that a Manager filing a Form SHO report 

has an obligation to monitor the status of an issuer’s 

LEI, Instructions 8.c and 9.c of Form SHO— 

‘‘Column 3. Issuer LEI. If the issuer has an LEI, 

enter the issuer’s active LEI—have been revised to 

remove the term ‘‘active.’’ See supra n. 36. 

229See Proposing Release, at 14965. Because the 

Cover Page, as proposed, would also present the 

name and, if available to the Manager making the 

Proposed Form SHO filing, the active LEI of each 

Manager listed on the Form SHO Cover Page as an 

‘‘Other Manager Reporting for’’ the Manager making 

the Proposed Form SHO filing, the query covered 

those Managers as well. 

230Anonymously Submitted Comment (Apr. 4, 

2022), available at https://www.sec.gov/comments/ 

s7-08-22/s70822-20122297-278355.htm (‘‘Every 

manager that has a part of trading any form of 

security or derivative on any market should be 

forced to have a Legal Entity Identifier (LEI). That 

way, specific bad actors can be easily identified.’’). 

231See Comment Letter from Aaron Franz, 

available at https://www.sec.gov/comments/s7-18- 

21/s71821-20120685-272855.pdf (‘‘I’m uncertain 

that Managers should be required to obtain an LEI. 

Registration or renewal of an LEI is not monetarily 

costless. The same information can be submitted by 

Managers without a tracking number with a cost.’’). 

the issuer of those securities. These 

items are discussed in Special 

Instructions 8.c, 8.e, and 8.f regarding 

Columns 3, 5, and 6 of Information 

Table 1, and in Special Instructions 9.c, 

9.e, and 9.f regarding Columns 3, 5, and 

6 of Information Table 2. 

(B) Comments and Final Rule 

The Commission received only a few 

comments regarding the proposed 

requirement to report certain financial 

identifiers, including CUSIP and FIGI 

(which identify specific securities), and 

LEI (which identifies specific entities) 

on Form SHO.218 Two commenters 

stated that the Commission should only 

require that CUSIP be reported on Form 

SHO, and that the inclusion of 

additional financial identifiers could 

cause confusion.219 Another commenter 

stated that the LEI and the FIGI of 

issuers is ‘‘not commonly provided’’ in 

other holding reports and would 

therefore cause Managers to incur 

additional costs.220 Another commenter, 

citing ‘‘substantial CUSIP licensing 

costs,’’ expressed concern that requiring 

the reporting of CUSIP could create an 

‘‘unnecessary financial burden’’ on 

Managers.221 However, another 

commenter stated that the inclusion of 

multiple financial identifiers in addition 

to CUSIP, such as FIGI and LEI, could 

help foster competition that ultimately 

reduces costs and improves data 

quality.222

In DFA section 929X, Congress 

specifically directed the Commission to 

include CUSIP in short sale disclosure 

rules.223 CUSIP is a universally 

recognized identifier that has been used 

for a wide array of financial instruments 

since 1964, allowing securities 

transactions to be easily identified, 

cleared, and settled, including short 

sales. Furthermore, market participants 

and investors are familiar with CUSIPs, 

which are widely and publicly available 

and used to identify most U.S. stocks.224

Many companies display their CUSIPs 

on their websites, and brokers and 

dealers often provide investors with 

search engines to look up stocks by 

CUSIPs.225 Accordingly, while the 

Commission recognizes that there are 

licensing costs associated with the 

CUSIP, the Commission is adopting, as 

proposed, the requirement that 

Managers report in Column 5 of each of 

the Form SHO Information Tables the 

CUSIP for the equity security for which 

information is reported to help facilitate 

market participants’ understanding of 

the reported data. 

The Commission will also adopt, as 

proposed, the requirement that 

Managers report in Column 6 of each of 

the Form SHO Information Tables the 

FIGI of the equity security for which 

information is being reported, if a FIGI 

has been assigned. Like CUSIP, FIGI 

provides a methodology for identifying 

securities, and reporting a FIGI, if 

assigned, will provide additional 

identifying information that will 

provide additional clarity, not 

confusion, to market participants and 

the public. Unlike CUSIPs,226 however, 

FIGIs are provided for free.227

To aid in the identification of the 

issuers referenced in Form SHO reports, 

the Commission is also adopting a 

requirement that Managers report in 

Column 3 of each Form SHO 

Information Table, the LEI, if any, of the 

issuer of the security about which 

information is reported on Form 

SHO.228

With respect to the proposed 

requirement that a Manager provide its 

own LEI, if it had one, and, if available 

to the Manager making the Proposed 

Form SHO filing, the active LEI of each 

Manager listed on the Form SHO Cover 

Page as an ‘‘Other Manager Reporting 

for’’ the Manager making the Proposed 

Form SHO filing, the Commission 

sought comment on whether it should 

require every Manager filing a Proposed 

Form SHO to obtain an LEI.229 One 

commenter supporting the requirement 

to report financial identifiers on Form 

SHO stated that all Managers should be 

required to obtain and maintain a nonlapsed LEI, as opposed to the proposal, 

which stated that Managers would be 

required to report their LEI, if any.230

Another commenter, however, 

expressed uncertainty regarding such a 

requirement, stating that registration or 

renewal of an LEI is ‘‘not monetarily 

costless.’’ 231

The Commission acknowledges that 

LEIs do provide a precise and consistent 

means of identification of legal entities. 

However, after considering the 

comments received, and because LEIs 

would supplement existing identifying 

information provided for Managers and 

issuers listed in Form SHO filings, the 

Commission is not requiring Managers 

subject to Rule 13f–2 to obtain (and 

maintain non-lapsed) LEIs to provide on 

the Cover Page of Form SHO reports 

and, when appropriate for the ‘‘Other 

Manager(s) Reporting for this Manager’’ 

section of the Form SHO Cover Page to 

be completed, to provide a non-lapsed 

LEI for each Manager listed in the 

‘‘Other Manager(s) Reporting for this 

Manager’’ of the Form SHO Cover Page. 

However, the Commission may consider 

this issue in the future. 

ii. Cover Page 

(A) Proposal 

As proposed, and pursuant to Special 

Instructions 2–5 of Proposed Form SHO, 

a Manager would report on the Cover 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75121 

232The Commission proposed that the reporting 

Manager designate the report type for the Form 

SHO by checking the appropriate box in the 

‘‘Report Type’’ section of the Cover Page and 

include, where applicable, the name and active LEI 

of each other Manager reporting for this Manager. 

If all of the information that a Manager is required 

by proposed Rule 13f–2 to report on related Form 

SHO is reported by another Manager (or Managers), 

the Manager shall check the box for Report Type 

‘‘FORM SHO NOTICE,’’ include on the Cover Page 

the name and active LEI (if available) of each of the 

other Managers reporting for this Manager, and omit 

the Information Tables. If all of the information that 

a Manager is required by proposed Rule 13f–2 to 

file on Form SHO is included in the report, the 

Manager shall check the box for Report Type 

‘‘FORM SHO ENTRIES REPORT,’’ omit from the 

Cover Page the name and active LEI of each other 

Manager reporting for this Manager, and include the 

Information Tables. If only a part of the information 

that a Manager is required by proposed Rule 13f– 

2 to file on Form SHO is included in the report filed 

by the Manager, the Manager shall check the box 

for Report Type ‘‘FORM SHO COMBINATION 

REPORT,’’ include on the Cover Page the name and 

active LEI of each of the other Managers reporting 

for this Manager, if available, and include the 

Information Tables. See Proposing Release, at 

14958. 

233 If the Manager is filing the Form SHO report 

as an amendment, then the Manager must check the 

‘‘Amendment and Restatement’’ box on the Cover 

Page and enter the Amendment and Restatement 

number. Each amendment must include a complete 

Cover Page and Information Tables. Amendments 

must be filed sequentially. See Proposing Release, 

at 14960–61. 

234See Proposing Release, at 14958. 

235See supra n. 37 and accompanying text. 

236 Id. at 14959. 

237As stated in the proposal, a Manager would 

indicate that a reported gross short position in an 

equity security is ‘‘fully hedged’’ if the Manager 

also holds an offsetting position that reduces the 

risk of price fluctuations for its entire position in 

that equity security, for example, through ‘‘delta’’ 

hedging (in which the Manager’s reported gross 

short position is offset 1-for-1), or similar hedging 

strategies used by market participants. A Manager 

would report that it is ‘‘partially hedged’’ if the 

Manager holds an offsetting position that is less 

than the identified price risk associated with the 

reported gross short position in that equity security. 

This additional hedging information would help to 

indicate whether the reported gross short position 

is directional or non-directional in nature. More 

specifically, a short position that is not hedged 

could be an indicator that the short seller has a 

negative view of the security, believes that the price 

of the equity security will decrease, and accepts the 

market risk related to its short position. A short 

position that is fully hedged could be an indicator 

that the short seller has a neutral or positive view 

of the security and is engaged in hedging activity 

to protect against potential market risk. A short 

position that is partially hedged could be an 

indicator that the short seller has a negative, 

neutral, or positive view of the security. Whether 

the hedge itself is full, partial, or non-existent might 

provide further context to market participants 

regarding the short seller’s view of the equity 

security. Hedging information also can assist with 

distinguishing position trading, which typically has 

corresponding hedging activity, from other 

strategies such as arbitrage. 

Page: (i) certain basic information, 

including its name, mailing address, 

business telephone and facsimile 

numbers, and active LEI, if any, as well 

as the name, title, business telephone 

and facsimile numbers of the Manager’s 

contact employee for the Form SHO 

report, and the date the report is filed; 

(ii) the period end date—i.e., the last 

settlement date of the calendar month 

for which the Manager is reporting; (iii) 

the type of Form SHO report being 

filed; 232 and (iv) whether the Form SHO 

is being filed as an amendment.233 The 

Manager filing the report will include 

the representation that ‘‘all information 

contained herein is true, correct and 

complete, and that it is understood that 

all required items, statements, 

schedules, lists, and tables, are 

considered integral parts of this 

form.’’ 234

(B) Comments and Final Rule 

Other than with respect to financial 

identifiers as discussed above, the 

Commission did not receive any 

comments on the contents of the Cover 

Page. As a result, the Commission is 

adopting Special Instructions 2–5 of 

Form SHO as proposed, with minor 

technical modifications. For greater 

precision (but no change in the 

meaning) in the terminology used in 

Form SHO as adopted, an LEI that is 

currently in effect is referred to as a 

‘‘non-lapsed LEI’’ rather than an ‘‘active 

LEI’’ (the terminology used in Proposed 

Form SHO). Also, the Cover Page 

contact information for the reporting 

Manager and its ‘‘Contact Employee’’ 

has been updated to require the use of 

email rather than facsimile.235

iii. Information Table 1: ‘‘Manager’s 

Monthly Gross Short Position’’ 

(A) Proposal 

Under Proposed Rule 13f–2, Managers 

meeting a Reporting Threshold would 

report certain information, including 

end of month gross short position 

information regarding transactions that 

have settled during the calendar month 

being reported, and certain hedging 

information that would help to indicate 

whether the reported gross short 

position is directional or nondirectional in nature.236

Specifically, as proposed, the 

Manager would report the following 

information on Information Table 1: 

• In Column 1, a Manager would 

enter the last day of the calendar month 

being reported by the Manager on which 

a trade settles. This information would 

identify the month being reported by the 

Manager. 

• In Column 2, a Manager would 

enter the name of the issuer to identify 

the issuer of the equity security for 

which information is being reported. 

• In Column 3, a Manager would 

enter the issuer’s active LEI, if any. The 

LEI provides standardized information 

that would enable the Commission and 

market participants to more precisely 

identify the issuer of each equity 

security for which information is being 

reported. 

• In Column 4, consistent with 

section 13(f)(2), a Manager would enter 

the title of the class of the equity 

security for which information is being 

reported. 

• In Column 5, consistent with 

section 13(f)(2), a Manager would enter 

the nine (9) digit CUSIP number of the 

equity security for which information is 

being reported, if applicable. 

• In Column 6, a Manager would 

enter the twelve (12) character, 

alphanumeric FIGI of the equity security 

for which information is being reported, 

if a FIGI has been assigned. Like CUSIP, 

FIGI provides a methodology for 

identifying securities. 

• In Column 7, a Manager would 

enter the number of shares that 

represent the Manager’s gross short 

position in the equity security for which 

information is being reported at the 

close of regular trading hours on the last 

settlement date of the calendar month of 

the reporting period. The term ‘‘gross 

short position’’ means the number of 

shares of the security for which 

information is being reported that are 

held short, without inclusion of any 

offsetting economic positions (including 

shares of the equity security for which 

information is being reported or 

derivatives of such security). 

• In Column 8, a Manager would 

enter the U.S. dollar value of the shares 

reported in Column 7, rounded to the 

nearest dollar. A Manager would report 

the corresponding dollar value of the 

reported gross short position by 

multiplying the number of shares of the 

security for which information is being 

reported by the closing price at the close 

of regular trading hours on the last 

settlement date of the calendar month. 

In circumstances where such closing 

price is not available, the Manager 

would use the price at which it last 

purchased or sold any share of that 

security. This additional information 

regarding the dollar value of the 

reported short position would provide 

additional transparency and context to 

market participants and regulators. 

• In Column 9, a Manager would 

indicate whether the identified gross 

short position in Column 7 is fully 

hedged (‘‘F’’), partially hedged (‘‘P’’), or 

not hedged (‘‘0’’) at the close of the last 

settlement date of the calendar month of 

the reporting period.237


ddrumheller on DSK120RN23PROD with RULES2
75122 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

238Proposing Release, at 14959. 

239 Id. 

240See, e.g., MFA Letter, at 4 (stating that 

inclusion of hedging classification on Form SHO 

would be costly and time consuming for reporting 

Managers to produce); Virtu Letter, at 3 (advocating 

that requirement to report short positions as fully, 

partially, or not hedged would be ‘‘operationally 

difficult to implement’’ and should be eliminated). 

241 Virtu Letter, at 3. 

242AIMA Letter, at 13. 

243See, e.g., ICI Letter, at 10; see also Comment 

Letter from Mehmet Kinak, Head of Equity Trading, 

T. Rowe Price, et al. (Apr. 26, 2022), at 4, available 

at https://www.sec.gov/comments/s7-08-22/s70822- 

20126777-287493.pdf (‘‘T. Rowe Price Letter’’) 

(stating that hedging data may be ‘‘especially 

vulnerable to lack of consistency in terms of how 

various managers apply the classification.’’); AIMA 

Letter, at 13 (predicting that hedging classification 

will involve ‘‘level of subjectivity that is unlikely 

to be applied uniformly across Managers’’ and that 

determining such classification will ‘‘prove even 

more complicated for a large quantitative 

portfolio’’). 

244See, e.g., AIMA Letter, at 13; MFA Letter, at 

16. 

245See ICI Letter, at 10. 

246See MFA Letter, at 16–17. 

247See id. 

248See, e.g., MFA Letter, at 17. The MFA Letter 

suggested that ‘‘almost all short positions held by 

a large manager will be partially hedged—for 

example, if a manager has discretion over one fund 

with a short position, and another unrelated fund 

with a long position, the manager would be 

required to report the short position as ‘‘partially 

hedged’’ when in fact, the short position is not 

hedged at all.’’ Depending on the facts and 

circumstances, the commenter is correct that the 

positions in the two funds managed by the same 

Manager may have to be aggregated under Rule 

200(c) of Regulation SHO for marking purposes. 

249See, e.g., Ropes & Gray Letter, at 5 (stating that 

difficulty in defining ‘‘fully,’’ ‘‘partially,’’ or ‘‘not,’’ 

hedged would likely lead to inconsistent reporting 

that, in turn would limit the ‘‘meaningfulness’’ of 

the reported information to investors and the 

Commission); T. Rowe Price Letter, at 4 (raising 

concern that lack of consistency in how reporting 

Managers would apply the hedging classification 

could lead to ‘‘weaknesses’’ in the hedging data 

reported that would make the Commission’s 

publication of aggregated hedging classifications 

across reporting Managers of little value to, and 

potentially misinterpreted by, the public); MFA 

Letter, at 4 (stating ‘‘[b]ecause (i) there is no 

universal definition of ‘‘hedging’’ in the industry, 

and (ii) the reported gross short position must 

encompass short positions aggregated across funds, 

clients and affiliated managers, any hedging-related 

designation would be meaningless. Inclusion of this 

data would result in inconsistent reporting and 

would be costly and time consuming for managers 

to produce.’’); SIFMA Letter at 21 (stating 

information reported in Column 9 of Proposed 

Form SHO would be ‘‘inherently inconsistent and 

precise and, therefore, of very little value to 

regulators in that it could be highly misleading’’); 

see also AIMA Letter, at 13 (stating hedging 

classification will involve ‘‘level of subjectivity that 

is unlikely to be applied uniformly across 

Managers’’). 

250See, e.g., Ropes & Gray Letter (arguing that the 

possible exaggerated use of the partially hedged 

indicator is ‘‘unlikely to elicit comparable reporting 

across managers’’). 

251See Comment from Peyton Bailey (Mar. 14, 

2022) (‘‘Peyton Bailey Comment’’), available at 

https://www.sec.gov/comments/s7-08-22/s70822- 

272291.htm (proposing to use percentage points or 

‘‘majority’’ (≤50%) and ‘‘minority’’ (≤50%) hedging 

indicators instead of partially hedged); Nick 

Dougherty Letter (proposing to use percentage 

points); WTI Letter (proposing to use percentage 

points); Comment from Alex Fleming (Oct. 31, 

2022), available at https://www.sec.gov/comments/ 

s7-08-22/s70822-317348.htm (proposing to use 

numerical or percentage scale). 

(B) Comments and Final Rule 

Comments regarding the contents of 

Information Table 1 raised concerns 

about the proposal to require hedging 

information in Column 9. As discussed 

below, the Commission is adopting 

Information Table 1, as proposed, 

except that the Commission will not 

require Managers to report hedging 

information as originally proposed in 

Column 9 of the table. 

Comments Regarding Hedging 

Indicators 

Implementation Challenges 

The proposal would have required 

Managers to report on Information Table 

1 whether they were ‘‘fully hedged’’ or 

‘‘partially hedged’’ based on whether a 

Manager held an offsetting position that 

completely or partially reduced the risk 

of price fluctuations for its position in 

that equity security, respectively.238

Further, the proposal required Managers 

to report on Information Table 1 that 

their short position was ‘‘not hedged’’ if 

the Manager did not hold any offsetting 

positions.239 A number of commenters 

raised concerns about the costs to 

implement this proposed 

requirement.240 One such commenter 

expressed concerns that the requirement 

to report hedging status would be 

‘‘operationally difficult to implement,’’ 

as the reporting would be produced by 

back-office systems that ‘‘generally do 

not have any linkage information to 

allow them to match a hedge to a short 

position,’’ necessitating the 

development of costly new systems.241

One industry group commenter 

expressed a concern about 

‘‘complications that can arise from the 

hedging classification,’’ particularly for 

large portfolios for which it will not 

always be clear when a position is 

intended to be a hedge for another 

position, or clear or obvious whether a 

position acts as ‘‘one-to-one offset’’ of 

price risk for another position.242

Non-Universal Terminology 

Some commenters expressed concerns 

about the meaning of ‘‘fully hedged’’ 

and ‘‘partially hedged’’ under the 

proposed rule. These commenters 

expressed the view that because there is 

no universal definition of hedging in the 

marketplace, or clear guidance on this 

matter from the Commission, Managers 

can reasonably come to different 

conclusions regarding the extent to 

which similar positions are hedged.243

Because the meanings of ‘‘fully’’ and 

‘‘partially’’ hedged are subject to 

interpretation, these commenters 

believed that the reporting of hedging 

data would be inconsistent, imprecise, 

potentially misleading, and subject to 

misinterpretation. Several such 

commenters posited that due to what 

they described as the ambiguity of the 

hedging definitions, the proposed 

hedging reporting could result in 

inaccurate or misleading data—such as 

misleading market signals of Managers’ 

sentiments—as Managers may interpret 

the hedging indicators differently.244

Similarly, a commenter stated that due 

to the lack of detail surrounding the 

‘‘partially hedged’’ designation in 

particular, the data may be misleading 

as to the level of price risk associated 

with certain positions.245 A commenter 

stated that there is no universal 

definition of what constitutes a ‘‘hedge’’ 

and that the Commission’s guidance in 

the Proposing Release and the 

instructions in Proposed Form SHO as 

to how a Manager determines whether 

or when a position is fully or partially 

hedged, or not hedged, are insufficient 

to create a universal understanding and 

consistent reporting.246 That commenter 

further stated that the Commission 

provided only one example (the use of 

delta hedging in a one-to-one offset 

between short and long positions), even 

though Managers use a variety of other 

hedging techniques, such as portfolio 

hedging, ETFs, baskets of securities, and 

securities that have historic trading 

correlations, among others.247 Under 

these circumstances, several 

commenters predicted, Managers would 

likely default to a ‘‘partially hedged’’ 

designation,248 resulting in data of 

limited utility.249 These commenters 

stated that due to what they viewed as 

the ambiguous and non-universal nature 

of the terms, many Managers may 

simply default to marking transactions 

as ‘‘partially hedged’’ when it is unclear 

to what extent the positions are hedged, 

due to the wide range of positions 

encompassed by the proposed partially 

hedged indicator.250 To mitigate this 

concern and to improve transparency, 

some commenters critical of the hedging 

indicators suggested reducing the 

qualitative nature of the proposed terms 

by dividing the ‘‘partially hedged’’ term 

into smaller, well-defined units or even 

percentage increments.251 More 

specifically, these commenters 

expressed concern that the proposed 

hedging classifications could prove 

challenging to apply consistently across 

Managers and could result in significant 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75123 

252See MFA Letter, at 4, 16–17. 

253See Comment Letter from Joshua Russell (Oct. 

26, 2022), available at https://www.sec.gov/ 

comments/s7-08-22/s70822-20147825-314190.pdf. 

254See T. Rowe Price Letter, at 4. 

255See K&L Gates Letter, at 2. 

256See K&L Gates Letter, at 2–3, T. Rowe Price 

Letter, at 2–4, Anonymous Fund Manager Letter, at 

1. 

257Letter from Andrew Patrick White, CEO & 

Founder, FundApps (Mar. 2, 2022), available at 

https://www.sec.gov/comments/s7-08-22/s70822- 

20118368-271239.pdf. 

258See, e.g., Comment Letter from Anonymous 

(March 14, 2022) (positing that managers should 

report whether, and to what extent, they are 

hedged, along with an explanation of what that 

means; such information is valuable in determining 

a manager’s position with regard to the associated 

risks); see also Comment Letter from Biotechnology 

Innovation Organization (Apr. 25, 2022) at 3, 

available at https://www.sec.gov/comments/s7-08- 

22/s70822-20126539-287214.pdf (‘‘BIO Letter’’) 

(positing that transparency into hedging data would 

facilitate understanding of price and behavior 

dynamics). 

259BIO Letter, at 7. 

260 Id. at 2. 

261Peyton Bailey Comment. 

262See Comment from Max Knaus (Oct. 30, 2022), 

available at https://www.sec.gov/comments/s7-08- 

22/s70822-316957.htm; Comment Letter from 

Brendan Casey (Oct. 30, 2022), available at https:// 

www.sec.gov/comments/s7-08-22/s70822-20149998- 

319181.pdf. 

263One commenter stated that the proposed 

hedging requirement ‘‘fails to appreciate the 

difficulty—particularly for multi-service brokerdealers that use aggregation units and investment 

funds with multiple strategies—of calculating and 

determining such information for reporting 

purposes.’’ SIFMA Letter, at 20. Under Regulation 

SHO, a person shall be deemed to own a security 

only to the extent it has a net long position in that 

security. See Rule 200(c). See also Rule 200(g)(1) 

(an order shall be marked long only if the seller is 

deemed to own the security and the security is in 

the physical possession or control of the broker or 

dealer or it is reasonably expected that the security 

will be in the physical possession or control of the 

broker or dealer by settlement date). Under Rule 

200(f), a broker must aggregate all of its positions 

in a security to determine its net position, unless 

it qualifies for independent trading unit 

aggregation. If the broker or dealer qualifies for 

independent aggregation units, each independent 

trading unit shall aggregate all of its positions in a 

security to determine its net position. See Rule 

200(f). Qualification requires that the independent 

aggregation unit meet four conditions. See Rule 

200(f)(1) through (4). For instance, all traders in an 

aggregation unit must pursue only the particular 

trading objective(s) or strategy(s) of that aggregation 

unit and may not coordinate that strategy with any 

other aggregation unit. See Rule 200(f)(3). In 

adopting Rule 200(f), the Commission stated that 

‘‘conditions are necessary to prevent potential 

abuses associated with establishing aggregation 

units within multi-service broker-dealers.’’ 

Regulation SHO Adopting Release, at 48011. Thus, 

to be eligible for the aggregation unit exception, the 

broker or dealer’s units must operate 

independently, with defined trading strategies, and 

one unit’s trades or positions cannot be used to 

offset or hedge another unit’s trades or positions. 

See, e.g., Rule 200(f)(3); see also Regulation SHO 

Adopting Release, at 48011 (each unit must be 

engaged in separate trading strategies). While 

information barriers between aggregation units may 

be useful, as the commenter suggests, such barriers 

alone are not sufficient for eligibility for Rule 200(f). 

See e.g., Rule 200(f)(3); see also Regulation SHO 

Adopting Release at 48011 (conditions are intended 

to limit potential for abuse associated with 

coordination among units and to maintain the 

independence of the units). Thus, a broker or dealer 

that has created multiple units with fungible 

trading strategies as a means of affecting order 

marking may not be eligible for aggregation unit 

treatment under Rule 200(f) of Regulation SHO. See 

e.g., In re Morgan Stanley & Co., LLC, 34–90046 

(Sept. 30, 2020) (settled case), available at https:// 

www.sec.gov/litigation/admin/2020/34–90046.pdf 

(long-only and short-only aggregation units were 

not independent and separate trading strategies, but 

were instead operated by the same employees, 

managed by the same manager, and consisted of the 

same trading strategies). 

costs for data of limited value.252 One 

commenter stated that the act of market 

participants reporting the proposed 

hedging classification would create a 

chilling effect.253

Another commenter stated that 

although a change in hedging status may 

correspond with a change in manager 

sentiment, it is also possible that such 

a change may simply be the result of 

other unrelated objectives, such as 

rebalancing a portfolio.254 Similarly, 

another commenter agreed that the 

purpose of defensive tactics that 

hedging strategies often entail, such as 

hedging a long position, contrasts with 

the purpose of unhedged short 

strategies.255 That commenter expressed 

the view that such ‘‘defensive’’ hedging 

should not be included in the reporting 

as it would provide limited utility to the 

public. Some commenters took the 

position that reporting on ‘‘bona fide’’ 

hedging activity would not align with 

the goals in the Proposing Release and 

that such activity is unlikely to be 

abusive or manipulative.256

Some commenters that supported 

requiring hedging indicators generally 

rejected complaints about the costs and 

burdens related to the proposed 

reporting of hedging status as part of 

Information Table 1, stating that with 

modern technology, the requirements 

are ‘‘easily automated and with minimal 

cost incurrence.’’ 257 Support for the 

collection of hedging information 

generally came from commenters 

favoring steps to enhance the 

transparency of short sale-related data to 

facilitate a better understanding of short 

selling dynamics.258 One commenter 

stated that the hedging classification, if 

made public, would illustrate market 

sentiment, and that it would help to 

uncover ‘‘short and distort’’ campaigns, 

particularly in sectors that have higher 

than normal rates of short selling.259

The commenter further explained that 

under the status quo, it is unclear 

whether short positions are used for 

hedging long positions or whether they 

are being used to speculate on perceived 

overvaluation in the market in recent 

years.260 Another commenter stated that 

publishing hedging information 

regarding the actions of hedge funds and 

other large market participants would 

inform the decision making of retail 

investors.261 Other commenters posited 

that the proposed ‘‘not hedged’’ 

indicator would provide the most useful 

information to the market because 

unhedged short positions may be the 

most likely to be riskier or 

manipulated.262

Final Rule 

After considering the comments 

received,263 the Commission is not 

adopting the hedging reporting 

requirement as proposed. Specifically, 

when filing Form SHO Information 

Table 1, a Manager will not be required 

to indicate whether the identified gross 

short position in Column 9 of 

Information Table 1 is fully hedged 

(‘‘F’’), partially hedged (‘‘P’’), or not 

hedged (‘‘0’’) at the close of the last 

settlement date of the calendar month of 

the reporting period; Column 9 will be 

removed from Information Table 1 of 

Form SHO as adopted. 

While the Commission laid out the 

rationale behind the hedging reporting 

requirement in the Proposing Release, 

comments received, as discussed above, 

persuaded the Commission that such 

reported data may not result in as 

consistent and accurate data as it 

originally envisioned. In addition to the 

definitional challenges discussed above, 

the Commission recognizes the 

challenges of applying the Rule 13f–2 

reporting requirements in the scenario 

when a Manager has investment 

discretion over multiple accounts. For 

example, purchases and sales in 

different accounts may not be intended 

to hedge one another, but the proposal 

would have required that the Manager 

indicate that it was ‘‘partially-hedged’’ 

nonetheless. Such information would 

not be an accurate reflection of the 

Manager’s hedging status, and thus 

would not be useful. As another 

example, a Manager that has purchased 

a few shares of a security (for example, 

100 shares) for which it holds a 

substantial short position (for example, 

1 million shares) would have had to 

report that it was ‘‘partially hedged’’ 

without regard for the scale of such 

purchases in relation to the position for 

which it would have had to report it 

was hedging. That said, the Commission 

continues to believe, as did some 

commenters favoring the proposed 

requirement, that if accurate data on 

hedging could be collected, such 

information would be useful to 

regulators. 


ddrumheller on DSK120RN23PROD with RULES2
75124 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

264See Comment from Max Knaus (Oct. 30, 2022), 

available at https://www.sec.gov/comments/s7-08- 

22/s70822-316957.htm; Comment Letter from 

Brendan Casey (Oct. 30, 2022), available at https:// 

www.sec.gov/comments/s7-08-22/s70822-20149998- 

319181.pdf. 

265Perkins Coie Letter, at 6 (stating that ‘‘[o]r, 

alternatively, the SEC should consider exempting 

hedged short positions from reporting on Form 

SHO’’). 

266The term ‘‘sale’’ under the Securities Act 

includes contract of sale. See Securities Offering 

Reform, Exchange Act Release No. 52056 (July 19, 

2005), 70 FR 44722, 44765 (Aug. 3, 2005); Short 

Selling in Connection With a Public Offering, 

Exchange Act Release No. 56206 (Aug. 6, 2007), 72 

FR 45094, 45102 (Aug. 10, 2007). The Commission 

has previously stated that, in a short sale, the sale 

of securities occurs at the time the short position 

is established, rather than when shares are 

delivered to close out that short position, for 

purposes of section 5 of the Securities Act of 1933 

(‘‘Securities Act’’). See, e.g., Commission Guidance 

on the Application of Certain Provisions of the 

Securities Act of 1933, the Securities Exchange Act 

of 1934, and Rules Thereunder to Trading in 

Security Futures Products, Exchange Act Release 

No. 46101 (June 21, 2022), 67 FR 43234, 43236 

(June 27, 2002) (see Questions 3 and 5); Short 

Selling in Connection With a Public Offering, 72 FR 

45094. 

The Commission considered whether, 

as suggested by a commenter, the 

hedging indicator could be simplified so 

that Managers would be required only to 

report whether a position is not 

hedged.264 While short positions that 

are unhedged may involve greater risk, 

this alternative could be too easily 

circumvented by, for example, simply 

purchasing a nominal number of shares 

of the security and stating the position 

is therefore hedged (or partially hedged 

under the rule as proposed). The 

Commission also considered another 

commenter’s suggestion that hedged 

short positions should be exempted 

from reporting.265 This alternative 

would create a similar circumvention 

scenario to the one mentioned above 

(i.e., using a nominal long position to 

create an exempt hedged position). 

Accordingly, the Commission is not 

adopting the hedging reporting 

requirement as proposed. 

iv. Information Table 2: ‘‘Daily Activity 

Affecting Manager’s Gross Short 

Position During the Reporting Period’’ 

(A) Proposal 

As proposed, Information Table 2 of 

Form SHO captures daily activity that 

increases or decreases a Manager’s short 

position for each settlement date during 

the calendar month reporting period. 

More specifically, on proposed Form 

SHO, a Manager would report the 

number of shares of the equity security 

that: (i) were sold short; (ii) were 

purchased to cover, in whole or in part, 

an existing short position in the 

security; (iii) were acquired through the 

exercise or assignment of an option, 

through a tendered conversion, or 

through a secondary offering 

transaction,266 that reduces or closes a 

short position on the (underlying) 

security; (iv) were sold through the 

exercise or assignment of an option that 

creates or increases a short position on 

the (underlying) security; (v) resulted 

from other activity not previously 

reported in the Information Table that 

reduces or closes, or creates or increases 

a Manager’s short position on the 

security, including, but not limited to, 

ETF creation or redemption activity. 

Pursuant to Proposed Rule 13f–2, 

Managers would assemble, review, and 

file the required information with the 

Commission on new Form SHO within 

fourteen (14) calendar days after the end 

of the calendar month. As noted above, 

the Commission would then publish 

aggregated information derived from the 

data reported on new Form SHO, 

aggregated across all reporting 

Managers, within one month after the 

end of the reporting calendar month. 

Specifically, as proposed, the 

Manager would report the following 

information on Information Table 2 for 

each date during the reporting period on 

which a trade settled (settlement date) 

during the calendar month. 

• In Column 1, a Manager would 

enter the date during the reporting 

period on which a trade settled for the 

activity reported. This would identify 

the settlement date activity being 

reported. 

• In Column 2, consistent with 

section 13(f)(2), a Manager would enter 

the name of the issuer, to identify the 

issuer of the security for which 

information is being reported. 

• In Column 3, a Manager would 

enter the issuer’s active LEI, if the issuer 

had an active LEI. The LEI provides 

standardized information that would 

enable the Commission and market 

participants to more precisely identify 

the issuer of each equity security for 

which information is being reported. 

• In Column 4, consistent with 

section 13(f)(2), a Manager would enter 

the title of the class of the security for 

which information is being reported. 

• In Column 5, consistent with 

section 13(f)(2), a Manager would enter 

the nine (9) digit CUSIP number of the 

equity security for which information is 

being reported, if applicable. 

• In Column 6, a Manager would 

enter the twelve (12) character, 

alphanumeric FIGI of the equity security 

for which information is being reported, 

if a FIGI has been assigned. Like CUSIP, 

FIGI provides a methodology for 

identifying securities. 

• In Column 7, for the settlement date 

set forth in Column 1, a Manager would 

enter the number of shares of the equity 

security for which information is being 

reported that resulted from short sales 

and settled on that date. 

• In Column 8, for the settlement date 

set forth in Column 1, a Manager would 

enter the number of shares of the 

security for which information is being 

reported that were purchased to cover, 

in whole or in part, an existing short 

position in that security and settled on 

that date. This activity information 

would allow the Commission and other 

regulators to more quickly identify a 

potential ‘‘short squeeze,’’ which could 

be evidenced by short sellers closing out 

short positions by purchasing shares in 

the open market. If it appeared that a 

short squeeze may have occurred 

through potential manipulative behavior 

involving short selling, the Commission 

could perform further analysis regarding 

the squeeze. Increased risk of detection 

could deter some market participants 

seeking to orchestrate a short squeeze. 

• In Column 9, for the settlement date 

set forth in Column 1, a Manager would 

enter the number of shares of the 

security for which information is being 

reported that are acquired in a call 

option exercise that reduces or closes a 

short position on that security and 

settled on that date. The exercise or 

assignment of an option position can 

reduce or close a short position in the 

underlying equity security. 

• In Column 10, for the settlement 

date set forth in Column 1, a Manager 

would enter the number of shares of the 

security for which information is being 

reported that were sold in a put option 

exercise that created or increased a short 

position on that security and settled on 

that date. Options can be used to create 

economic short exposure such that an 

exercise or assignment of an option 

could create or increase a short position 

in the underlying equity security. 

• In Column 11, for the settlement 

date set forth in Column 1, a Manager 

would enter the number of shares of the 

security for which information is being 

reported that were sold in a call option 

assignment that created or increased a 

short position on that security and 

settled on that date. Options can be used 

to create economic short exposure such 

that an exercise or assignment of an 

option could create or increase a short 

position in the underlying equity 

security. 

• In Column 12, for the settlement 

date set forth in Column 1, a Manager 

would enter the number of shares of the 

security for which information is being 

reported that were acquired in a put 

option assignment that reduced or 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75125 

267Such offering purchases must be reported 

whether they occurred outside or within the 

restricted period of 17 CFR 242.105, Rule 105 of 

Regulation M, which makes it unlawful for a person 

who sells short a security that is the subject of an 

offering to purchase in the offering if the short sale 

occurred during the restricted period. Rule 105 

originally prohibited persons from covering short 

sales with offering purchases but was amended to 

prohibit any purchases of offering shares if the 

person sold short during the restricted period (with 

limited exceptions) ‘‘to end the progression of 

schemes and structures engineered to camouflage 

prohibited covering.’’ Short Selling in Connection 

with a Public Offering, Exchange Act Release No. 

34–54888 (Dec. 6, 2006), 71 FR 75002 at 75005 

(Dec. 13, 2006). The amendment was designed to 

address a proliferation of trading strategies and 

structures attempting to accomplish the economic 

equivalent of the activity that the rule seeks to 

prevent, specifically, attempts to obfuscate the 

prohibited ‘‘covering’’ of the short sale. See, e.g., 

Short Selling in Connection with a Public Offering, 

Exchange Act Release No. 34–56206 (Aug. 6, 2007), 

72 FR 45094 (Aug. 10, 2007). 

268Proposing Release, at 14960. 

269 Id. 

270See supra n. 263. 

271WTI Letter. 

272 Id. See also Anonymously Submitted 

Comment (Mar. 11, 2022), available at https://

www.sec.gov/comments/s7-08-22/s70822-20119226- 

272030.htm (‘‘any and all information’’ should be 

accessible by any investors); Anonymously 

Submitted Comments (Apr. 26, 2022, May 10, 2022, 

Oct. 9, 2022, Oct. 26, 2022); Comment from Erin 

Ashford (Oct 9, 22), available at https://

www.sec.gov/comments/s7-08-22/s70822- 

309605.htm (calling for ‘‘robust and complete 

transparency’’); cf. Anonymously Submitted 

Comment (Mar. 17, 2022) (raising concerns about 

data integrity when the reporting system is based 

on reporting). 

273See, e.g., Comment from Richards (Oct. 31, 

2022), available at https://www.sec.gov/comments/ 

s7-08-22/s70822-317124.htm (‘‘Market fairness and 

transparency is an important part of this 

democracy. It helps to level the playing field.’’); 

Anonymously Submitted Comment (Oct. 19, 2022), 

available at https://www.sec.gov/comments/s7-08- 

22/s70822-20146713-312005.pdf (‘‘In summary, I, 

like many others, support the above proposal to 

increase transparency in the markets, and to 

somewhat level the playing field for smaller, 

independent investors and retail alike.’’); Comment 

from Jonathan Patterson (Mar. 14, 2022), available 

at https://www.sec.gov/comments/s7-08-22/s70822- 

272193.htm (‘‘Shedding some light into the 

transactions of short sellers would be very 

supportive for retail investors and would help to 

level the playing field.’’). 

274See T. Rowe Price Letter, at 2 (urging a 

measured approach to meeting the 929X reporting 

obligation so that ‘‘the public reporting of short sale 

information only satisfies the specific data elements 

and minimum frequency of dissemination 

referenced in section 929X and goes no further.’’); 

Comment Letter from Robert Sloan, Managing 

Partner, S3 Partners, LLC (May 20, 2022), available 

at https://www.sec.gov/comments/s7-08-22/s70822- 

20129426-295541.pdf (recommending reporting be 

limited to public disclosure of ‘‘only those data 

elements required by Section 13(f)(2)’’) (‘‘S3 

Letter’’); see also AIMA Letter (positing that 

Information Table 1 of Form SHO, without the 

requirement to report hedging information, would 

alone be sufficient for the Commission to carry out 

its statutory mandate and achieve its goals). 

closed a short position on that security 

and settled on that date. The exercise or 

assignment of an option position can 

reduce or close a short position in the 

underlying equity security. 

• In Column 13, for the settlement 

date set forth in Column 1, a Manager 

would enter the number of shares of the 

security for which information is being 

reported that are acquired as a result of 

tendered conversions that reduced or 

closed a short position on that security 

and settled on that date. Holders of 

convertible debt often hold short 

positions to hedge their convertible 

position. When the shares of the 

convertible debt are converted, they can 

reduce or close a short position in the 

equity security. 

• In Column 14, for the settlement 

date set forth in Column 1, a Manager 

would enter the number of shares of the 

security for which information is being 

reported that were obtained through a 

secondary offering transaction that 

reduces or closes a short position on 

that security and settled on that date. 

Purchasing securities in a secondary 

offering 267 can reduce or close a short 

position in the equity security. 

• In Column 15, for the settlement 

date set forth in Column 1, a Manager 

would enter the number of shares of the 

security for which information is being 

reported that resulted from other 

activity not previously reported in 

Information Table 2 that creates or 

increases a short position on that 

security and settled on that date. Other 

activity to be reported includes, but is 

not limited to, shares resulting from ETF 

creation or redemption activity. 

• In Column 16, for the settlement 

date set forth in Column 1, a Manager 

would enter the number of shares of the 

security for which information is being 

reported that resulted from other 

activity not previously reported on 

Information Table 2 that reduces or 

closes a short position on that security 

and settled on that date. Other activity 

to be reported includes, but is not 

limited to, shares resulting from ETF 

creation or redemption activity. 

The Commission stated in the 

Proposing Release that it believes that 

the information in Columns 9, 12, 13, 

14, and 16 of proposed Information 

Table 2 would be useful in providing 

the Commission additional context and 

transparency into how and when short 

positions in the reported equity security 

are being closed out or reduced.268 The 

Commission also stated that the 

information in Columns 10, 11, and 15 

would be useful in providing the 

Commission additional context and 

transparency into how and when short 

positions in the reported equity security 

are being created or increased.269

Such daily activity information would 

provide market participants and 

regulators with additional context and 

transparency into whether, how, and 

when reported gross short positions in 

the reported equity security are being 

closed out (or alternatively, increased) 

as a result of the acquisition or sale of 

shares of the equity security resulting 

from call options exercises or 

assignments; put options exercises or 

assignments; tendered conversions; 

secondary offering transactions; 270 and 

other activity. The Commission stated 

that it believed that such activity data 

would also assist the Commission in 

assessing systemic risk and in 

reconstructing unusual market events, 

including instances of extreme 

volatility. 

(B) Comments and Final Rule 

The Commission solicited and 

received comment on the categories of 

short sale activity data that a Manager 

would be required to report on new 

Form SHO Information Table 2. 

Commenters differed on the appropriate 

level of transparency of the short salerelated data presented. Some 

commenters called for robust—if not 

complete—transparency of short salerelated data, while other commenters 

expressed concerns about the breadth of 

the activity information to be reported, 

the related cost burdens to report such 

information, and data security. 

Individual investor commenters, 

generally, were critical of the opacity of 

current short position and short activity 

data disclosure. A group consisting of 

retail investors stated there was a ‘‘lack 

of transparency around short positions, 

the inability to adequately quantify 

short interest, and the ability for firms 

to skirt regulation through derivative 

positions such as options and securitybased swaps.’’ 271 Some individual 

investor commenters viewed Proposed 

Rule 13f–2 and related Form SHO as a 

first step toward achieving the full 

transparency in disclosure they 

perceived as necessary for a fair and 

efficient market.272 To these 

commenters, greater transparency is a 

means to level the playing field for retail 

investors.273

Other commenters acknowledged the 

Commission’s authority to promulgate 

rules to capture short sale-related data 

but took the position that Form SHO 

reporting should be limited to the bare 

minimum necessary to satisfy the 

statutory mandate of DFA section 929X 

(i.e., Exchange Act section 13(f)(2)).274

These commenters expressed concerns 

about requiring the reporting of 

anything beyond the data elements 

expressly specified in section 13(f)(2) of 


ddrumheller on DSK120RN23PROD with RULES2
75126 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

275See, e.g., SIFMA Letter, at 2 (positing that 

‘‘expansive reporting regime contemplated under 

the Proposed Rules would extend significantly 

beyond what Congress intended in passing Section 

929X . . . .’’); Comment Letter from James Toes, 

President & CEO, et al., Security Traders 

Association (Apr. 26, 2022), available at https://

www.sec.gov/comments/s7-08-22/s70822-20126796- 

287509.pdf (‘‘STA Letter’’) (criticizing rulemaking 

proposal as going far beyond mandate of 929X of 

Dodd-Frank Act to prescribe rules providing for 

public disclosure of short sales and recommending 

more alignment of Proposed Rule 13f–2 reporting 

requirements with those of Form 13F); T. Rowe 

Price Letter, at 2. 

276See, e.g., Two Sigma Letter, at 3–4 (raising 

concerns about potential data breaches and 

unintended public dissemination of daily short 

position data); see also AIMA Letter, at 14 (citing 

negative ramifications for Managers, markets and 

the Commission if commercially sensitive and 

valuable data reported in Information Table 2 were 

to be compromised). See also discussion in supra 

Part II.A.4.a.ii. 

277See, e.g., AIMA Letter, at 2 (calling for 

elimination of Information Table 2 because it is 

‘‘too granular’’); MFA Letter, at 4 (calling for 

elimination of Information Table 2 in favor of ‘‘less 

burdensome alternative’’); see also Ropes & Gray 

Letter, at 2 (stating that much of the information to 

be reported under Proposed Rule 13f–2 ‘‘is, or soon 

should be’’ available from existing reporting 

regimes—e.g., CAT, and information reported by 

broker-dealers to FINRA and the exchanges); 

SIFMA Letter, at 15–19 (recommending elimination 

of Information Table 2 altogether or alternatively 

that reporting of short activity data be limited to 

reporting only gross short positions at the end of 

each settlement day when a reporting threshold is 

breached (excluding detailed purchase and sale 

activity); cf. T. Rowe Price Letter, at 3 

(recommending that Commission not use the 

permissive authority granted in section 13(f)(2) of 

the Exchange Act to gather additional information 

that would not be beneficial to the market and 

would be challenging for Managers to compile). See 

also discussion in supra Part II.A.4.a.i. 

278See, e.g., Ropes & Gray Letter, at 3, 6 (stating 

that it would be difficult to ‘‘to discern market 

sentiment or levels of activity from the net number 

published by the Commission, and the utility of 

publishing daily net transactions data to market 

participants will also likely be limited’’); see also 

K&L Gates Letter, at 2 (questioning the ‘‘value and 

impact’’ of the information called for under 

Proposed Rule 13f–2, that would supplement 

information currently available from other sources). 

279See, e.g., Two Sigma Letter, at 7 (commenting 

that the ‘‘commercial risk and operational burdens 

created by daily reporting of individual short 

positions’’ was not adequately justified in the 

Proposing Release); MFA Letter, at 9–10 (raising 

concern that costs and consequences of Proposals 

would have a chilling effect on institutional 

investment managers’ pursuit of short strategies); 

Perkins Coie Letter, at 2–3 (stating that the benefits 

of the reported information would be outweighed 

by compliance costs for Managers that do not 

regularly utilize short positions ‘‘[F]or institutional 

investment managers that only selectively utilize 

short positions, or who only do so passively, these 

additional compliance costs in relation to the 

institutional investment manager’s usage of short 

positions could in turn impose untended risks to 

the manager’s underlying investors if the 

institutional investment manager must divert 

additional time and resources for compliance and 

oversight. This appears to be yet another affirmative 

reporting requirement that will increase compliance 

and overhead cost, without a [commensurate] 

benefit.’’). 

280See, e.g., MFA Letter, at 14 (describing 

categories of information required in Information 

Table 2 as ‘‘unclear, requir[ing] complicated 

judgments on the part of [M]anagers, and . . . likely 

to yield inconsistencies in reporting and results that 

are not accurate.’’); Ropes & Gray Letter, at 3 

(positing that reporting under Proposed Rule 13f– 

2 would impose ‘‘significant costs’’ on Managers, 

would not result in disclosure of ‘‘actionable 

information to market participants,’’ and is not 

necessary to allow the Commission to perform 

‘‘effective market surveillance’’); see also S3 Letter, 

at 2 (predicting that short activity monitoring 

required by Information Table 2 of Form SHO will 

be a ‘‘substantial lift’’ for Managers’ administrative 

systems); SBAI Letter, at 2 (positing that proposed 

Form SHO data collection framework not justified 

from a cost benefit perspective and provides ‘‘very 

limited’’ additional insight in an untimely manner). 

281Proposing Release, at 14955. 

282See Proposing Release, at 14987–14988, 14991 

(discussing how existing sources of short salerelated data are not sufficiently granular, for 

example, to provide sufficient insights to further 

understanding of short selling strategies, to 

distinguish short sale transactions that impact short 

positions and those that do not, or into the timing 

with which short positions are established or 

covered). 

283See infra Part VIII.B.4. 

284Proposing Release, at 14959. 

285A secondary offering transaction for purposes 

of this requirement means an offering, other than 

an initial public offering, or ‘‘IPO,’’ for the same 

class of security that is the subject of the short sale. 

Such an offering could be made by the issuer and 

include newly created and or treasury shares and 

could also include or be made exclusively by 

selling shareholders. 

the Exchange Act.275 Expressing 

concerns that the data required in 

Information Table 2 of Proposed Form 

SHO is too granular and contains an 

excessive amount of commercially 

sensitive information that, if 

misappropriated, would lead to 

commercial harm, these commenters 

recommended that, at a minimum, the 

scope of information required to be 

reported on Information Table 2 of 

Proposed Form SHO be substantially 

limited, or that Information Table 2 be 

eliminated altogether.276 Some of these 

commenters suggested that the 

Commission rely instead on existing 

sources of short-sale related data, such 

as CAT or short sale-related data 

provided to FINRA and the 

exchanges.277 Other commenters 

questioned the utility of the reported 

information proposed to be required.278

Several commenters expressly or 

effectively questioning the need for 

Information Table 2, also raised the 

concern that the short activity 

monitoring necessary to comply with 

the reporting requirements of Proposed 

Form SHO would require any Manager 

that engages in short selling to expend 

significant time and resources to 

enhance or revamp its systems to 

monitor activity continuously, without 

certainty as to if or when its short 

selling activity would meet or exceed 

the reporting thresholds.279 These 

commenters concluded that the costs to 

operationalize Rule 13f–2 had not been 

adequately weighed against any benefits 

to regulators or the public.280

Final Rule 

The Commission continues to believe 

that publication of aggregated short 

position data, on a delayed basis, is a 

reasonable means of minimizing the 

potential negative impacts of short 

position and short activity disclosures 

on short selling and allaying data 

security concerns raised by commenters 

while at the same time increasing 

transparency.281 This rationale applies 

to Information Table 2, which is about 

daily activities. Eliminating Information 

Table 2 would not further the goal of 

enhancing the transparency of short 

sale-related data.282 And for reasons 

stated below, the data available from 

existing sources of short sale-related 

information have limitations, so they do 

not extinguish the need for additional 

transparency in the short sale market.283

The data to be reported in the 

following columns of Information Table 

2 in Proposed Form SHO will provide 

regulators with additional context and 

transparency into how and when 

reported gross short positions were 

closed out or increased, which will help 

the Commission assess systemic risk.284

These columns are as follows: 

• Column 7: Number of Shares Sold 

Short 

• Column 8: Number of Shares 

Purchased to Cover an Existing Short 

Position 

• Column 9: Number of Shares 

Purchased in Exercised Call Option 

Contracts 

• Column 10: Number of Shares Sold in 

Exercised Put Option Contracts 

• Column 11: Number of Shares Sold 

Short in Assigned Call Option 

Contracts 

• Column 12: Number of Shares 

Purchased in Assigned Put Option 

Contracts 

• Column 13: Number of Shares 

Resulting from Tendered Conversions 

• Column 14: Number of Shares 

Obtained Through Secondary Offering 

Transaction 285

• Column 15: Other Activity that 

Creates or Increases Manager’s Short 

Position 

• Column 16: Other Activity that 

Reduces or Closes Manager’s Short 

Position 

However, the Commission is 

modifying the design of Information 

Table 2 of Proposed Form SHO to help 

reduce the costs and burdens of 

complying with the reporting 

requirements of Proposed Rule 13f–2 

without sacrificing the level of 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75127 

286See Special Instructions 9.g of Proposed Form 

SHO. 

287See infra Part VIII.C.1 for a discussion of how 

the Rule 13f–2 (and the adopted CAT amendment) 

will enhance the Commission’s ability to protect 

investors and investigate market manipulation by 

providing a clearer view into the short selling 

market and improving the Commission’s and other 

regulators’ reconstruction of significant market 

events. 

288Proposing Release, at 14961. 

289Comment Letter from Anonymous (Mar. 21, 

2022), available at https://www.sec.gov/comments/ 

s7-08-22/s70822-20120739-272894.pdf. 

290See id. 

291AIMA Letter, at 15. 

292 Id. 

transparency of short sale activity data 

made available to market participants as 

prescribed in Proposed Rule 13f–2(a)(3). 

Under the reporting regime of 

Proposed Rule 13f–2, Managers would 

have been required to report each 

category of short activity information 

included in Columns 7–16 (above) of 

Information Table 2 of Proposed Form 

SHO.286 The Commission, for each 

individual column, would then tabulate 

the information reported to determine 

and publish the net activity in each 

reported equity security, as aggregated 

across all reporting Managers. That net 

activity would be expressed by a single 

identified number of shares of the 

reported equity security and be 

determined by offsetting the purchase 

and sale activity reported by Managers 

in Columns 7–16 of Information Table 2 

of Proposed Form SHO. 

Under the adopted version of 

Information Table 2, Columns 7–16 of 

Information Table 2 of Proposed Form 

SHO are replaced by a single, new 

Column 7, in which Managers will 

report net activity in the security for 

which information is being reported 

(represented as a number of shares). 

More specifically, Special Instruction 

9.g of Form SHO, as adopted, requires 

Managers to report net change in short 

position reflecting how the gross short 

position in shares of the security for 

which information is being reported are 

being closed out—or alternatively, 

increased—as a result of the acquisition 

or sale of share activity determined by 

offsetting prescribed types of purchase 

and sale activity. Those prescribed types 

of purchase and sale activities 

correspond to the purchase and sale 

activities identified in Columns 7–16 of 

Proposed Form SHO. The net activity 

will be determined by Managers—rather 

than by the Commission—and reported 

to the Commission. The Commission 

will then aggregate the reported daily 

net change numbers across Managers for 

public dissemination. Under the 

adopted version of Information Table 2, 

the Commission will receive less 

granular information from reporting 

Managers than was proposed. The 

Commission, however, will receive net 

activity information from reporting 

Managers for each settlement date 

during the calendar month which will 

provide additional context and 

transparency into whether the reported 

gross short positions in the reported 

equity security are being closed out (or 

alternatively, increased) as a result of 

the acquisition or sale of shares of the 

equity security resulting from call 

options exercises or assignments; put 

options exercises or assignments; 

tendered conversions; secondary 

offering transactions; and other activity. 

The Commission believes that this is a 

reasonable approach that considers both 

those comments that supported 

additional transparency with regard to 

short sale-related information that 

would result from Information Table 2 

reporting, and also comments about cost 

and data security concerns with regard 

to such reporting. This reported net 

activity information will assist the 

Commission in assessing systemic risk 

and in reconstructing unusual market 

events, including instances of extreme 

volatility.287

These modifications in the final rule 

for Information Table 2 of Form SHO 

result in no change to the net activity 

information that will be made publicly 

available by the Commission. Under 

Proposed Rule 13f–2 and Proposed 

Form SHO, the Commission would 

publish net activity information for each 

reported equity security, aggregated 

across all categories of activity in 

Columns 7–16 of Information Table 2 of 

Proposed Form SHO, and aggregated 

across all reporting Managers. Under 

Rule 13f–2 and Form SHO, the 

Commission will publish this same net 

activity information for each reported 

equity security as originally proposed 

by the Commission.288 And for this 

reason, Information Table 2 as adopted 

will not sacrifice transparency to market 

participants. 

e. Filing Amendments 

i. Proposal 

To facilitate the Commission’s process 

of aggregating the short sale-related 

information reported on Form SHO for 

publication, the Commission proposed 

that amendments to Form SHO must 

restate the Form SHO in its entirety. To 

inform the Commission that the filing is 

an amendment of a previously filed 

Form SHO, the Commission proposed 

that a Manager must check the box on 

the Form SHO Cover Page to indicate 

that the filing is an ‘‘Amendment and 

Restatement.’’ On the Cover Page of 

each Amendment and Restatement filed, 

the Commission proposed that a 

Manager must provide a written 

description of the revision being made, 

explain the reason for the revision, and 

indicate whether data from any 

additional Form SHO reporting 

period(s) (up to the past 12 calendar 

months) is/are affected by the 

amendment. If other reporting periods 

have been affected, the Commission 

proposed that a Manager shall complete 

and file a separate Amendment and 

Restatement for each previous calendar 

month so affected and provide a 

description of the revision being made 

and explain the reason for the revision. 

In cases where a revision is reported 

in an Amendment and Restatement that 

changes a data point reported in the 

Form SHO by twenty-five (25) percent 

or more, the Commission proposed that 

the Manager must notify the 

Commission staff via the Office of 

Interpretation and Guidance of the 

Division of Trading and Markets (‘‘TM 

OIG’’) at TradingAndMarkets@sec.gov 

within two (2) business days after filing 

the Amendment and Restatement. 

ii. Comments and Final Rule 

The Commission received some 

comments on the issue of amendments 

and restatements. One comment stated 

that the notification requirement for an 

amendment of 25 percent or more is too 

large, and that lower percentage 

revisions can be considered 

significant.289 The commenter further 

recommended that the notification 

requirement for amendments be reduced 

to revisions of 15 percent or more and 

that the number of revisions allowed for 

individual Managers be limited.290

Another commenter stated that if a nonmaterial error has been made, a Manager 

should not have to restate Form SHO in 

its entirety, and that a simple note or 

addendum should suffice.291 This 

commenter also encouraged the 

Commission to adopt a materiality 

threshold for other errors or omissions, 

i.e., if the error does not ‘‘materially 

impact the data the Commission intends 

to publish, then the Manager should not 

be required to restate Proposed Form 

SHO in its entirety,’’ stating that this 

would ‘‘eliminate the need for the 

Commission to collect even more 

commercially sensitive and valuable 

data and, in turn, relieve Managers of 

the time and costs that would be 

required to calculate, populate, and refile an entirely new Proposed Form 

SHO.’’ 292


ddrumheller on DSK120RN23PROD with RULES2
75128 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

293Proposing Release, at 14960. 

294Special Instruction 3.b of Proposed Form SHO 

provided that if a data being reported in an 

Amendment and Restatement affects the data 

reported on the Form SHO reports filed in at least 

three of the immediately preceding Form SHO 

reporting periods, the Manager, within two (2) 

business days after filing the Amendment and 

Restatement, must provide the Commission staff, 

via TM OIG at TradingAndMarkets@sec.gov, with 

notice of (1) this circumstance; and (2) an 

explanation of the reason for the revision. Special 

Instruction 3.c of Proposed Form SHO provided 

that if a revision reported in an Amendment and 

Restatement changes a data point reported in the 

Form SHO that is being amended by 25% or more, 

the Manager must notify the Commission staff via 

TM OIG at TradingAndMarkets@sec.gov within two 

business days after filing the Amendment and 

Restatement. 

295See Proposing Release, at 14961. 296See id. 297 Id. at 14957. 298Schulte Roth & Zabel Letter, at 5 (urging the 

Commission to permit confidential treatment 

requests with respect to the data to be included in 

the aggregated data to be published by the 

Commission on a case-by-case basis). 

The Commission is adopting 

procedures for filing and amending 

Form SHO consistent with the 

Proposing Release but modified to no 

longer require Managers to separately 

notify the Commission that the 

reporting discrepancies presented in an 

Amendment and Restatement have 

occurred. A Manager that determines or 

is made aware that it has filed a Form 

SHO with errors that affect the accuracy 

of the information reported must file an 

amended Form SHO within ten (10) 

calendar days of discovery of the error. 

The Commission continues to believe 

that filing an amended Form SHO 

within 10 calendar days of discovery of 

the error will provide Managers with a 

reasonable period of time to prepare the 

Form SHO amendment, while helping 

to ensure that accurate information is 

received by the Commission in a timely 

manner. 

The Commission is adopting the 

requirement, as proposed, that 

amendments to a previously filed Form 

SHO restate the Form SHO in its 

entirety, as described in Special 

Instruction 3 to Form SHO. Form SHO 

Special Instruction 3.a provides that on 

the Cover Page of each amended and 

restated Form SHO filing, a Manager 

must: check the box to indicate that the 

filing is an ‘‘Amendment and 

Restatement,’’ provide a written 

description of the revision being made, 

explain the reason for the revision, and 

indicate whether data from any 

additional calendar month reporting 

period(s) (up to the past 12 calendar 

months) is/are affected by the 

amendment. Consistent with the 

proposed procedures for filing an 

amended Form SHO, if other reporting 

periods have been affected, a Manager 

must complete and file a separate 

Amendment and Restatement for each 

previous calendar month so affected, 

and provide a description of the 

revision being made and explain the 

reason for the revision. As proposed and 

discussed further below, the 

Commission will provide aggregated 

data on a rolling twelve-month basis, 

with prior months’ data updated as 

necessary to reflect data from 

Amendments and Restatements. The 

Commission continues to believe that 

limiting the requirement to file an 

amended Form SHO to twelve months 

will reduce the burden and cost on 

Managers.293 In response to comments 

requesting a materiality threshold, 

requiring a Form SHO to be restated in 

its entirety should add little if any 

additional burden, as the Manager will 

have already compiled such data, and 

thus no additional data collection will 

be required other than to correct the 

data point that is being amended. A 

materiality threshold could create 

additional complexity in determining 

how and when to file an amendment to 

Form SHO, and as such, the 

Commission is adopting the 

straightforward approach that any 

revision requires the Manager to restate 

Form SHO in its entirety when filing an 

amendment. 

The Commission is not adopting, 

however, the requirements that a 

Manager provide the Commission notice 

of the revision(s) reported in an 

Amendment and Restatement and an 

explanation of the reason(s) for the 

revision(s), as prescribed in Proposed 

Form SHO Special Instruction 3.b and 

3.c; 294 and each of those Special 

Instructions in Proposed Form SHO is 

deleted from Form SHO as adopted. 

This change will reduce compliance 

costs for Managers filing Amendments 

and Restatements by not requiring them 

to provide a separate notice regarding 

information that has been reported, and 

therefore is available, to the 

Commission via EDGAR, without 

sacrificing transparency. 

Consistent with the proposed 

procedures for publishing data reported 

on or derived from Form SHO reports— 

including any Amendments and 

Restatements, the Commission plans to 

update prior months’ aggregated Form 

SHO data on EDGAR to reflect 

information reported in Amendments 

and Restatements and will add an 

asterisk (i.e., *) or other mark for any 

updated data for which a Manager 

notified Commission staff that it filed an 

Amendment and Restatement that 

changes a data point reported in the 

Form SHO by 25 percent or more to 

highlight for market participants that 

the published aggregated data includes 

significantly revised data. The 

Commission will publish the aggregated 

Form SHO data for the latest reporting 

period along with aggregated Proposed 

Form SHO data for the prior twelve 

months on a rolling basis. The 

published aggregated Form SHO data 

will include a disclaimer that the 

Commission does not ensure the 

accuracy of the data being published.295

Maintaining these requirements will 

help preserve the integrity of the 

reported short sale data and alert market 

participants to any potential issues with 

published data.296

f. Confidential Treatment 

i. Proposal 

The instructions to Proposed Form 

SHO provided that all information that 

would reveal the identity of a Manager 

filing a Proposed Form SHO report with 

the Commission would be deemed 

subject to a confidential treatment 

request under 17 CFR 240.24b–2 (‘‘Rule 

24b–2’’).297 As discussed in the 

Proposing Release, the Commission 

proposed to publish only aggregated 

data derived from information provided 

in Proposed Form SHO reports. 

Proposed Form SHO, by its terms, 

ensured that information reported on 

the form that could reveal the identity 

of the reporting Manager would be 

deemed subject to a confidential 

treatment request. Pursuant to section 

13(f) of the Exchange Act, the 

Commission may prevent or delay 

public disclosure of all other 

information reported on Proposed Form 

SHO in accordance with the Freedom of 

Information Act (‘‘FOIA’’), section 

13(f)(4) and (5), Rule 24b–2(b) under the 

Exchange Act, and any other applicable 

law. 

ii. Comments and Final Rule 

The Commission received a single 

comment regarding confidential 

treatment. Stating that there are a 

variety of valid reasons beyond the 

example provided in the Proposing 

Release that a Manager might seek 

confidential treatment of information 

reported on Proposed Form SHO, the 

commenter urged the Commission to 

adopt a more flexible process for 

seeking confidentiality that would 

enable Managers and the Commission 

staff to determine whether confidential 

treatment is appropriate.298 The 

Commission is adopting an approach 

consistent with the Proposing Release 

but modified to refer to Rule 83 (17 CFR 

200.83), and to provide that all 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75129 

299The Commission will follow Rule 83 

procedures in addressing any requests for 

information reported on Form SHO deemed subject 

to a confidential treatment request. 

300See ‘‘Rules to Prevent Duplicative Reporting’’ 

in the ‘‘General Instructions’’ of Form 13F, available 

at https://www.sec.gov/pdf/form13f.pdf. 

301Proposing Release, at 14955. 

302Proposing Release, at 14960 n.72. 

303See, e.g., Comment from Dale Eaglen (Feb. 25, 

2022), available at https://www.sec.gov/comments/ 

s7-08-22/s70822-20117894-270815.htm; Comment 

from Michael Behrens (Feb. 25, 2022), available at 

https://www.sec.gov/comments/s7-08-22/s70822- 

270806.htm (‘‘Michael Behrens Comment’’); 

Comment from Stephen (Mar. 4, 2022), available at 

https://www.sec.gov/comments/s7-08-22/s70822- 

20118671-271537.pdf; Comment from Kevin B. 

(Mar. 14, 2022), available at https://www.sec.gov/ 

comments/s7-08-22/s70822-20119357-272243.htm; 

see also Steve B. Comment (expressing concern that 

‘‘[s]hort positions are currently ‘self regulated’ ’’), 

Comment Letter from Mike Monisky (Mar. 4, 2022) 

available at https://www.sec.gov/comments/s7-08- 

22/s70822-20118657-271529.pdf (expressing 

concerns about misreporting of securities 

transactions to FINRA) (‘‘Mike Monisky Letter’’), 

Comment from Jonathan Dumaine (Mar. 14, 2022), 

available at https://www.sec.gov/comments/s7-08- 

22/s70822-20119364-272250.htm (expressing 

general concern for potential for abuse whenever 

self-reporting on forms is involved) (‘‘Jonathan 

Dumaine Comment’’). 

304Comment from J. T. (Oct. 2, 2022), available 

at https://www.sec.gov/comments/s7-08-22/s70822- 

309405.htm. 

305See, e.g., Michael Behrens Comment; Mike 

Monisky Letter; Jonathan Dumaine Comment. 

306See Michael Behrens Comment. 

307See, e.g., Michael Behrens Comment; 

Comment from Jana Caperton (Mar. 12, 2022), 

available at https://www.sec.gov/comments/s7-08- 

22/s70822-20119201-272007.htm; Comment from 

Jim Lee (May 26, 2022), available at https://

www.sec.gov/comments/s7-08-22/s70822- 

295810.htm (‘‘Jim Lee Comment’’); Comment from 

Gerry T. (Oct. 31, 2022), available at https://

www.sec.gov/comments/s7-08-22/s70822- 

317082.htm; Comment Letter from Wayne C. Smith 

(Dec. 3, 2022), available at https://www.sec.gov/ 

comments/s7-08-22/s70822-20152504-320238.pdf. 

information will be deemed subject to a 

confidential treatment request under 

Rule 83. 

As proposed, the instructions to Form 

SHO expressly provided that all 

information that would reveal the 

identity of a Manager filing a Proposed 

Form SHO report with the Commission 

would be deemed subject to a 

confidential treatment request under 

Rule 24b–2, as described in the ‘‘Filing 

of Form SHO’’ section of the General 

Instructions to Form SHO. Because the 

Commission does not intend those 

filings to be public, Rule 83 includes 

appropriate and less burdensome 

procedures and, accordingly, is revising 

the General Instructions to provide that 

data will also be deemed subject to a 

confidential treatment request under 

Rule 83. 

As with the Proposed Rule, the 

Commission currently plans to publish 

only aggregated data derived from 

information provided in Proposed Form 

SHO reports. While it is possible a 

person may be able to determine the 

identity of a Manager (or reverse 

engineer a Manager’s trading strategies) 

in a situation where only one person 

was selling short, especially where the 

short seller has publicly disclosed that 

it has a short position in a specific 

security, the Commission continues to 

believe that excluding such data from 

the aggregated data published by the 

Commission could affect the integrity of 

the data. The Commission anticipates 

that the risk of exposing a single short 

seller will be mitigated by the delay in 

publication of the aggregated data. 

The Commission does not anticipate 

disclosing information in Form SHO, 

other than to the extent the data is 

included in the Commission’s 

aggregated disclosures, and the 

Commission will deem the information 

included in Form SHO as being subject 

to a confidential treatment request 

under Rule 83. Accordingly, the 

Commission is further revising the 

General Instructions to provide that all 

information included in the Form SHO 

is deemed subject to a confidential 

treatment request under Rule 83. 

Pursuant to section 13(f) of the 

Exchange Act, the Commission may 

prevent or delay public disclosure of all 

other information reported on Form 

SHO in accordance with FOIA, section 

13(f)(4) through (5), Rule 83, and any 

other applicable law.299

g. Preventing Duplicative Reporting 

i. Proposal 

The rules to prevent duplicative 

reporting of information regarding short 

positions and short activities of an 

equity security in Proposed Form SHO 

were partially modeled after those in 

Form 13F.300 More specifically, as 

described in the General Instructions to 

Proposed Form SHO, if two or more 

Managers, each of which would be 

required by Proposed Rule 13f–2 to file 

Proposed Form SHO for the reporting 

period, exercise investment discretion 

with respect to the same security, only 

one such Manager would be required to 

report information regarding that 

security in its Proposed Form SHO 

report. The Commission proposed that if 

a Manager were required to file a 

Proposed Form SHO report with respect 

to a security and chose to rely on the 

duplicative reporting provisions of the 

General Instructions to Proposed Form 

SHO, then such Manager would be 

required to identify on the cover page of 

its Proposed Form SHO report any other 

Managers filing a Proposed Form SHO 

report with respect to such security on 

behalf of the Manager, in the manner 

described in Special Instruction 5 of 

Proposed Form SHO. Duplicative 

reporting could result in unnecessary 

costs to Managers and could make the 

aggregated data published by the 

Commission less accurate. 

ii. Comments and Final Rule 

The Commission did not receive any 

comments regarding duplicative 

reporting, and for the reasons stated in 

the Proposing Release, is adopting 

Special Instruction 5 to Form SHO as 

proposed. 

h. Verification of Short Sale Data 

i. Proposal 

The Commission stated in the 

Proposing Release that it does not 

intend to verify the accuracy of the data 

reported by Managers, but may consider 

doing so in the future after assessing 

whether such verification would be 

useful or necessary to enhance the 

integrity of the data.301 The Commission 

further stated that field validations act 

as an automated form completeness 

check when a Manager files Proposed 

Form SHO through EDGAR, and that the 

validations do not verify the accuracy of 

the information filed in the Proposed 

Form SHO filings.302

ii. Comments and Final Rule 

The Commission received many 

comments on the issue of Manager 

reporting and data verification. The 

comments supported implementing a 

Commission verification system for 

reported data, stating that reporting as 

proposed would lead to inconsistencies. 

Commenters expressed concerns 

regarding the self-reporting of data, 

citing the potential for errors or 

intentional manipulation of data.303 One 

commenter stated that Managers have 

incentives to report inaccurately, 

especially if there is concern over 

unveiling short selling strategies.304

Other commenters cited examples of 

instances of potential issues with data 

resulting from under-reporting, overreporting, and misreporting.305 One 

commenter stated, without further 

detail, that orders were being 

mismarked as short exempt in order to 

circumvent the short sale circuit breaker 

of Rule 201 of Regulation SHO.306 Other 

commenters suggested that the 

Commission verify the accuracy of 

reported data via a random audit, such 

as auditing reporting at a rate applicable 

to five percent of reported data per 

quarter.307 Several commenters also 

suggested that short sale transactions be 

placed on a publicly available, 


ddrumheller on DSK120RN23PROD with RULES2
75130 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

308See, e.g., Comment from Joseph M. Grato (Mar. 

21, 2022), available at https://www.sec.gov/ 

comments/s7-08-22/s70822-20120589-272777.htm 

(‘‘Joseph Grato Comment’’); Jim Lee Comment. 

309 Jonathan Dumaine Comment. 

310See, e.g., Ropes & Gray Letter, at 2; Two Sigma 

Letter, at 9–10; ICI Letter, at 5; see also K&L Gates 

Letter, at 2 (stating that the Proposal ‘‘is 

unnecessary and, on balance, overly burdensome 

given the sufficiency of existing data availability’’); 

Virtu Letter, at 2 (stating that the Commission ‘‘has 

not proffered a regulatory need or justification for 

why the current reporting regime is inadequate’’); 

SIFMA Letter, at 13 (‘‘respectfully disagree[ing] 

with the Commission’s assertions that the data 

available to it through the existing reporting 

regimes is not sufficient to allow the SEC to meet 

its obligations under Section 929X’’); Perkins Coie 

Letter, at 2; AIMA Letter, at 8–10 (stating that 

‘‘[w]ith tailored refinements to FINRA reporting and 

the combination of the proposed CAT amendments 

. . . the Commission can still fulfill the statutory 

mandate and achieve the goals outlined in the 

Proposal but without creating additional reporting 

requirements, burdens and costs for many market 

participants’’); SBAI Letter, at 2 (stating that instead 

of implementing a new reporting regime, the 

Commission should ‘‘[f]ocus should instead lie on 

making enhancements to FINRA’s existing 

collection and activity fit for purpose.’’); T. Rowe 

Price Letter, at 3 (stating that ‘‘[g]iven the extensive 

data already available to the SEC through FINRA’s 

existing short interest reporting, stock exchanges’ 

reporting of short sale activity, and the [CAT], the 

SEC should extract the short data it desires from 

these sources, rather than create new reporting 

obligations for managers whose activity is already 

captured by these existing frameworks.’’). 311See, e.g., Ropes & Gray Letter, at 2; SIFMA 

Letter, at 19. 312See, e.g., SIFMA Letter, at 9–10; K&L Gates 

Letter, at 2; Virtu Letter, at 2. 313See Proposing Release, at 14953–4. 314See, e.g., Virtu Letter, at 2 (stating that the 

Commissions should ‘‘explore ways to utilize the 

existing sources of data that already are available 

to the SEC rather than establishing yet another pool 

of short sale data.’’). 

315See Proposing Release, at 14981–82. See also 

infra Part VIII.B.4. 

316See Proposing Release, at 14981–82. 

317The short interest data reported reflects 

aggregate short positions as of the specified 

reporting dates. 

318Proposing Release, at 14995. 

319With regard to Threshold B, as discussed in 

the Proposing Release, a $500,000 or more 

threshold for non-reporting company issuer 

securities is similar to the median dollar value of 

a position of 2.5 percent of the market capitalization 

of OTC stocks for which the Commission was able 

to obtain information on total shares outstanding. 

Hence, it is proportional to Threshold A in 

capturing substantial short positions. See supra Part 

II.A.3.a for additional discussion of Reporting 

Thresholds. 

immutable log, perhaps using 

blockchain technology, as a solution to 

the issue of verification.308 Finally, one 

commenter suggested that it should be 

the duty of exchanges and brokerdealers to report eligible short 

positions.309

The Commission is adopting the 

reporting requirement as proposed. 

Consistent with the Commission’s 

statement in the Proposing Release, the 

Commission does not intend to verify 

the accuracy of the data received from 

the Managers but may consider doing so 

after assessing whether such verification 

would be useful or necessary to enhance 

the integrity of the data. The reporting 

Managers are responsible for the 

completeness, timeliness, and accuracy 

of information included in their 

mandatory filings to the Commission. 

The Commission has the ability to 

conduct examinations to help evaluate 

whether reporting Managers are in 

compliance and, where necessary, the 

Commission may bring enforcement 

actions where potential violations are 

believed to have occurred. 

i. New Reporting Regime—Comments 

and Final Rule 

Rather than create a new reporting 

regime by adopting the Proposals, 

several industry commenters urged the 

Commission to leverage the existing 

data frameworks of FINRA, CAT, and 

other data filed with the Commission 

(e.g., Form N–PORT).310 These 

commenters stated that leveraging 

existing reporting frameworks would 

alleviate compliance burdens and 

associated costs,311 and that existing 

reporting frameworks were already 

sufficient for short interest reporting.312

These commenters stated, and the 

Commission acknowledges,313 that there 

are multiple sources of existing public 

and non-public data related to short 

sales. FINRA and most exchanges 

collect and publish daily aggregate short 

sale volume data, and on a one month 

delayed basis publish aggregated 

information regarding short sale 

transactions. FINRA collects and 

aggregates short interest data from 

broker-dealer member firms, by security, 

twice each month. 

In assessing how the Commission 

might leverage existing data to satisfy 

the mandate of section 929X, it is 

important to note differences in 

reporting entities, timing, and the 

specific data being collected in existing 

public and non-public sources of short 

sale-related data. The letters submitted 

by industry commenters critical of the 

Proposed Rule 13f–2 reporting regime 

did not explain with any specificity 

how the Commission could leverage 

existing sources of short data so that the 

Commission would receive equal or 

comparable data to that which will be 

reported on Form SHO, nor did 

Commenters articulate how short data 

that is currently available to market 

participants is comparable to data 

which would be reported on Form SHO 

and published by the Commission, 

rather the comments referenced 

leveraging of existing sources 

generally.314

After considering the viewpoints of 

commenters, the Commission believes 

that a new reporting regime will 

increase transparency into short 

positions consistent with the goals of 

DFA 929X, and that market participants 

and regulators alike will benefit from 

the required Form SHO disclosures, as 

they are distinct from existing short sale 

reporting regimes. Further, the short 

sale-related information that will be 

collected under Rule 13f–2 and Form 

SHO will fill an information gap for 

market participants and regulators by 

providing insights into increases and 

decreases in reported short positions. As 

stated in the Proposing Release, the 

Commission believes that the short 

position data reported pursuant to Rule 

13f–2 on Form SHO will supplement 

the short sale information that is 

currently publicly available from FINRA 

and the exchanges.315 In the Proposing 

Release, the Commission elaborated on 

the limitations of using existing data, 

such as the CAT or FINRA data, to 

reconstruct market events like the 

‘‘meme’’ stock events of January 

2021.316 The Commission stated that 

while some existing sources report daily 

short sale volume, there are several 

limitations with regard to using existing 

data sources to accurately represent the 

short exposure of Managers. The short 

sale data reported on Form SHO will 

include the daily ‘‘net’’ activity by 

reporting Managers on each settlement 

date during the calendar month in the 

security for which information is being 

reported, and such information is not 

currently available from FINRA or the 

exchanges. Moreover, because FINRA’s 

existing short interest data reports 

aggregate short positions on a bimonthly 

basis,317 those reports do not reflect the 

timing with which short positions 

increase or decrease in the two-week 

period between the two reporting dates. 

The short sale data reported on Form 

SHO will help to fill that information 

gap. The Commission continues to 

believe that publication of this 

additional aggregated information can 

help to further inform market 

participants regarding overall short sale 

activity by Managers with substantial 

short positions and will provide 

regulators as well as market participants 

with important information regarding 

the timing of increases and decreases in 

the reported short positions.318 Finally, 

compared to other existing reporting 

regimes, the Reporting Thresholds in 

Rule 13f–2 are designed to require the 

reporting of only substantial, hence 

more informative, short positions.319

Further, the Commission understands 

that while FINRA makes publicly 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75131 

320 In mid-to-late Dec. 2022, FINRA began 

publishing short sale information for exchangetraded as well as OTC equity securities. See Equity 

Short Interest Files, FINRA, available at https://

www.finra.org/finra-data/browse-catalog/equityshort-interest/files. 

321Proposing Release, at 14952. 

322See, e.g., MFA Letter, at 2 (positing that 

combined costs of compliance with the Proposals 

and other related Commission proposed 

rulemakings would be ‘‘insurmountable for small 

and newly-formed advisers’’); Anonymous Fund 

Manager Letter, at 7–8. See infra Parts VIII.B, 

VIII.C.6.f, VIII.D.2 for a discussion of interactions 

between the economic effects of the adopted rule 

and other Commission rulemakings. 

323See infra Part IX. 

324See generally infra Part VIII. 

325See Proposing Release, at 14955. 

326See id., at 14955. 

327See id., at 14955. 

328See id., at 14967. 

329 Id. 

330E.g., SBAI Letter, at 2 (concluding that ‘‘only 

aggregate, anonymized, and delayed public 

reporting of short positions’’ mitigates concerns 

about the potential risks of short position 

disclosures); Two Sigma Letter, at 1–3 (expressing 

concerns that disclosure of individual short 

positions could lead to revelation of commercially 

sensitive systematic investment strategies and to 

front-running and other actions that undermine 

those strategies, and that such disclosures would 

provide incomplete information, and potentially 

misleading signals, to investors); see also T. Rowe 

Price Letter, at 2 (raising concerns about the effects 

the rulemaking proposal would have on liquidity 

and price discovery); Law and Finance Professors 

Letter, at 2–3 (stating potential chilling effect on 

short selling if identities of short sellers are publicly 

disclosed). 

331E.g., Schulte Roth & Zabel Letter, at 4 

(alternative proposal to publish anonymized short 

sale-related data reported on an individual Manager 

would risk eviscerating potential confidentiality 

protections of reporting Managers and jeopardize 

the confidentiality of a Manager’s positions, 

strategies or proprietary business information); 

MFA Letter, at 3 (stating the need for ‘‘robust data 

security protocols’’ to protect information reported 

pursuant to Proposed Rule 13f–2). 

available short sale-related data 

pertaining to both exchange-traded 

equity securities and OTC equity 

securities that is reported to it by its 

member firms,320 some of the exchanges 

require payment of a fee to access short 

sale-related data, which may make it 

difficult for some investors to access the 

data. The reporting regime under Rule 

13f–2, by contrast, will provide 

aggregated short sale-related data in a 

readily accessible location (i.e., EDGAR 

or the Commission website), free and 

accessible to all investors and other 

market participants. The Commission 

continues to believe that providing free, 

accessible, and more complete 

information to market participants 

regarding short sale-related data will aid 

market participants in their 

understanding of the level of negative 

sentiment about a particular equity 

security and the actions of short sellers 

collectively and aid the Commission’s 

oversight of short selling.321

Other industry commenters were 

concerned about reporting burdens for 

smaller Managers, and one such 

commenter predicted that the increased 

reporting costs resulting from the 

Proposals and other related Commission 

proposed rulemakings could lead to 

industry consolidation and decrease 

competition and investor choice.322 The 

Commission continues to believe that 

application of the Reporting Thresholds 

will not result in Rule 13f–2 applying to 

a significant number of small entities, 

especially considering the modification 

to Threshold A to be based on a 

monthly average gross short position 

rather than the proposed daily 

calculation.323

In response to comments about 

reporting burdens, the Commission is 

not adopting the proposed hedging 

requirement, not adopting Proposed 

Rule 205 and ‘‘buy to cover’’ reporting 

to CAT, and is streamlining Information 

Table 2, thus reducing the costs of 

reporting from the proposed rule and 

form as compared to Rule 13f–2 and 

Form SHO as adopted.324

B. Data Aggregation and Publication of 

Information by the Commission 

1. Proposal 

The Commission proposed to require 

Managers exercising investment 

discretion over short positions meeting 

specified thresholds to report 

information relating to end-of-themonth short positions on Information 

Table 1, and certain daily activity 

affecting such short positions on 

Information Table 2, of a new Form 

SHO. The Commission would aggregate 

the reported data by security, including 

daily short sale activity data, and then, 

on a delayed basis, make such 

aggregated data available to the public. 

As proposed, data would be aggregated 

across all reporting Managers for each 

reported equity security prior to 

publication. The Commission stated its 

belief that publicly disclosing the 

identity of individual reporting 

Managers may not be necessary to 

advance the policy goal of increasing 

public transparency into short selling 

activity, and that aggregating across 

reporting Managers would help 

safeguard against the concerns noted 

above related to retaliation against short 

sellers, including short squeezes, and 

the potential chilling effect that such 

public disclosure may have on short 

selling.325

As proposed, the Commission would 

publish aggregated information derived 

from data reported on Proposed Form 

SHO. The Commission estimated that it 

will publish such aggregated 

information within one month after the 

end of the reporting calendar month— 

e.g., for data reported by Managers on 

Proposed Form SHO for the month of 

January, the Commission would expect 

to publish aggregated information 

derived from such data no later than the 

last day of February. This additional 

time prior to publication of data by the 

Commission following receipt of the 

monthly Proposed Form SHO reports 

would be used to aggregate the data 

received from the reporting Managers, 

and would also help to reduce the risk 

of imitative trading activity by market 

participants and help to protect report 

Managers’ proprietary trading 

strategies.326 In proposing an approach 

for reporting the short sale-related 

information gathered, the Commission 

sought to balance calls to level the 

playing field for retail investors by, for 

example, taking steps to enhance the 

transparency of short sale-related data, 

with, among other things, concerns 

raised—primarily by institutional 

investors—regarding potential ‘‘chilling 

effect[s]’’ on short selling and potential 

issuer and investor retaliation against an 

identified short seller.327

The Commission also presented, and 

sought comment on, an alternative 

approach for its publishing of 

information reported on proposed Form 

SHO that would offer greater 

transparency and less anonymization of 

the published short sale-related data.328

Specifically, under this alternative, the 

Commission would publish the 

information reported to it at the 

individual Manager level rather than 

aggregate that information across all 

reporting Managers.329 Before 

publication, a reporting Manager’s 

identifying information would be 

removed to anonymize the information 

published. 

2. Comments 

Several commenters raised concerns 

about potential negative consequences 

of more detailed short position 

disclosures—particularly, negative 

effects on liquidity and price discovery, 

the facilitation of copycat trading, and 

the greater susceptibility of holders of 

short positions to short squeezes.330

These commenters also preferred an 

‘‘aggregation’’ approach to the 

alternative of publishing data at the 

individual Manager level, due to the 

commercially sensitive investment and 

trading information that Managers are 

required to report under Rule 13f–2.331

These commenters stated, however, 

that aggregation would not go far 

enough to lower the risk that the trading 

and investment behavior reported 


ddrumheller on DSK120RN23PROD with RULES2
75132 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

332E.g., MFA Letter, at 3 (stating that publishing 

aggregated short position data can help mitigate the 

risk of identification of Manager(s), but is not 

‘‘foolproof, . . . the effectiveness will depend on 

what data is published and with what frequency’’); 

AIMA Letter, at 4 (stating that ‘‘even if the data is 

anonymized, market participants could still identify 

certain reporting Managers.’’); see also SIFMA 

Letter, at 5 (positing that reporting anonymized 

short sale data at the Manager level without first 

aggregating such information is inconsistent with 

the directive in 929X of DFA and could expose 

investment strategies of institutional investment 

managers and their clients to their detriment); T. 

Rowe Price Letter, at 2 (positing that ‘‘attribution or 

anonymized manager-level data in public reports 

would be inappropriate and . . . create 

unacceptable risks to . . . [market] participants and 

discourage a useful source of liquidity provision.’’). 

333See, e.g., ICI Letter, at 7–8 (further stating that 

risk of Manager identification ‘‘may be especially 

high’’ for [regulated investment] funds that 

currently disclose their identities as well as their 

individual short positions on Form N–PORT filings 

with the Commission). 

334MFA Letter, at 9 (citing potential for 

retaliation against short sellers if Manager’s 

confidential information reported on Proposed 

Form SHO is leaked). 

335See, e.g., Better Markets, at 13; Comment from 

An Investor (Apr. 4, 2022), available at https://

www.sec.gov/comments/s7-08-22/s70822-20122297- 

278355.htm; Comment from Rick Sweeney (Oct. 10, 

2022), available at https://www.sec.gov/comments/ 

s7-08-22/s70822-309597.htm (Rick Sweeney 

Comment). But see Samuel Meadows Comment (‘‘It 

would be strongly against retails best interests to 

have the reports published at the managers level. 

This would make finding and understanding the 

scope of shorting very difficult. I believe it is best 

to have the report aggregated with other reporting 

Managers reports. Ease of access to this information 

is critical in creating fairer markets.’’); Comment 

Letter from Matthew D. Brusch, Interim President 

and CEO, National Investor Relations (Apr. 28, 

3033), at 4, available at https://www.sec.gov/ 

comments/s7-08-22/s70822-20127576-288806.pdf 

(‘‘NIRI Letter’’); K&L Gates Letter, at 5–6. See 

Proposing Release, at 14967. 

336 In addition to underscoring the need for 

transparency in the reporting of short sale-related 

data, commenters recommended ways to enhance 

the transparency of U.S. stock market transactions 

with the creation of a ‘‘transparent and publicly 

viewable platform’’ through which U.S. stock 

market securities would be traded, and the use of 

block chain technology to allow verification of 

transactions in real time. See, e.g., Joseph Grato 

Comment; Anonymously Submitted Comment (Mar. 

7, 2022), available at https://www.sec.gov/ 

comments/s7-08-22/s70822-271636.htm; Comment 

from Jason Payne (Mar. 7, 2022), available at 

https://www.sec.gov/comments/s7-08-22/s70822- 

20118798-271634.htm; Comment from Lex Stultz 

(Mar. 13, 2022), available at https://www.sec.gov/ 

comments/s7-08-22/s70822-20119199-272005.htm; 

Comment from Devon Turcotte (Mar. 15, 2022), 

available at https://www.sec.gov/comments/s7-08- 

22/s70822-20119399-272285.htm. 

337See WTI Letter. These and other commenters 

expressed concern for the danger to ‘‘fair and free’’ 

U.S. markets posed by ‘‘the lack of transparency, 

the inability to adequately quantify short interest, 

and the ability of firms to skirt regulations through 

derivative positions such as options and securitybased swaps.’’ These commenters also called for 

symmetry in the level of disclosures and 

transparency for short positions as is currently the 

case for long positions, to allow retail and 

institutional investors to conduct the same type of 

analysis regarding short positions as is currently 

possible for long positions using data from Form 

13F. 

338See, e.g., NIRI Letter, at 4 (stating that the 

alternative approach to publishing Form SHO 

reports would bring short position information to 

the marketplace faster, closer in real time to when 

the Form SHO is filed). 

339See id. (recommending confidential 

disclosures of short position and identifying 

Manager information reported on Form SHO to an 

issuer whenever a ‘‘large short position’’ is reported 

for a security of that issuer, or alternatively, only 

to those issuers that request such confidential 

information); Letter from Tim Quast, President and 

Founder, Modern Networks IR LLC (Apr. 4, 2022), 

available at https://www.sec.gov/comments/s7-08- 

22/s70822-20122528-278558.pdf (urging 

Commission to publish the names of reporting 

Managers) (‘‘Modern IR Letter’’). 

340Better Markets Letter, at 13 (suggesting 

reliance on ‘‘EU’s experience with publishing much 

more comprehensive, specific, and current 

information’’ in developing an approach for 

gathering and reporting short sale data that 

enhances the usability of short position information 

to be published pursuant to Proposed Rule 13f–2 

without ‘‘inviting some of the more damaging 

consequences’’ of doing so). More generally, a few 

commenters recommended harmonizing Proposed 

Rule 13f–2 requirements with potentially 

overlapping EU and UK regulations. See, e.g., WTI 

Letter, at 2–3; HSBC Letter, at 14–15. 

341E.g., Anonymously Submitted Comments (Oct. 

14, 2022, Oct. 24, 2022, Oct. 29, 2022, Oct. 31, 2022, 

Nov. 1, 2022); Rick Sweeney Comment. 

342See infra Part VIII.E.2.a. 

343 Id. 

344 Id. 

would be attributable to a single 

Manager or set of Managers.332

Commenters stated that the risk of 

Manager attribution would be 

heightened when only one Manager or 

a small set of Managers report a short 

position in the relevant security. Under 

these circumstances, market 

participants could use the information 

reported on Form SHO to extrapolate an 

individual Manager’s overall position, 

and potentially the Manager’s strategies 

or portfolio management methods across 

different clients.333 One commenter 

expressed concern that Manager 

attribution/identification could result in 

retaliation against Managers by market 

participants.334

By contrast, other commenters 

favored the alternative approach of 

publishing reported information at the 

individual Manager level after removing 

all identifying information of the 

reporting Manager that the Commission 

sought comment on in the Proposing 

Release.335 While expressing general 

support for rulemaking that increases 

transparency of short sale-related data, 

proponents of this alternative approach 

also criticized Proposed Rule 13f–2 for 

not going far enough.336 These 

commenters pointed to a need for 

complementary reporting of long and 

short positions, and downplayed 

industry concerns about potential risks 

of greater transparency of short sale 

data, including, the costs and challenges 

of operationalizing Rule 13f–2 and the 

threat of ‘‘copycat trading’’ if short 

positions are disclosed pursuant to Rule 

13f–2.337 These commenters supported 

publishing short sale-related data that is 

‘‘current.’’ 338 Two such commenters 

suggested that the Commission publish, 

or at least share on a confidential basis 

with issuers of the securities for which 

information is reported on Form SHO, 

the names of the firms shorting 

securities.339 Other commenters further 

recommended that the Commission 

glean more from and build upon the 

experience of the European Union 

(‘‘EU’’) with publishing short salerelated data in developing an approach 

for gathering and reporting such data.340

A few commenters also pointed out 

ways that, by monitoring the published 

information from Form SHO reports, the 

public and reporting companies could 

serve as watchdogs for the SEC, a ‘‘first 

line of defense against abusive 

practices.’’ 341

3. Final Rule 

The approach taken for publishing 

short sale-related data reported on Form 

SHO must balance competing interests 

of public transparency against the 

potential negative impacts on price 

discovery, and of short position and 

short activity disclosures on short 

selling as well as data security concerns. 

After considering the comments 

received, the Commission continues to 

believe that the indirect costs of 

publishing information reported at the 

individual Manager level would likely 

exceed those of publishing information 

aggregated across all reporting 

Managers.342 More specifically, the 

Commission continues to believe that if 

the Commission were to release the 

information reported on Form SHO as 

filed, there would be a greater potential 

to reveal a reporting Manager’s trading 

strategies and to signal whether a 

Manager has a large and potentially 

vulnerable short position. It would also 

make it easier for a market participant 

to deduce the identity of a reporting 

Manager, even if that Manager’s identity 

remains anonymous.343 The easier it is 

for a market participant to deduce the 

identities of individual short sellers, the 

greater the risk of retaliation, copycat 

trading and other market activity that 

might have an undesired chilling effect 

on price discovery.344 For these reasons, 

and in response to commenters that 

raised concerns about potential negative 

consequences of more detailed short 

position disclosures, the Commission 

believes that the anticipated benefit of 

enhanced transparency by publishing 

reported information at the individual 

Manager level after removing all 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75133 

345See WTI Letter at 2–3; Better Markets Letter 

at 13 and 16. See also Proposing Release, at 15005. 

346See supra Part II.A.2.b. 

347 Id. 

348See, e.g., Comment from Mark Tate (Mar. 1, 

2022), available at https://www.sec.gov/comments/ 

s7-08-22/s70822-20118151-271054.htm (‘‘Mark Tate 

Comment’’) (believed that increased information 

about marking trades as ‘‘buy to cover’’ is a ‘‘good 

thing for the market’’); Comment from An Investor 

(Apr. 4, 2022), available at https://www.sec.gov/ 

comments/s7-08-22/s70822-20122297-278355.htm 

(expressing general support for Proposed Rule 205 

and the ‘‘gross’’ short position approach); Comment 

from Jean Garcia-Gomez (Oct. 9, 2022), available at 

https://www.sec.gov/comments/s7-08-22/s70822- 

309610.htm (‘‘Jean Garciz-Gomez Comment’’) 

(expressing general support for ‘‘buy to cover’’ order 

marking); Comment from Aladdin Erzrumly (Oct. 

19, 2022), available at https://www.sec.gov/ 

comments/s7-08-22/s70822-312058.htm (expressing 

general support for ‘‘buy to cover’’ order marking); 

Comment from Brian Herrmann (Jan. 20, 2023), 

available at https://www.sec.gov/comments/s7-08- 

22/s70822-323670.htm (expressing general support 

for Proposed Rule 205). 

349See, e.g., Better Markets Letter (stating that 

‘‘buy to cover’’ order marking should assist the 

Commission in monitoring short sale activity and 

actually ensure compliance with Regulation SHO 

requirements); ICI Letter (Apr. 26, 2022) (stating 

that, to the extent that the Commission requires 

information on close outs of open short positions, 

ICI supports the proposed approach of amending 

Rule 205 of Regulation SHO to require a brokerdealer to mark transactions as ‘‘buy to cover,’’ and 

supports the simplified single account gross short 

position approach as proposed); BIO Letter (stating 

that ‘‘buy to cover’’ reporting would assist in 

understanding ‘‘the full lifecycle of short 

positioning in the biotechnology industry’’). 

350See, e.g., SIFMA Letter; Virtu Letter; AIMA 

Letter; Comment Letter from Joanna Mallers, 

Secretary, FIA Principal Traders Group (Apr. 27, 

2022), available at https://www.sec.gov/comments/ 

s7-08-22/s70822-20127313-288259.pdf (‘‘FIA PTG 

Letter’’); Comment Letter from Howard Meyerson, 

Managing Director, Financial Information Forum 

(Apr. 25, 2022), available at https://www.sec.gov/ 

comments/s7-08-22/s70822-20126605-287256.pdf 

(‘‘FIF Letter’’); STA Letter; XR Securities Letter; 

Comment Letter from Kirsten Wegner, Chief 

Executive Officer, Modern Markets Initiative (Apr. 

4, 2022), available at https://www.sec.gov/ 

comments/s7-08-22/s70822-20122473-278481.pdf 

(‘‘MMI Letter’’). 

351See, e.g., FIA PTG Letter, at 2 (requiring the 

reporting of orders on an order-by-order basis with 

either a ‘‘buy to cover’’ or bona fide market making 

attestation appears unnecessary from an added 

transparency perspective and therefore 

unnecessarily costly); MMI Letter, at 2; Virtu Letter, 

at 3 (‘‘If this aspect of the Proposal were adopted, 

firms would have to reprogram their systems to 

recognize a ‘buy to cover’ order. We believe that 

this would be exceedingly burdensome, costly, and 

challenging for broker-dealers to make the required 

changes and provide the required information.’’); 

STA Letter, at 4 (stating that ‘‘buy to cover’’ as 

proposed would ‘‘impose tremendous costs on 

industry firms by essentially forcing them to keep 

two separate position aggregations’’ and suggesting 

that there be an exemption for firms with ‘‘low’’ 

amounts of ‘‘buy to cover’’ order types); FIF Letter, 

at 10; XR Securities Letter, at 2; SIFMA Letter, at 

3; FIA PTG Letter, at 2. 

352See, e.g., SIFMA Letter, at 23–24; Virtu Letter, 

at 3; FIF Letter, at 3; STA Letter, at 6; XR Securities 

Letter, at 2; FIA PTG Letter, at 2–3. 

353See FIF Letter, at 3. 

354See SIFMA Letter, at 24. 

355See, e.g., Virtu Letter, at 5; AIMA Letter, at 16; 

SIFMA Letter, at 22–23; FIF Letter, a 6. 

identifying information of the reporting 

Manager does not justify the costs were 

the Commission to take that approach in 

publishing information reported to it on 

Form SHO. 

Some commenters suggested the 

Commission adopt an approach similar 

to that of the EU structure whereby 

individual short sellers’ names are made 

public.345 The final rule, as modified, 

addresses the potential risk of 

retaliation towards individual short 

sellers, and the potential chilling of the 

incentive of gathering information and 

price discovery.346 For more discussion 

of the EU’s approach and the 

Commission’s decision to aggregate and 

publish anonymized data instead, see 

Part VIII.E.1.c. 

Further, aggregating across reporting 

Managers will address certain nonfinancial costs and burdens identified 

by commenters by helping to safeguard 

against the concerns raised about 

potential chilling effects on short selling 

and data security regarding the 

information reported by Managers on 

Form SHO.347 Additionally, the 

Commission anticipates that many 

potential negative effects on the market 

will be mitigated by the delay in 

publication of the aggregated data. 

Accordingly, the Commission is 

adopting as proposed the approach of 

publishing, on a delayed basis, 

aggregated short sale-related data 

reported on Form SHO and treating each 

filed Form SHO confidentially. 

III. Proposed Amendment to Regulation 

SHO To Aid Short Sale Data Collection 

A. Proposed Rule 205 

Under Proposed Rule 205, a brokerdealer would be required to mark a 

purchase order as ‘‘buy to cover’’ if, at 

the time of order entry, the purchaser 

(i.e., either the broker-dealer or another 

person) has a gross short position in 

such security in the specific account for 

which the purchase is being made at 

such broker-dealer. A broker-dealer 

would be required to mark a purchase 

order as ‘‘buy to cover,’’ regardless of 

the size of such purchase order in 

relation to the size of the purchaser’s 

gross short position in such security in 

the account, and regardless of whether 

the gross short position is offset by a 

long position held in the purchaser’s 

account at the broker-dealer at the time 

of order entry. Unlike the netting 

requirements under Rule 200 of 

Regulation SHO, the ‘‘buy to cover’’ 

order marking determination under 

Proposed Rule 205 would be made on 

a ‘‘gross’’ basis. Under the proposed 

rule, short positions held by the 

purchaser in any account(s) other than 

the purchasing account, as well as 

offsetting long positions held by the 

purchaser in the purchasing account or 

any other account(s), would not be 

considered by a broker-dealer when 

making a ‘‘buy to cover’’ order marking 

determination. The Proposed CAT 

Amendments, discussed below, would 

require CAT reporting firms to report 

‘‘buy to cover’’ order marking 

information to CAT. 

B. Comments 

Some commenters expressed support 

to adopt Proposed Rule 205, and 

generally applauded the potential added 

transparency that ‘‘buy to cover’’ order 

marking could help provide.348 Other 

commenters stated that the proposed 

rule would assist the Commission in 

monitoring short selling activity and 

help to ensure compliance with the 

requirements of Regulation SHO.349

The Commission also received 

numerous comments that opposed the 

adoption of Proposed Rule 205.350 In 

opposing Proposed Rule 205, these 

commenters voiced concerns regarding 

the extensive costs and burdens 

associated with anticipated systems 

changes necessary to implement and 

report ‘‘buy to cover’’ order marking as 

proposed.351 A number of these 

commenters stated that a ‘‘buy to cover’’ 

order mark does not currently exist and 

would require broker-dealers to 

effectively redesign and update their 

order creation systems and 

communications protocols to 

accommodate the recording and 

downstream reporting of a ‘‘buy to 

cover’’ order mark.352 One commenter 

stated that all industry participants 

(which it described as ‘‘all institutions 

and all broker-dealers’’) will also need 

to create a new ‘‘buy to cover’’ order 

type and capture that in their respective 

books and records protocols and 

regulatory reporting systems.353 One 

commenter suggested that costs to 

implement changes necessary to comply 

with the requirements of Proposed Rule 

205 could range from $5 million to $10 

million, or more.354

Some commenters that opposed the 

adoption of Proposed Rule 205 

expressed general concerns that the 

proposed single account ‘‘gross’’ short 

position methodology (which, by 

design, does not require the brokerdealer to consider the purchaser’s other 

positions held in that account, in other 

accounts at the broker-dealer, or 

elsewhere) could routinely result in 

inaccurate ‘‘buy to cover’’ order marking 

reporting by broker-dealers.355 Some 

commenters also questioned whether 


ddrumheller on DSK120RN23PROD with RULES2
75134 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

356See e.g., Virtu Letter, at 6 (‘‘The Proposal’s 

rationale for requiring broker-dealers to mark 

transactions a ‘buy to cover’—i.e. to facilitate the 

identification of potential ‘short squeeze’ activity— 

is equally unpersuasive. As described above, the 

data that will be reported under this provision will 

bear little resemblance to a firm’s actual short sale 

positions and therefore will not yield meaningful 

information that would allow the Commission to 

target short squeeze activity.’’); SIFMA Letter, at 23 

(believed there is only a remote chance that 

Proposed Rule 205 reporting might identify signals 

of a short squeeze that would not otherwise be 

identifiable to the Commission through other 

currently available information). 

357See, e.g., STA Letter, at 4; FIF Letter, at 8; FIA 

PTG Letter, at 2–3; MMI Letter, at 2; SIFMA Letter, 

at 24; XR Securities Letter, at 2; Virtu Letter, at 5. 

358See, e.g., MMI Letter at 2; FIF Letter, at 2. In 

the Proposing Release, the Commission explained 

that it had considered an ‘‘alternative approach’’ 

that would have required the broker-dealer, when 

making a ‘‘buy to cover’’ order marking 

determination, to net all positions (long positions 

and short positions) held by the purchaser in any 

account, whether at the broker-dealer itself, or 

elsewhere. See Proposing Release, at 14968. 

359STA Letter, at 5. 360 XR Securities Letter, at 2. 361SIFMA Letter, at 23. 362SIFMA Letter, at 23. 363The Participants include: BOX Exchange LLC; 

Cboe BYX Exchange, Inc.; Cboe BZX Exchange, Inc.; 

Cboe C2 Exchange, Inc.; Cboe EDGA Exchange, Inc.; 

Cboe EDGX Exchange, Inc.; Cboe Exchange, Inc.; 

Financial Industry Regulatory Authority, Inc.; 

Investors’ Exchange LLC; Long-Term Stock 

Exchange, Inc.; MEMX LLC; Miami International 

Securities Exchange LLC; MIAX Emerald, LLC; 

MIAX PEARL, LLC; Nasdaq BX, Inc.; Nasdaq 

GEMX, LLC; Nasdaq ISE, LLC; Nasdaq MRX, LLC; 

Nasdaq PHLX LLC; The Nasdaq Stock Market LLC; 

New York Stock Exchange LLC; NYSE American 

LLC; NYSE Arca, Inc.; NYSE Chicago, Inc.; and 

NYSE National, Inc. 

364See Consolidated Audit Trail, Exchange Act 

Release No. 67457 (July 18, 2012), 77 FR 45722 

(Aug. 1, 2012). 

365Exchange Act Release No. 79318 (Nov. 15, 

2016), 81 FR 84696 (Nov. 23, 2016) (‘‘CAT NMS 

Plan Approval Order’’). The CAT NMS Plan is 

Exhibit A to the CAT NMS Plan Approval Order. 

See CAT NMS Plan Approval Order, 81 FR 84943 

at 84696. The CAT NMS Plan functions as the 

limited liability company agreement of the jointly 

owned limited liability company formed under 

Delaware state law through which the Participants 

conduct the activities of the CAT (the ‘‘Company’’). 

Each Participant is a member of the Company and 

jointly owns the Company on an equal basis. The 

Participants submitted to the Commission a 

proposed amendment to the CAT NMS Plan on 

Aug. 29, 2019, which they designated as effective 

on filing. Under the amendment, the limited 

liability company agreement of a new limited 

liability company named Consolidated Audit Trail, 

LLC serves as the CAT NMS Plan, replacing in its 

entirety the CAT NMS Plan. See Exchange Act 

Release No. 87149 (Sept. 27, 2019), 84 FR 52905 

(Oct. 3, 2019). 

366 ‘‘Compliance Rule’’ means, with respect to a 

Participant, the rule(s) promulgated by such 

Participant as contemplated by section 3.11 of the 

CAT NMS Plan. See CAT NMS Plan, section 1.1. 

367An ‘‘Industry Member’’ means a member of a 

national securities exchange or a member of a 

national securities association. See CAT NMS Plan, 

section 1.1. 

368 ‘‘Central Repository’’ means a repository 

responsible for the receipt, consolidation, and 

retention of all information reported to the CAT 

pursuant to Rule 613 of Regulation NMS and the 

CAT NMS Plan. See CAT NMS Plan, section 1.1. 

the proposed ‘‘buy to cover’’ order 

marking reporting would provide 

regulatory benefits, including 

identifying signals of a ‘‘short squeeze,’’ 

as was suggested by the Commission in 

the proposing release.356

Commenters highlighted the inherent 

differences and resulting complexities 

between Proposed Rule 205’s single 

account ‘‘gross’’ short position 

methodology for purchases, and 

Regulation SHO’s all accounts net 

position order marking requirements for 

sales. These commenters generally 

stated that if Proposed Rule 205 were 

adopted, broker-dealers would be 

required to create and maintain, at great 

expense, two separate order marking 

systems that utilize very different 

methodologies—one for determining 

whether a purchase order should be 

marked as ‘‘buy’’ or ‘‘buy to cover,’’ and 

another for determining whether a sell 

order should be marked as ‘‘long’’ or 

‘‘short.’’ 357 Some of these commenters 

suggested that if the Commission were 

intent on adopting a ‘‘buy to cover’’ 

order marking reporting requirement, it 

should instead consider utilizing the 

Commission’s ‘‘alternative’’ 

approach.358 These commenters stated 

that utilizing this ‘‘alternative’’ 

approach would help to ensure that 

Proposed Rule 205 would operate in a 

manner that is more consistent with 

current Regulation SHO order marking 

requirements, which would effectively 

help reduce complexity and interpretive 

confusion for broker-dealers. Another 

commenter suggested that the 

Commission consider an exception for 

firms with ‘‘low’’ amounts of ‘‘buy to 

cover’’ order types.359

One commenter stated that additional 

guidance or clarification would be 

necessary if the Commission adopted 

Proposed Rule 205.360 Another 

commenter stated that Proposed Rule 

205 fails to recognize that broker-dealers 

would need to rely on representations 

from purchasers/account holders in 

order to accurately report ‘‘buy to 

cover’’ order marking information, 

similar to how broker-dealers currently 

rely on account holders when marking 

sale orders ‘‘long’’ or ‘‘short.’’ 361 One 

commenter stated that this would be 

especially true where the broker-dealer 

does not custody the purchaser’s 

positions (i.e., where the customer’s 

positions are custodied ‘‘away,’’ such as 

at a prime broker or bank), and for a 

number of operational reasons, be 

equally true even when the brokerdealer custodies the purchaser’s 

positions.362

The Commission is not adopting 

Proposed Rule 205 in light of questions 

raised by commenters regarding 

potential operational issues with the 

requirement as proposed that merit 

further consideration, and the 

Commission will continue to evaluate 

the issues raised to determine if any 

further action is appropriate. 

IV. Amendments to CAT 

In July 2012, the Commission adopted 

17 CFR 242.613 (‘‘Rule 613 of 

Regulation NMS’’), which required 

national securities exchanges and 

national securities associations (the 

‘‘Participants’’) 363 to jointly develop 

and submit to the Commission a 

national market system plan to create, 

implement, and maintain a CAT that 

captures customer and order event 

information for orders in NMS 

securities.364 The goal of Rule 613 was 

to create a modernized audit trail 

system that provides regulators with 

more timely access to a sufficiently 

comprehensive set of trading data, thus 

enabling regulators to more efficiently 

and effectively reconstruct market 

events, oversee market behavior, and 

investigate misconduct. On November 

15, 2016, the Commission approved the 

national market system plan required by 

Rule 613, the National Market System 

Plan Governing the Consolidated Audit 

Trail (the ‘‘CAT NMS Plan’’).365

Section 6.4(d) of the CAT NMS Plan 

provides that each Participant, through 

its Compliance Rule,366 must require 

Industry Members 367 to record and 

electronically report certain information 

to the CAT Central Repository. 

Compliance rules have been adopted by 

each Participant. As such, any brokerdealer that is a member of a national 

securities exchange or a member of a 

national securities association must 

report each order and reportable event, 

which includes the original receipt or 

origination, modification, cancellation, 

routing, execution (in whole or in part) 

and allocation of an order, and receipt 

of a routed order to the CAT.368 This 

requirement is designed to provide 

regulators, including the Commission, 

access to comprehensive information 

regarding the lifecycle of orders, from 

origination to execution, as well as the 

post-execution allocation of shares. 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75135 

369Section 1.1 of CAT NMS Plan defines 

‘‘Material Terms of the Order,’’ which includes, for 

sell orders, ‘‘whether the order is long, short, [or] 

short exempt[.]’’ 

370See Proposed section 6.4(d)(ii)(D) of the CAT 

NMS Plan; Proposed Rule 205(a) of Regulation 

SHO, 17 CFR 242.205(a)). 

371Section 1.1 of the CAT NMS Plan defines the 

term ‘‘Customer’’ as (a) the account holder(s) of the 

account at a registered broker-dealer originating the 

order; and (b) any person from whom the brokerdealer is authorized to accept trading instructions 

for such account, if different from the account 

holder(s). See also 17 CFR 242.613(j)(3). 

372See Proposed section 6.4(d)(ii)(E) of the CAT 

NMS Plan. 

373 17 CFR 242.203(b)(1). 

374 17 CFR 242.203(b)(2). The Commission has 

provided guidance on indicia of bona fide market 

making activities eligible for the locate exception. 

See Regulation SHO Adopting Release (setting forth 

examples of activities that would not be considered 

to be bona fide market making activities); see also 

Exchange Act Release No. 58775 (Oct. 14, 2008), 73 

FR 61698 at 61690 (Oct. 17, 2008) (‘‘2008 

Regulation SHO Amendments’’) (adopting 

amendments to Regulation SHO and providing 

additional guidance on what constitutes bona fide 

market making). Only market makers that are 

engaged in bona fide market making activity in the 

security at the time they effect a short sale are 

eligible for the locate exception. See 2008 

Regulation SHO Amendments, at 61699. 

375Rule 204 of Regulation SHO also provides an 

extended close-out period for a fail to deliver 

resulting from bona fide market making activities. 

17 CFR 242.204. 

376See Regulation SHO Adopting Release, at 

48015 n.67; see also Emergency Order Pursuant to 

Section 12(k)(2) of the Securities Exchange Act of 

1934 Taking Temporary Action to Respond to 

Market Developments, Exchange Act Release No. 

58166 (July 15, 2008); Amendment to Emergency 

Order Pursuant to Section 12(k)(2) of the Securities 

Exchange Act of 1934 Taking Temporary Action to 

Respond to Market Developments, Exchange Act 

Release No. 58190 (July 18, 2008) (excepting from 

the Emergency Order bona fide market makers); see 

also Proposing Release, at 14970–71 (Mar. 16, 2022) 

(‘‘To qualify for the bona fide market making 

exception, however, a firm must be engaged in bona 

fide market making at the time of the short sale in 

question. The Commission adopted this narrow 

exception to Regulation SHO’s locate requirement 

for market makers that may need to facilitate 

customer orders in a fast moving market without 

possible delays associated with complying with 

such a requirement.’’). 

377 Virtually all these comments were submitted 

by individual investors, with the vast majority 

being submitted through an identical (or nearly 

identical) base letter from a grassroots advocacy 

campaign ‘‘by, and for, retail investors.’’ These 

commenters stated that they were part of a selfidentified group called ‘‘We the Investors’’ (‘‘WTI’’). 

WTI supported the adoption of BFMM locate 

exception reporting. WTI also suggested that the 

BFMM locate exception be eliminated altogether. 

See WTI Letter. 

378See e.g., Michael Behrens Comment; Mark 

Tate Comment; Comment from Taj Reilly (Mar. 14, 

Continued 

Broker-dealers, through the 

Compliance Rule adopted pursuant to 

the CAT NMS Plan, are required to 

report certain short sale order data, 

including for sell orders, whether an 

order is long, short, or short exempt,369

but not other short sale order data, 

including when a buy order is designed 

to close out an existing short position, 

or whether a market participant is 

relying on the bona fide market making 

exception to the Regulation SHO locate 

requirement in Rule 203. To supplement 

the short sale-related data that would be 

reported by Managers to the 

Commission pursuant to Proposed Rule 

13f–2 and on Proposed Form SHO, the 

Commission proposed to amend the 

CAT NMS Plan to require the 

Participants to require CAT reporting 

firms to report certain additional short 

sale-related data to the CAT, as 

discussed below. 

A. Proposal To Require ‘‘Buy to Cover’’ 

Order Marking 

The Commission proposed that 

Industry Members be required to report 

to the CAT ‘‘buy to cover’’ information, 

which was proposed to be collected 

pursuant to Regulation SHO through 

Proposed Rule 205 (discussed above). 

Specifically, the Commission proposed 

to amend section 6.4(d)(ii) of the CAT 

NMS Plan by adding new paragraph 

6.4(d)(ii)(D) which would require the 

Participants to update their Compliance 

Rules to require Industry Members to 

report for the original receipt or 

origination of an order to buy an equity 

security, whether such buy order is for 

an equity security that is a ‘‘buy to 

cover’’ order as defined by Proposed 

Rule 205(a).370 This provision would 

have required Industry Members to 

identify ‘‘buy to cover’’ equity orders 

received or originated by Industry 

Members and Customers 371 as ‘‘buy to 

cover’’ orders in order receipt and order 

origination reports submitted to the 

CAT Central Repository. 

The Commission, as discussed in Part 

III above, is not adopting Proposed Rule 

205 which would have established a 

new ‘‘buy to cover’’ order marking 

requirement. Accordingly, the 

Commission is likewise not adopting an 

amendment to add new paragraph 

6.4(d)(ii)(D) to the CAT NMS Plan 

which would have required the 

Participants to update their Compliance 

Rules to require Industry Members to 

report ‘‘buy to cover’’ order marking 

information to CAT. 

B. Proposal To Require Reporting of 

Reliance on Bona Fide Market Making 

Exception 

The Commission also proposed to 

require CAT reporting firms that are 

reporting short sales to indicate whether 

such reporting firm is asserting use of 

the bona fide market making exception 

under Regulation SHO for the locate 

requirement in Rule 203(b)(2)(iii) (i.e., 

the BFMM locate exception) for the 

reported short sales. Specifically, the 

Commission proposed to amend section 

6.4(d)(ii) of the CAT NMS Plan to add 

a new paragraph (E) which would 

require Participants to update their 

Compliance Rules to require Industry 

Members to report to the CAT, for the 

original receipt or origination of an 

order to sell an equity security, whether 

the order is a short sale effected by a 

market maker in connection with bona 

fide market making activities in the 

security for which the BFMM locate 

exception is claimed.372 The 

Commission believed that this 

information would provide valuable 

data to both the Commission and other 

regulators regarding the use of this 

narrow exception. The Commission 

believed that requiring Industry 

Members to identify short sales for 

which they are claiming the bona fide 

market making exception would provide 

the Commission and other regulators an 

additional tool to determine whether 

such activity qualifies for the exception, 

or instead could be indicative of, for 

example, proprietary trading instead of 

bona fide market making activity. 

Rule 203(b)(1) of Regulation SHO 

generally prohibits a broker-dealer from 

accepting a short sale order in an equity 

security from another person, or 

effecting a short sale in an equity 

security for its own account, unless the 

broker-dealer (i) has borrowed the 

security, (ii) has entered into a bona fide 

arrangement to borrow the security, or 

(iii) has reasonable grounds to believe 

that the security can be borrowed so that 

it can be delivered on the date delivery 

is due.373 This is generally referred to as 

the locate requirement. Rule 203(b)(2) of 

Regulation SHO provides an exception 

to the locate requirement for short sales 

effected by a market maker in 

connection with bona fide market 

making activities.374 To qualify for the 

BFMM locate exception,375 a market 

maker must be engaged in bona fide 

market making activities at the time 

they effect a short sale. The Commission 

adopted this narrow exception to 

Regulation SHO’s locate requirement for 

market makers that may need to 

facilitate customer orders in a fast 

moving market without possible delays 

associated with complying with such a 

requirement.376

Comments and Final Rule 

Some commenters supported 

requiring CAT reporting firms to report 

the use of the BFMM locate exception 

to CAT.377 These commenters were in 

favor of the potential added 

transparency that BFMM locate 

exception reporting could provide.378


ddrumheller on DSK120RN23PROD with RULES2
75136 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

2022), available at https://www.sec.gov/comments/ 

s7-08-22/s70822-20119322-272211.htm; Comment 

from Sebastian Stankiewicz Comment (Mar. 15, 

2022), available at https://www.sec.gov/comments/ 

s7-08-22/s70822-272501.htm; Comment from An 

Investor (Apr. 4, 2022), available at https://

www.sec.gov/comments/s7-08-22/s70822-20122297- 

278355.htm; Jean-Garcia Gomez Comment; 

Comment from Andrew Gatley (Oct. 31, 2022), 

available at https://www.sec.gov/comments/s7-08- 

22/s70822-317527.htm. See also WTI Letter. 

379See e.g., Better Markets Letter; WTI Letter. 

380See e.g., SIFMA Letter; Virtu Letter; STA 

Letter; XR Securities Letter; FIA PTG Letter. 

381See e.g., SIFMA Letter, at 24–25; FIA PTG 

Letter, at 3; Virtu Letter, at 6. 

382See infra Part VII.C. 

383See, e.g., SIFMA Letter, at 24–25; Virtu Letter, 

at 5. 

384SIFMA Letter, at 24–25. 

385SIFMA Letter, at 25 n.64. 

386 17 CFR 242.203(b)(2)(iii). Further, the locate is 

required prior to each short sale order unless the 

broker or dealer has determined that an exception 

applies. See Rule 203(b)(1). A broker or dealer may 

not accept a short sale order in an equity security 

from another person, or effect a short sale in an 

equity security for its own account, unless the 

broker or dealer has: (i) borrowed the security, or 

entered into a bona-fide arrangement to borrow the 

security; or (ii) reasonable grounds to believe that 

the security can be borrowed so that it can be 

delivered on the date delivery is due; and (iii) 

documented compliance with Rule 203(b)(1). 

387See 2008 Regulation SHO Amendments, at 

61699; Shortening the Securities Transaction 

Settlement Cycle, Exchange Act Release No. 96930 

(Feb. 15, 2023), 88 FR 13872, 13911–12 at n.411 

(May 5, 2023) (‘‘Settlement Cycle Adopting 

Release’’). 

388See e.g., SIFMA Letter, at 24–25 (‘‘Given that 

the information that would result from this 

proposed reporting requirement is already available 

to the SEC and other regulators on demand, SIFMA 

believes that the cost and burden of implementing 

the requirement would materially outweigh the 

benefit of such information.’’); Virtu Letter, at 6 

(‘‘The Proposal offers no data or evidence that its 

access to data about the use of the exception has 

been limited in any way under the current process 

it uses to collect such information from brokerdealers, nor that there are widespread violations or 

other abuses of the exception that warrant imposing 

substantial costs and burdens on market makers 

also to report this information to CAT.’’). 

389 Virtu Letter, at 6. 

390Proposing Release, at 14971. 

391See Regulation SHO Adopting Release, 48011 

n.27 (‘‘As with any rule, broker-dealers relying on 

[an] exception should be prepared to monitor for 

compliance with its conditions, and maintain 

records documenting such compliance.’’). 

392See, e.g., section 17(b) of the Exchange Act. 

Other commenters stated that such 

reporting would help the Commission to 

monitor short selling activity and ensure 

compliance with Regulation SHO’s 

requirements, and stated that it is 

important that the Commission have the 

surveillance tools and data such as 

BFMM locate exception reporting to 

improve the Commission’s oversight of 

financial markets and compliance with 

existing regulations and otherwise 

‘‘police’’ the markets.379

Other commenters opposed the 

adoption of BFMM locate exception 

reporting to CAT.380 These commenters 

generally believed that the costs and 

burdens associated with the proposal, 

including costs to update systems to 

accommodate BFMM locate exception 

reporting to CAT, would materially 

outweigh the benefit of the information 

reported to CAT.381 These commenters, 

however, did not provide cost estimates. 

The Commission continues to believe, 

as stated in the Proposing Release, that 

Industry Members will incur an initial, 

one-time external expense for software 

and hardware to facilitate reporting of 

the new data elements to CAT, and 

separately estimated such costs for 

Industry Members that report directly to 

the CAT, and those that use third-party 

reporting agents for CAT reporting. The 

Commission continues to believe that 

the ongoing burden associated with 

reporting to the CAT is already 

accounted for in the existing 

information collections burdens 

associated with Rule 613 and the CAT 

NMS Plan Approval Order submitted 

under Office of Management and Budget 

(OMB) number 3235–0671.382

One commenter stated that adopting 

the proposed BFMM locate exception 

would be operationally difficult and 

costly to implement.383 This commenter 

stated that, under the proposal, the 

BFMM locate exception information 

would be required to be reported at the 

time the short sale order is effected, 

requiring that order entry systems, and 

other downstream systems, be updated 

to allow the BFMM locate exception 

information to be reported to CAT.384

To implement the rule, the Commission 

expects that Industry Members will 

incur an initial, one-time external 

expense for software and hardware to 

facilitate reporting of the new data 

elements to CAT but believes that the 

benefits of such data, as discussed 

further below, will justify such costs. 

Brokers or dealers generally include 

fields in order-entry systems, and 

related downstream systems, to indicate 

whether the broker or dealer obtained a 

locate as well as the source of such 

locate under Rule 203(b). As stated by 

the commenter, brokers or dealers may 

wish to update their order entry systems 

and related downstream systems as a 

convenient method to track their use of 

the BFMM locate exception to ensure 

accurate reporting of the use of the 

BFMM locate exception to CAT. As a 

result, brokers or dealers may wish to 

make one-time updates to such systems 

to add a field or notation to indicate 

whether the broker or dealer is claiming 

the BFMM locate exception for the short 

sale transaction. However, brokers or 

dealers may also use other means to 

ensure compliance with the final rule. 

This commenter agreed with the 

Commission that a broker-dealer is 

required to determine whether the firm 

is eligible for the BFMM locate 

exception at the time a short sale is 

effected but expressed concerns that 

market makers that quote and trade on 

multiple trading venues, for example, 

might encounter certain systematic or 

operational difficulties in making, and 

reporting, such determination using 

existing systems design. Specifically, 

this commenter stated that ‘‘it may be 

systematically and/or operationally 

difficult for the broker to define when 

it is globally acting in a bona fide 

market maker capacity given the 

granular details of a market maker’s 

many activities, and the existing 

systems design.’’ 385 However, the final 

rule does not alter the requirements for 

the use of the BFMM locate exception. 

The final rule requires that brokers or 

dealers report their use of the BFMM 

locate exception as provided under 

Regulation SHO. 

Rule 203(b)(2)(iii) provides an 

exception to the locate requirement for 

‘‘[s]hort sales effected by a market maker 

in connection with bona-fide market 

making activities in the security for 

which this exception is claimed.’’ 386

Thus, for purposes of qualifying for the 

BFMM locate exception, ‘‘a market 

maker must also be a market maker in 

the security being sold, and must be 

engaged in bona-fide market making in 

that security at the time of the short 

sale.’’ 387

Some commenters stated that the 

Commission and other regulators can 

currently request a particular market 

maker to provide information regarding 

its use of the BFMM locate exception, 

and questioned why the Commission 

would need to require such costly 

reporting to CAT.388 Another 

commenter stated that there is no data 

or evidence in the Proposing Release to 

suggest that the Commission’s access to 

such data has been limited in any way 

under the current request process.389

However, the Commission has stated 

that Regulation SHO does not require 

market makers to specifically record 

whether they are relying on the BFMM 

locate exception,390 although brokers or 

dealers should be able to identify what 

trading activity qualifies for the BFMM 

locate exception so a firm can 

demonstrate its eligibility for the 

asserted exception.391 To the extent a 

broker or dealer has documented such 

eligibility, the Commission and its staff 

have access to such documents.392 The 

final rule will capture information 

regarding the use of the BFMM locate 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75137 

393Proposing Release, at 14971. 

394FIA PTG Letter, at 3 (‘‘Requiring the reporting 

of orders on an order-by-order basis with either a 

‘buy to cover’ or bona fide market making 

attestation appears unnecessary from an added 

transparency perspective and therefore 

unnecessarily costly.’’). 

395STA Letter, at 3. 

396 XR Securities Letter, at 2. 

397See, e.g., Rule 203(b)(2)(iii), which requires 

that the broker or dealer (1) be a market maker; (2) 

that is effecting short sales in connection with bonafide market making activities, and (3) in the security 

for which the exception is claimed. Section 3(a)(38) 

defines the term ‘‘market maker.’’ 

398See supra n.374. 

399 Virtu Letter, at 6. 

400See Proposing Release, at 14971. 

401See SIFMA Letter, at 25 n.64. 

402STA Letter, at 3. 

403 XR Securities Letter, at 3. 

404One commenter disagreed with existing 

Regulation SHO order marking requirements, with 

a specific focus on a statement made by 

Commission staff that a broker or dealer should 

generally not continue to mark orders ‘‘long’’ if it 

has submitted orders beyond the number of shares 

for which it is long. See Virtu Letter, at 3–5; see also 

FAQ 2.5, Responses to Frequently Asked Questions 

Concerning Regulation SHO, Division of Market 

Reg., available at https://www.sec.gov/divisions/ 

marketreg/mrfaqregsho1204.htm. This commenter 

generally stated that this results in virtually all sell 

orders being marked as short sales and thus, 

information that is reported to CAT under the 

proposal would not be representative of the market 

maker’s ‘‘actual’’ short position and would not be 

useful short sale-related information. Brokers or 

dealers must mark sell orders ‘‘long,’’ ‘‘short,’’ or 

‘‘short exempt,’’ and must obtain a locate for all 

sales marked short unless the broker or dealer can 

determine that the short sale is ‘‘effected by a 

market maker in connection with bona-fide market 

making activities in the security for which this 

exception [BFMM locate exception] is claimed.’’ 

See 17 CFR 242.203(b)(2)(iii). 

405See SIFMA Letter, at 25 (‘‘Moreover, and 

especially to the extent that there is a requirement 

to identify reliance on the exception through CAT, 

the SEC should re-confirm that, while bona fide 

market making is based on certain ‘facts and 

circumstances’ as set forth in prior interpretive 

guidance, there are different ways in which brokerdealers engage in bona fide market making, 

including not only through making markets on 

exchanges, but equally through wholesale market 

making and other activities in connection with 

facilitating customer orders in the OTC market.’’); 

see also STA Letter, at 3 (STA recommends that the 

Commission clarify its views on the scope of the 

BFMM exception, citing as an example an ‘‘OTC 

market makers that provide extensive liquidity for 

retail trades but do not affect the trades pursuant 

to published quotations.’’). 

406See SIFMA Letter, at 25 n.67 (‘‘SIFMA further 

notes the SEC’s recent statements in its recent 

proposing release on registration of significant 

market participants that ‘bona fide market-making 

exceptions under Regulation SHO are only available 

to registered broker-dealers that publish continuous 

quotations for a specific security in a manner that 

puts the broker-dealer at economic risk’, that 

‘[b]roker-dealers that do not publish continuous 

quotations, or publish quotations that do not subject 

the broker-dealer to such risk (e.g., quotations that 

are not publicly accessible, are not near or at the 

market, or are skewed directionally towards one 

side of the market), would not be eligible for the 

bona fide market maker exceptions’ and that 

Continued 

exception to Regulation SHO 393 which 

will provide the Commission and SROs 

with comprehensive information about 

market practices with respect to the use 

of the BFMM locate exception.394

Because brokers or dealers asserting the 

BFMM locate exception are already 

required to demonstrate eligibility for 

the exception, the costs of reporting 

should be confined primarily to the onetime implementation costs related to 

updating CAT and any methods elected 

by the broker or dealer, such as 

updating order entry systems and 

related systems, to ensure compliance. 

Another commenter stated that 

regulators should utilize other existing 

short sale data available through CAT 

that could identify activity that is 

‘‘disproportionate to the usual market 

making patterns of practices of the 

broker-dealer’’ in order to determine if 

the BFMM locate exception is being 

misused.395 The commenter, however, 

did not provide detail describing how 

disproportionate the activity would be 

before the Commission could determine 

whether the exception is being misused. 

Data showing the existence of short 

sales would not be sufficient to assess 

whether the exception is being misused. 

Another commenter suggested that CAT 

already has ample existing data fields, 

including a market maker account 

holder designation field, and questioned 

the need for a BFMM locate exception 

data field.396 Further, a broker or 

dealer’s status as a market maker under 

an exchange’s rules, or by self-assertion, 

is not sufficient by itself to establish 

eligibility to use the BFMM locate 

exception; the broker or dealer that is a 

market maker must be effecting short 

sales ‘‘in connection with bona-fide 

market making activities in the security 

for which [the] exception is being 

claimed.’’ 397 Further, as discussed 

above, the broker or dealer, whether it 

calls itself a market maker, or has an 

account it describes as a market maker 

account, must still determine eligibility 

for the BFMM locate exception for each 

transaction rather than globally.398

Therefore, collecting the data regarding 

the use of the BFMM locate exception 

will be useful for the Commission, 

including to assess the use of the 

exception throughout the industry. 

Another commenter stated that there 

was no data or evidence in the 

Proposing Release to suggest that there 

are widespread violations or abuses of 

the BFMM locate exception that warrant 

the costs imposed by the CAT reporting 

requirements for the BFMM locate 

exception.399 As the Commission stated 

in the Proposing Release, there are a 

number of settled enforcement actions 

against brokers or dealers in connection 

with their use of the exception.400 In 

addition, one commenter stated that ‘‘it 

may be systematically and/or 

operationally difficult for the broker to 

define when it is globally acting in a 

bona fide market maker capacity given 

the granular details of a market maker’s 

many activities, and the existing 

systems design.’’ 401 However, this 

comment concerns compliance with 

Regulation SHO rather than reporting of 

the use of the BFMM locate exception 

in CAT; the new requirements do not 

affect compliance with Regulation SHO. 

Another commenter did not believe 

that the BFMM locate exception 

information reported to CAT would 

assist the Commission in identifying 

violations or misuse of the BFMM locate 

exception ‘‘because the data can be 

manipulated by bad actors and is 

susceptible to human errors of 

inappropriately marking short sales 

with the BFMM indicator when they are 

not eligible.’’ 402 The fact that bad actors 

may act contrary to the requirement is 

not an appropriate reason not to adopt 

a requirement. Similarly, human error is 

always possible. In addition, the human 

error the commenter describes, if 

widespread, could be an indication of 

noncompliant use of the BFMM locate 

exception. 

Another commenter stated that if 

BFMM locate exception reporting were 

adopted, ‘‘most market making firms 

will simply tag that new [BFMM locate 

exception] field with the 

affirmative.’’ 403 Again, the fact that a 

commenter speculated that some 

brokers or dealers may violate the 

requirement by providing incorrect data 

is not a reason to not adopt a 

requirement. Understanding whether 

market makers always claim the BFMM 

locate exception (as this commenter 

suggests), sometimes claim the 

exception, or never claim the exception, 

will provide important information and 

context regarding how market makers 

use the exception.404

Some commenters asked that the 

Commission provide additional clarity 

regarding what constitutes bona fide 

market making activities eligible for the 

BFMM locate exception, and requested 

that the Commission confirm that 

certain market making activity (e.g., 

through wholesale market making and 

other activities in connection with 

facilitating customer orders in the OTC 

market) was bona fide market making 

activity for purposes of claiming the 

BFMM locate exception.405 One of these 

commenters expressed concerns 

regarding recent Commission statements 

related to the BFMM locate 

exception.406 The statements that the 


ddrumheller on DSK120RN23PROD with RULES2
75138 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

‘broker-dealers that publish quotations but fill 

orders at different prices than those quoted would 

not be engaged in bona fide market making for 

purposes of Regulation SHO.’’). SIFMA cited to 

Further Definition of ‘‘As a Part of a Regular 

Business’’ in the Definition of Dealer and 

Government Securities Dealer, Exchange Act 

Release No. 94524 (Mar. 28, 2022), 87 FR 23054, 

23068–69 at n.157 (Apr. 18, 2022). 

407See 2008 Regulation SHO Amendments, at 

61698–99; Regulation SHO Adopting Release, at 

48015. 

408SIFMA Letter, at 25. 

409See 2008 Regulation SHO Amendments, at 

61698–99; Regulation SHO Adopting Release, at 

48015. 

410See Better Markets Letter, at 14 (‘‘The SEC has 

correctly concluded that naked short sales are 

abusive. The SEC established this loophole, which 

permits the largest proprietary trading firms to 

engage in naked short selling, on the theory that it 

facilitates trading in hard-to-borrow securities. 

However, the SEC’s settlement regulations with 

respect to mandatory buy-ins already provide 

special accommodations to market-makers that 

cannot close out their short positions within the 

standard failure-to-deliver close-out timeframe. 

This accommodation already in place calls into 

serious question whether the large loophole in the 

locate requirement serves any legitimate purpose. 

At the very least, the SEC must closely monitor the 

information it receives regarding reliance on this 

exception to determine whether elimination of this 

exception is warranted.’’); see also WTI Letter. 

411See STA Letter, at 4. 

412See generally Amendments to Regulation 

SHO, Exchange Act Release No. 60388 (July 27, 

2009), 74 FR 38266, 38267–68 (July 31, 2009) 

(‘‘2009 Regulation SHO Amendments’’). 

413See Regulation SHO Adopting Release, at 

48025 (‘‘[e]xcepting bona-fide market making 

activity from the locate requirement will benefit 

investors and the market by preserving necessary 

market liquidity.’’). 

414See, e.g., 2008 Regulation SHO Amendments, 

at 61699 (‘‘For example, the Commission has stated 

that bona-fide market making does not include 

activity that is related to speculative selling 

strategies or investment purposes of the brokerdealer and is disproportionate to the usual market 

making patterns or practices of the broker-dealer in 

that security.’’); see also Regulation SHO Adopting 

Release, at 48015. 

415See, e.g., 2008 Regulation SHO Amendments, 

at 61691 (‘‘We have previously noted that abusive 

‘naked’ short selling, while not defined in the 

federal securities laws generally refers to selling 

short without having stock available for delivery 

and intentionally failing to deliver stock within the 

standard . . . settlement cycle.’’). See also 

Regulation SHO Adopting Release, at 48009, n.10; 

Exchange Act Release No. 56212 (Aug. 7, 2007), 72 

FR 45544, n.3 (Aug. 14, 2007) (‘‘2007 Regulation 

SHO Final Amendments’’); Exchange Act Release 

No. 57511 (Mar. 17, 2008), 73 FR 15376 (Mar. 21, 

2008) (‘‘Naked Short Selling Anti-Fraud Rule 

Proposing Release’’). 

416See, e.g., SIFMA Letter, at 25; STA Letter, at 

3. 

417See, e.g., Settlement Cycle Adopting Release, 

at n.411 (‘‘Under Regulation SHO’s bona fide 

market making exceptions, the broker-dealer 

generally should be holding itself out as standing 

ready and willing to buy and sell the security by 

continuously posting widely accessible quotes that 

are near or at the market. The market maker must 

be at economic risk for such quotes.’’); see also 2008 

Regulation SHO Amendments, at 61699. Thus, a 

market-maker that continually executed short sales 

away from its posted quotes would generally be 

unable to rely on the bona-fide market making 

exceptions of Regulation SHO. See Regulation SHO 

Adopting Release, at 48015 n.68. The market-maker 

must also be engaged in bona fide market making 

in that security at the time of the short sale for 

eligibility for the exceptions. See 2008 Regulation 

SHO Amendments, at 61699. 

418See, e.g., 2008 Regulation SHO Amendments, 

at 61699; see also Self-Regulatory Organizations; 

National Association of Securities Dealers, Inc.; 

Order Approving Proposed Rule Change Relating to 

Close-Out Requirements for Short Sales and an 

Interpretation on Prompt Receipt and Delivery of 

Securities, Exchange Act Release No. 32632 (July 

14, 1993), 58 FR 39072, 39074 (July 21, 1993); see 

also Settlement Cycle Adopting Release, at 13911– 

12 n.411. 

commenter references in particular 

releases are restatements of multiple 

prior Commission statements regarding 

the BFMM locate exception.407 One 

commenter expressed concerns that the 

proposal to require BFMM locate 

exception reporting to CAT was an 

effort by the Commission to further limit 

the availability of the BFMM locate 

exception in a manner that would be 

inconsistent with Commission’s original 

Regulation SHO guidance.408 This 

commenter expressed particular 

concerns with the Commission’s 

statement in the Proposing Release that 

the proposed BFMM locate exception 

reporting would be an additional tool to 

determine whether such activity 

qualifies for the BFMM locate exception 

or conversely ‘‘could be indicative of, 

for example, proprietary trading instead 

of bona fide market making.’’ The 

Commission has consistently stated that 

the BFMM was intended to be a 

‘‘narrow’’ exception,409 and the 

collection of information about its usage 

will be helpful for the Commission to 

determine whether it is being used 

appropriately as such. The reported 

information will indeed be used as an 

‘‘additional tool to determine whether 

such activity qualifies’’ for the BFMM 

locate exception as part of the 

Commission’s regulation of short sales, 

for example, by determining whether 

brokers or dealers are using the 

exception for proprietary trading, which 

is not appropriate. Other commenters 

called for the elimination of the BFMM 

locate exception itself.410 Such requests 

are outside the scope of this rulemaking. 

However, the BFMM locate exception is 

useful for brokers and dealers that are, 

for example, trying to meet demand in 

fast-moving markets where they might 

otherwise be forced to back away from 

published, marketable quotes being hit 

by prospective purchasers solely 

because of the locate requirement. 

One commenter stated that the costs 

imposed on market makers to 

implement and maintain the proposed 

regulatory requirements might result in 

wider spreads, reduced liquidity, and 

might represent a barrier to entry for 

new market participants.411 To the 

extent the commenter is concerned that 

the costs of implementing reporting may 

be passed on in the form of wider 

spreads or reduced liquidity, on balance 

the benefits of transparency justify such 

costs. Importantly, it is unclear how 

reporting the data would create negative 

results on spreads or market liquidity 

because the reported exception data will 

only be provided to regulators and not 

made public. If the commenter is 

concerned that once the data is 

reported, the Commission may become 

more aware of potential misuse of the 

BFMM locate exception as described by 

commenters, the consequences 

identified by the commenter would not 

flow from the requirement to report the 

use of the exception, but may instead 

result from the misuse of it. Collecting 

the data will help the Commission with 

its oversight of the use of the exception, 

including with regard to potentially 

abusive ‘‘naked’’ short selling.412 The 

BFMM locate exception, if properly 

utilized, benefits investors and the 

market by preserving market 

liquidity,413 but it should not be used 

for speculative 414 or potentially abusive 

‘‘naked’’ short selling.415 Instead, the 

BFMM locate exception data reported to 

the CAT will provide the Commission 

with a better understanding of the use 

of this limited exception, which should 

help to ensure that the exception is not 

subject to misuse by brokers or dealers 

in violation of the Commission’s short 

selling rules. 

In response to commenters that 

generally requested additional 

guidance 416 regarding the scope of bona 

fide market making activity eligible for 

the BFMM locate exception, the primary 

requirement is that a broker or dealer 

that is a market maker provide widely 

accessible, continuous quotations at or 

near the market for which it is at risk.417

For example, the Commission has stated 

that for purposes of Regulation SHO, a 

market maker engaged in bona fide 

market making is a ‘‘broker-dealer that 

deals on a regular basis with other 

broker-dealers, actively buying and 

selling the subject security as well as 

regularly and continuously placing 

quotations in a quotation medium on 

both the bid and ask side of the 

market.’’ 418 Moreover, the Commission 

has stated that ‘‘[b]roker-dealers that do 

not publish continuous quotations, or 

publish quotations that do not subject 

the broker-dealer to such risk (e.g., 

quotations that are not publicly 

accessible, are not near or at the market, 

or are skewed directionally towards one 

side of the market), would not be 

eligible for the bona-fide market-maker 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75139 

419See Settlement Cycle Adopting Release, at 

13911–12 n.411. 

420 Id. See also Regulation SHO Adopting Release, 

at 48015 n.68 (‘‘Moreover, a market maker that 

continually executed short sales away from its 

posted quotes would generally be unable to rely on 

the bona-fide market making exception’’ of 

Regulation SHO). 

421The amendment includes the following nonsubstantive, technical changes to the rule text: 

adding the word ‘‘for’’ preceding ‘‘a short sale’’ to 

clarify that reporting is required for a short sale in 

which the bona fide market maker exception is 

claimed, adding ‘‘the’’ preceding ‘‘exception’’ and 

adding ‘‘in’’ preceding Rule 203(b)(2)(iii) to clarify 

that the bona fide market making exception is found 

in Rule 203(b)(2)(iii). 

422One commenter understood the rule as a ‘‘selfreporting’’ rule rather than as a mandatory reporting 

rule. Comment from Sarah (Feb. 25, 2022), available 

at https://www.sec.gov/comments/s7-08-22/s70822- 

20117824-270590.htm. 

423MFA Letter 2, at 3 (stating that the 

Commission should ‘‘provide an appropriate 

amount of time for firms to comply with any new 

requirements [under Rule 13f–2] (18 months at a 

minimum)’’ due to the operational build required 

for compliance with Proposed Rule 13f–2 and 

Proposed Form SHO). 

424 Id. 

425 In addition, with respect to the compliance 

date, several commenters requested the 

Commission to consider interactions between the 

proposed rule and other recent Commission rules. 

In determining compliance dates, the Commission 

considers the benefits of the rules as well as the 

costs of delayed compliance dates and potential 

overlapping compliance dates. For the reasons 

discussed throughout the release, to the extent that 

there are costs from overlapping compliance dates, 

the benefits of the rule justify such costs. See infra 

Parts VIII.B, VIII.C.6.f, and VIII.D.2 for a discussion 

of the interactions of the final rule with certain 

other Commission rules. 

426For discussion of the compliance date for the 

adopted amendment to the CAT NMS Plan to 

require the reporting to the CAT of reliance on the 

bona fide market making exception in Regulation 

SHO, see Notice of the Text of the Amendment to 

the National Market System Plan Governing the 

Consolidated Audit Trail for Purposes of Short 

Sale-Related Data Collection, Exchange Act Release 

No. 34–98739 (Oct. 13, 2023), published elsewhere 

in this issue of the Federal Register, which will 

have an effective date of 60 days after date of 

publication in the Federal Register and a 

compliance date of 18 months after the effective 

date. 

427See supra Part IV.B. See also infra Part VII.C 

for discussion of costs and burden estimates related 

to compliance with the amendment to CAT. 

428 44 U.S.C. 3501 et seq. 

exceptions under Regulation SHO.’’ 419

Notably, ‘‘broker-dealers that publish 

quotations but fill orders at different 

prices than those quoted would not be 

engaged in bona-fide market making for 

purposes of Regulation SHO.’’ 420

After considering the comments 

received regarding the proposal to 

require CAT reporting firms that are 

reporting short sales to indicate whether 

such CAT reporting firm is asserting use 

of the BFMM locate exception, the 

Commission is adopting this proposed 

amendment to CAT with a few technical 

modifications to improve the readability 

of the amendment.421 The Commission 

recognizes that there will be costs to 

broker-dealers to implement changes to 

their respective systems and processes 

to accommodate the reporting of the 

BFMM locate exception information to 

CAT. For the reasons described above, 

as well as reasons stated in the 

Proposing Release, the Commission 

believes that the benefits to the 

Commission in its administration of 

short sale regulations will justify the 

burdens and costs to CAT reporting 

firms. This reporting requirement will 

not adversely affect short selling activity 

or liquidity in the market as it requires 

that brokers or dealers that are market 

makers provide information that is, or 

should be, readily available to the 

market maker at the time they effect a 

short sale, to the Commission without 

having to request access. The 

requirement does not change how such 

brokers or dealers that are market 

makers use the exception itself, and the 

data will not be published. 

V. Other Comments 

Other commenters also discussed 

issues that were beyond the scope of the 

rulemaking, such as suggestions for the 

Commission to ban short selling, 

enhance Regulation SHO’s locate or 

close-out requirements, address 

potentially abusive ‘‘naked’’ short 

selling, and reduce the reporting 

timeframes or requirements for Form 

13F reporting, among others.422

VI. Compliance Date 

The Commission received one 

comment regarding a compliance date 

for Rule 13f–2 reporting requirements; 

that commenter recommended that 

Managers be given at least 18 months to 

comply with the new requirements.423

Specifically, the commenter stated that 

‘‘[g]iven the complexity and significance 

of the operational build required by the 

proposed rule, we think a minimum of 

18 months would be an appropriate 

implementation timeframe to give 

advisers adequate time to come into 

compliance with any new 

requirements.’’ 424 Due to the 

modifications from the proposal which 

will reduce the complexity of the 

operational build, Managers should 

require less time than suggested by the 

commenter. Although the data that will 

result from the Rule 13f–2 reporting 

requirements will be useful to market 

participants and regulators as soon as it 

is available, it is prudent to implement 

the rule at a measured pace to help 

ensure that Managers have adequate 

time to update systems to meet the 

reporting requirements of Rule 13f–2. 

Accordingly, a compliance date of 12 

months after the effective date of this 

release for Rule 13f–2 strikes the 

appropriate balance between the 

Commission’s goal of increasing 

transparency of short sale-related 

information and providing Managers 

with adequate time to implement 

systems and processes to comply with 

the Rule 13f–2 reporting 

requirements.425

The Commission will begin 

publishing the aggregated short sale 

related data collected, pursuant to Rule 

13f–2, three months after the above 

stated compliance date of 12 months 

after the effective date of this release. 

The three-month window for the 

Commission to publish aggregated Form 

SHO data is intended to ensure that 

Commission systems are operating as 

designed in order to publish the 

aggregated data. 

Consistent with a suggestion by the 

commenter, the compliance date for the 

CAT amendments will be 18 months 

after the effective date of this release, as 

there were not modifications to that 

requirement from proposal. This will 

allow CAT reporting firms adequate 

time to update systems to facilitate 

reporting to CAT.426 An 18-month 

compliance period for the amendment 

to CAT strikes the appropriate balance 

between improving the Commission’s 

administration of short sale regulations 

and providing CAT reporting firms 

adequate time to implement changes to 

their respective systems and processes 

to accommodate the reporting of BFMM 

locate exception information to CAT, 

and is reasonable given that the 

information to be reported is, or should 

be, readily available to the market maker 

at the time they effect a short sale.427

VII. Paperwork Reduction Act Analysis 

A. Background 

Certain provisions of Rule 13f–2, 

Form SHO, and the Amendment to CAT 

impose ‘‘collection of information’’ 

requirements within the meaning of the 

Paperwork Reduction Act of 1995 

(‘‘PRA’’).428 The title for the collection 

of information is: ‘‘Amendments to 

Enhance Short Sale Data’’ (OMB Control 

No. 3235–0804). An agency may not 

conduct or sponsor, and a person is not 

required to respond to, a collection of 

information unless it displays a current 

valid control number. The requirements 

of this collection of information are 

mandatory for Managers under Rule 

13f–2 and Form SHO, and Plan 

Participants and CAT reporting firms 

under the Amendment to CAT. 


ddrumheller on DSK120RN23PROD with RULES2
75140 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

429See Proposing Release, at 14980–81. 

430 44 U.S.C. 3507(d); 5 CFR 1320.11. 

431See also Instructions to Form 13F. 

432 Disclosure of Short Sales and Short Positions 

by Institutional Investment Managers, 73 FR 61678. 

The rule extended the reporting requirements 

established by the Commission’s Emergency Orders 

dated September 18, 2008, September 21, 2008, and 

October 2, 2008, with some modifications. See 

supra n.103. 

433This estimate is similar to the estimate 

provided in the Disclosure of Short Sales and Short 

Positions by Institutional Investment Managers, 

Exchange Act Release No. 58785 (Oct. 15, 2008), 73 

FR 61678 (Oct. 17, 2008). However, the number of 

estimated Form SHO filers represents a monthly, as 

opposed to weekly, filing, and therefore the 

Commission estimates fewer overall filings per 

month. Additionally, the estimate accounts for the 

estimate by the Commission staff that 252 Form SH 

filers would have been required to file had a 

threshold of 2.5% of shares outstanding or $10 

million monthly average gross short position in an 

equity security been imposed during the analyzed 

time period. The estimate of 1,000 is higher than 

the 252 estimated Form SH filers to account for: (1) 

Managers with discretion over less than $100 

million, which were not required to file Form SH; 

(2) the fact that Form SH was only required to be 

filed for 13(f) securities as opposed to all equity 

securities of both reporting and non-reporting 

company issuers; and (3) the fact that Form SH did 

not include a second, lower threshold (Threshold 

B) for short positions in securities of non-reporting 

company issuers. 

434See Proposing Release, at 14972–73. 

In accordance with the PRA, the 

Commission is submitting the final 

amendments to the rules to the Office of 

Management and Budget (OMB) for 

review. The Commission published a 

request for comments on these 

collection of information requirements 

in the Proposing Release,429 and 

submitted the proposed requirements to 

the Office of Management and Budget 

(OMB) for review in accordance with 

the PRA.430 The Commission received 

some comments regarding the 

Commission’s estimates of paperwork 

burdens and costs associated with 

anticipated compliance of Rule 13f–2, 

Form SHO, and the Amendment to 

CAT, which are addressed in this 

section. 

As discussed above, Rule 13f–2 and 

related Form SHO are designed to 

provide greater transparency of short 

sale-related data to regulators, investors, 

and other market participants by 

requiring certain Managers to file 

monthly on Form SHO, through EDGAR 

in Form SHO-specific XML, certain 

short position and activity data. Under 

Rule 13f–2 and Form SHO, only those 

Managers that meet a specified 

Reporting Threshold for an equity 

security will be required to file Form 

SHO. Such information will provide 

additional context to the Commission 

and other regulators regarding the 

lifecycle of short sales, assist in 

reconstructing market events, and 

improve Commission oversight of short 

selling. 

The Amendment to CAT is intended 

to supplement the short sale-related 

data that will be reported by certain 

broker-dealers to the Commission 

pursuant to Rule 13f–2 and Form SHO. 

The Commission’s amendment to CAT 

requires, for original receipt or 

origination of an order for equities, the 

Participants’ Compliance Rules require 

their broker-dealer members record and 

report whether the order is a short sale 

for which the BFMM locate exception in 

Rule 203 under Regulation SHO for the 

reported short sale is being claimed. 

This information will provide valuable 

data to both the Commission and other 

regulators regarding the use of the 

BFMM locate exception. Given the 

differences in the information 

collections applicable to these parties, 

the burdens applicable to Managers and 

broker-dealers are separated in the 

analysis below. 

B. Burdens for Managers Under Rule 

13f–2 and Form SHO 

1. Applicable Respondents 

As discussed above, Rule 13f–2 and 

Form SHO require Managers that trigger 

a Reporting Threshold to file monthly 

via EDGAR, on Form SHO, certain short 

position and activity data. Under 

section 13(f)(6)(A) of the Exchange Act 

and for purposes of Rule 13f–2, 

Managers include any person, other 

than a natural person, investing in or 

buying and selling securities for its own 

account, and any person (including a 

natural person) exercising investment 

discretion with respect to the account of 

any other person.431 Thus, the 

requirements of Rule 13f–2 could apply, 

for example, to investment advisers that 

exercise investment discretion over 

client assets, including investment 

company assets; broker-dealers; 

insurance companies; banks and bank 

trust departments; and pension fund 

managers or corporations that manage 

corporate investments or employee 

retirement assets. 

In the Proposing Release, the 

Commission stated that it believed that 

the burden associated with Proposed 

Rule 13f–2 and the related Proposed 

Form SHO reporting in EDGAR would 

be similar to a Manager’s reporting 

requirements under former Form SH. In 

October 2008, the Commission adopted 

interim final temporary Rule 10a–3T, 

which required institutional investment 

managers that exercise investment 

discretion with respect to accounts 

holding section 13(f) securities having 

an aggregate fair market value of at least 

$100 million to file Form SH with the 

Commission following a calendar week 

in which it effected a short sale in a 

section 13(f) security, with some 

exceptions. Form SH included 

information on short sales and positions 

of section 13(f) securities, other than 

options.432 The Commission estimated 

in the Proposing Release, that based on 

Form SH data, each month, 

approximately 1,000 Managers would 

trigger a Reporting Threshold for at least 

one security, and therefore be required 

to file a Proposed Form SHO.433 The 

Commission did not receive any 

comments regarding the estimated 

number of Managers that would be 

required to file a Form SHO, or an 

alternative estimated number of 

Managers that commenters believed 

would be more appropriate. 

As discussed above, the Commission 

is adopting aspects of the Proposal with 

certain modifications to Form SHO 

reporting requirements. For example, 

the modified reporting threshold for the 

U.S. dollar value-based prong of 

Threshold A for reporting company 

issuer securities is being adopted as a 

monthly average rather than a daily endof-day calculation, which could result 

in fewer Managers being subject to Form 

SHO reporting requirements under 

Threshold A than under the Proposed 

Reporting Thresholds. However, the 

Commission continues to believe that 

1,000 Managers is an accurate estimate 

when considering (1) Managers with 

discretion over less than $100 million, 

which were not required to file Form 

SH; (2) the fact that Form SH was only 

required to be filed for 13(f) securities 

that are included on the 13F List as 

opposed to all equity securities of both 

reporting and non-reporting company 

issuers; and (3) the fact that Form SH 

did not include a second, lower 

threshold (Threshold B) for short 

positions in securities of non-reporting 

company issuers. As such, the 

Commission continues to estimate that, 

each month, approximately 1,000 

Managers will trigger a Reporting 

Threshold for at least one security, and 

therefore be required to file a Form 

SHO. 

2. Burdens and Costs 

The Commission explained in the 

Proposing Release that it believed that 

the burden associated with Proposed 

Rule 13f–2 and the related Proposed 

Form SHO reporting in EDGAR would 

be similar to a Manager’s reporting 

requirements for former Form SH.434

The Commission continues to believe 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75141 

435Form SH was adopted in the wake of the 2008 

financial crisis and remained in effect until July 

2009. 

436See Disclosure of Short Sales and Short 

Positions by Institutional Investment Managers, 73 

FR 61686 (stating that, ‘‘[t]he 20 hour per filing 

estimate is based on data received from a small 

sample of actual filers and a random sample of 

filings conducted by our Office of Economic 

Analysis.’’). 

437See Proposing Release, at 14973–74. 

438See, e.g., MFA Letter, at 15; Two Sigma Letter, 

at 5–7. 

439Two Sigma Letter, at 5–7 (citing letters 

received by the Commission that it had 

underestimated the burden of Form SH and 

describing the complexity of Form SHO as 

compared to Form SH). 

440See, e.g., MFA Letter, at 15; Two Sigma Letter, 

at 5–7. 

441Anonymous Fund Manager Letter, at 8. 

442See WTI Letter, at 2 (‘‘The protests of the 

industry in terms of the effort required to comply 

with the Proposal ring hollow given the 

Commission’s experience with interim temporary 

Rule 10a–3T—firms had no problem complying and 

the data provided was useful to the Commission. 

Indeed, the Proposal is easier to comply with, given 

the monthly rather than weekly reporting of interim 

temporary Rule 10a–3T.’’). 

443See, e.g., T. Rowe Price Letter, at 3–4; Virtu 

Letter, at 3; MFA Letter, at 4. 

444Under Form SH, Managers who met the 

applicable threshold and effected a short sale in a 

section 13(f) security in the preceding week were 

required to file a report identifying the open short 

position, closing short position, largest intraday 

short position, and the time of the largest intraday 

short position, for that security during each 

calendar day of the prior week. See Emergency 

Order Pursuant to Section 12(k)(2) of the Securities 

Exchange Act of 1934 Taking Temporary Action To 

Respond to Market Developments, Exchange Act 

Release No. 58591 (Sept. 18, 2008), 73 FR 55175, 

55176 (Sept. 24, 2008). 445See id. 446Proposing Release, at 14973. 447 20 hours per filing × 1,000 filings by Managers 

each month × 12 months = 240,000 hours. In the 

Proposing Release PRA, the Commission estimated 

that 346 Form SH filers would have been required 

to file Form SHO had a threshold of 2.5% of shares 

outstanding or $10 million position dollar value 

been imposed during the analyzed time period. Due 

to the change in the Threshold A calculation of the 

dollar value prong of the Reporting Threshold for 

equity securities of reporting company issuers to be 

based on a monthly average gross short position 

rather than the proposed daily calculation, the 

estimated number of Form SH filers that would 

have been required to file a Form SHO decreased 

from 346 to 252. However, the Commission 

continues to estimate that 1,000 Managers will be 

subject to Form SHO reporting per month. 

448See Two Sigma Letter, at 5–7. 

that the burden associated with Rule 

13f–2 and related Form SHO reporting 

in EDGAR is similar to a Manager’s 

reporting requirements for former Form 

SH. With respect to each applicable 

section 13(f) security, the Form SH 

filing identified the issuer and CUSIP 

number of the relevant security and 

required the Manager’s start of day short 

position, the number and value of 

securities sold short during the day, the 

end of day short position, the largest 

intraday short position, and the time of 

the largest intraday short position.435 In 

adopting interim temporary Rule 10a– 

3T, which required certain Managers to 

file weekly non-public reports via Form 

SH, the Commission estimated that 

Managers would spend approximately 

20 hours to prepare and file each Form 

SH.436 The Commission estimated in the 

Proposing Release for Form SHO that 

the burden associated with preparing 

and filing Form SHO in EDGAR would 

be approximately 20 hours per filing, 

consistent with that of former Form 

SH.437

Some commenters were concerned 

about the Commission’s reliance on 

prior Form SH data in estimating Form 

SHO reporting burdens, as well as the 

estimated time burden of 20 hours for 

preparing and filing each required Form 

SHO.438 One commenter stated that the 

estimated 20 hours to file Form SHO 

was ‘‘not realistic’’ and felt that reliance 

on Form SH for Form SHO burden 

estimates was not adequately justified in 

the Proposing Release.439 Specifically, 

some commenters stated that the 

Proposing Release underestimated the 

costs of preparing proposed Information 

Table 2 in relying on the Form SH and 

Rule 10a–3T estimates, emphasizing the 

complexity of Form SHO as compared 

to Form SH.440 One commenter stated 

that the Proposing Release’s estimate of 

20 hours needed to process and file 

Form SHO per month may be too low, 

and even if accurate, will impose a 

‘‘substantial ongoing burden.’’ 441

However, these commenters did not 

provide the Commission with 

alternative burden estimates for 

reporting Form SHO, or alternative 

sources of data for which to base Form 

SHO burden estimates. 

In contrast, one commenter believed 

that Managers were not being genuine 

about their concerns regarding costs and 

burdens of complying with Form SHO 

reporting requirements, stating that they 

were able to comply with Form SH 

requirements.442 The commenter also 

stated that the requirements of Form 

SHO should be less burdensome than 

the requirements of Form SH due to the 

decreased frequency of reporting. 

Regarding comments of Form SHO’s 

complexity as compared to Form SH, 

the adopted Form SHO, as described 

above, does not include the proposed 

requirement to report hedging status, 

which several commenters thought 

would be particularly burdensome or 

operationally difficult to implement.443

As adopted, Form SHO also includes a 

streamlined Information Table 2, which 

reduces the granularity of the 

information reported, decreasing the 

costs and burdens that more detailed 

reporting of daily activity data as 

proposed would have imposed, further 

reducing complexity from the proposed 

rule and form. 

As the Commission acknowledged in 

the Proposing Release, and continues to 

acknowledge, the information required 

under former Form SH differs from that 

required under Form SHO. However, 

the Commission continues to believe 

that Form SH is an appropriate basis for 

Form SHO burden estimates. Form SH 

involved the same type of entities 

(Managers) and the same activity (short 

positions) as Form SHO. While 

recognizing that the information 

required under former Form SH differs 

from that required under Form SHO, the 

Commission continues to believe that 

both forms require the reporting of short 

sale-related data of similar depth and 

complexity.444 Notably, Rule 13f–2 

requires monthly reporting if certain 

conditions are met, as opposed to the 

weekly reporting required by Form SH 

for Managers that effected short sales 

within the preceding week,445 which is 

anticipated to decrease the overall 

volume of reports required to be filed by 

Managers under Form SHO in 

comparison to Form SH. 

As such, and since the Commission 

did not receive comments citing 

alternative sources of data that 

commenters believed would result in 

more accurate Form SHO burden 

estimates, the Commission continues to 

believe that Form SH is an appropriate 

basis for which to estimate Form SHO 

burdens. The Commission continues to 

estimate that the burden associated with 

preparing and filing Form SHO in 

EDGAR will be approximately 20 hours 

per filing, consistent with the 

corresponding burdens for former Form 

SH, and consistent with estimates in the 

Proposing Release.446 Accordingly, the 

Commission estimates that the burden 

associated with preparing and filing 

Form SHO across all managers 

collectively is approximately 240,000 

hours per year.447

The Commission received one 

comment regarding the approximate 

overall cost of $217.55 per Form SHO 

filing from the Proposing Release. This 

commenter stated that this cost was 

‘‘not realistic,’’ but, again, did not 

provide a more accurate cost estimate, 

or alternative data source for which to 

base a cost estimate.448 The Commission 

believes that the hourly cost of internal 

expertise required for each filing will be 

$251.36, which includes a blended 

calculation of the estimated hourly rate 

for a compliance attorney, senior 

programmer, and in-house compliance 

clerk, an increase from the Proposing 


ddrumheller on DSK120RN23PROD with RULES2
75142 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

449The $251.36 wage rate reflects current 

estimates of the blended hourly rate for an in-house 

compliance attorney ($425), a senior programmer 

($386) and in-house compliance clerk ($82). 

$251.36 is based on the following calculation: 

(($425) + ((($386 + $82) ÷ 2) × 10)) ÷ 11) = $251.36. 

The estimated proportion of compliance attorney 

(1/11th) to senior programmer and in-house 

compliance clerk (10/11th) time burden is based on 

commenter input and computation of the estimated 

burden for the filing of Form 13F–HR. See 

Electronic Submission of Applications for Orders, 

Exchange Act Release No. 93518 (Nov. 4, 2021), 86 

FR 64839 (Nov. 19, 2021) at 64860–61 (‘‘Electronic 

Submission of Applications for Orders’’). The $425 

per hour and $386 per hour figures for a compliance 

attorney and a senior programmer, respectively, are 

based on salary information for the securities 

industry compiled by the Securities Industry and 

Financial Markets Association’s Office Salaries in 

the Securities Industry 2013 (‘‘SIFMA Report’’), 

modified by Commission staff to account for an 

1,800-hour work year and inflation, and multiplied 

by 5.35 to account for bonuses, firm size, employee 

benefits, and overhead. The $82 per hour figure for 

a compliance clerk is based on salary information 

from the SIFMA Report, modified by Commission 

staff to account for an 1,800-hour work-year and 

inflation, and multiplied by 2.93 to account for 

bonuses, firm size, employee benefits, and 

overhead. See also Form PF; Event Reporting for 

Large Hedge Fund Advisers and Private Equity 

Fund Advisers; Requirements for Large Private 

Equity Fund Adviser Reporting, Release No. IA– 

6297, 88 FR 38146, 38195–98 (June 12, 2023). 

450 20 hours per filing × 1,000 filings by Managers 

each month × 12 months × $251.36 per hour = 

$60,326,400. 

451See Electronic Submission of Applications for 

Orders, 86 FR 64859 (stating that ‘‘[c]ommenters 

stated that the advances in technology have made 

the process of completing and filing Form 13F 

highly automated, reducing the time and external 

costs to managers in complying with this 

requirement.’’). 

452Most Managers will be familiar with other 

EDGAR Form-specific XML data languages, the use 

of which is required for the filing (by Managers that 

exercise investment discretion with respect to 

accounts holding 13(f) securities having an 

aggregate fair market value on the last trading day 

of any month of any calendar year of at least $100 

million) of Form 13F. See Frequently Asked 

Questions About 13F, available at https://

www.sec.gov/divisions/investment/13ffaq.htm. The 

Commission estimates that all of the 1,000 

Managers estimated to file Form SHO each month 

will do so directly using the structured XML-based 

data language rather than the fillable web form 

provided by EDGAR. 

453See XBRL Letter; Comment from An Investor 

(Apr. 4, 2022), available at https://www.sec.gov/ 

comments/s7-08-22/s70822-20122297-278355.htm. 

Comments regarding the use of XML are addressed 

in Part II.A.4. 

454The 2-hour estimated burden is consistent 

with similar estimates for the use of structured XML 

data formats for the filing of Form N–CR and Form 

24F–2. See Money Market Fund Reforms; Form PF 

Reporting Requirements for Large Liquidity Fund 

Advisers; Technical Amendments to Form N–CSR 

and Form N–1A, Exchange Act Release No. 34– 

97876 (July 12, 2023), 88 FR 51404, 51514 (Aug. 3, 

2023); see also Securities Offering Reform for 

Closed-End Investment Companies, Exchange Act 

Release No. 88606 (Apr. 8, 2020), 85 FR 33290, 

33329 n.439 (June 1, 2020) (stating that ‘‘[w]e 

assume that the burden of tagging Form 24F–2 in 

a structured XML format would be 2 hours for each 

filing.’’). 

455The $386 per hour figure for a senior 

programmer is based on salary information from the 

SIFMA Report. 2 hours × $386 = $772. 

456 2 hours per filing × $386 per hour × 1,000 

filings each month × 12 months = $9,264,000. 

457The estimate of 3.5% of Regulation SHO filers 

that are anticipated to file an amended Form SHO 

is based on the frequency of recent filings of 

amended Form 13F. For the reporting period of Dec. 

31, 2022, there were 6,924 holdings reports for 

Form 13F–HR submitted, 244 of which were 

amended. (244 ÷ 6,924 = 3.5%). 

458See Form SHO, Special Instructions, at 4. 

459See Proposing Release, at 14974. 

Release’s estimated $217.55 to account 

for inflation.449 Taken together, the 

estimated burden hours and hourly rate 

for the filing of Form SHO result in an 

estimated annual cost to the industry of 

$60,326,400.450 The Commission, 

however, recognizes that advances in 

technology over time could result in 

Managers spending less time preparing 

and filing Form SHO than is estimated 

above.451

Consistent with its estimates in the 

Proposing Release, the Commission also 

anticipates that most Managers will file 

Form SHO directly in the structured 

XML-based data language for Form 

SHO,452 rather than using the fillable 

web form provided by EDGAR, resulting 

in some limited additional costs for 

each filing. While the Commission 

received comments about the use of 

Form SHO-specific XML generally,453 it 

did not receive comments regarding the 

PRA burden estimates of using Form 

SHO-specific XML. The Commission 

estimates that Managers that file Form 

SHO using a structured XML-based data 

language could incur an additional 

burden of 2 hours of work by a 

programmer,454 at an estimated cost of 

$772.455 The Commission further 

estimates that Managers will 

collectively spend up to approximately 

24,000 hours and $9,264,000 per year to 

file Form SHO directly in a structured 

XML-based data language.456 The 

Commission also estimates that a 

similar, additional burden of 2 hours of 

work by a programmer per filing will 

apply to Managers filing an amended 

Form SHO directly in a structured XMLbased data language. 

Also consistent with the estimates in 

the Proposing Release, the Commission 

estimates that approximately 3.5 percent 

of the Managers that file Form SHO each 

month will also file an amended Form 

SHO, resulting in an additional burden 

and cost for an estimated 35 Managers 

each month.457 The additional burden 

could take up to the original 20 hours 

to process and file, as it will require the 

filing of an entirely new Form SHO.458

The associated wage rate for filing the 

amended Form SHO is consistent with 

the cost of expertise required to file the 

original Form SHO, estimated to be 

$251.36 per hour.459 The Commission 

also estimates that each amended Form 

SHO will be filed directly using a 

structured XML-based data language, 

resulting in a corresponding additional 

burden of 2 hours of work by a 

programmer per amended Form SHO 

filing. The Commission did not receive 

any comments regarding the estimated 

percentage of Managers that will file an 

amended Form SHO each month, or the 

costs and burden estimates of filing an 

amended Form SHO. 

PRA TABLE 1—ESTIMATED MANAGER BURDEN AND COSTS ASSOCIATED WITH FORM SHO REPORTING

Managers 

(monthly) 

Form SHO 

reports 

processed 

and filed 

(annual) 

Hours needed 

to process 

and file 

Form SHO 

(average) 

Total industry 

burden hours 

to process 

and file 

Form SHO 

(annual) 

Wage rate 

(average) 

Total 

industry 

cost burden 

(annual) 

Form SHO Filings ............................................................................. 1,000 12,000 20 240,000 $251.36 $60,326,400 

Use of Structured XML-Based Data Language in Form SHO Filings ................................................................................................ 1,000 12,000 2 24,000 386 9,264,000 

Amended Form SHO Filings ............................................................. 35 420 20 8,400 251.36 2,111,424 

Use of Structured XML-Based Data Language in Amended Form 

SHO Filings ................................................................................... 35 420 2 840 386 324,240 

Total ........................................................................................... .................... .................... ........................ 273,240 .................... 72,026,064 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75143 

460The Commission estimates that, of a total 

estimated burden of 325 hours, approximately 195 

hours will most likely be performed by compliance 

professionals and 130 hours will most likely be 

performed by programmers working on system 

configuration and reporting automation. Of the 

work performed by compliance professionals, we 

anticipate that it will be performed equally by a 

compliance manager at a cost of $360 per hour and 

a senior risk management specialist at a cost of $416 

per hour. Of the work performed by programmers, 

we anticipate that it will be performed equally by 

a senior programmer at a cost of $386 per hour and 

a programmer analyst at a cost of $280 per hour. 

((($360 per hour × 0.5) + ($416 per hour × 0.5)) × 

195 hours) + ((($386 per hour × 0.5) + ($280 per 

hour × 0.5)) × 130 hours) ÷ 325 = $366. See Form 

PF; Event Reporting for Large Hedge Fund Advisers 

and Private Equity Fund Advisers; Requirements for 

Large Private Equity Fund Adviser Reporting, 

Release No. IA–6297 (May 3, 2023), 88 FR 38146, 

38195 (June 12, 2023). See also SIFMA Report. 

461 325 initial technology-related burden hours × 

$366 per hour = $118,950. 

462See Form PF; Event Reporting for Large Hedge 

Fund Advisers and Private Equity Fund Advisers; 

Requirements for Large Private Equity Fund Adviser 

Reporting, Release No. IA–6297 (May 3, 2023), 88 

FR 38146, 38195 (June 12, 2023). (The Commission 

recognizes that adopted Rule 13f–2 will cover 

persons other than large hedge fund advisers, and 

that large hedge fund advisers may generally be 

more accustomed to existing Commission reporting 

requirements than some other persons that will be 

covered by adopted Rule 13f–2.). 

463See Rule 10B–1 Proposal. 

464See Two Sigma Letter, at 5. 

465See Anonymous Fund Manager Letter, at 6–7. 

466See Virtu Letter, at 3. 

467See supra Part IV. 

468The Participants are: BOX Options Exchange 

LLC; Cboe BZX Exchange, Inc.; Cboe BYX 

Exchange, Inc.; Cboe C2 Exchange, Inc.; Cboe EDGA 

Exchange, Inc.; Cboe EDGX, Inc.; Cboe Exchange, 

Inc.; Financial Industry Regulatory Authority, Inc.; 

Investors Exchange Inc.; Long-Term Stock 

Exchange, Inc.; MEMX, LLC; Miami International 

Securities Exchange LLC; MIAX PEARL, LLC; 

MIAX Emerald, LLC; NASDAQ BX, Inc.; NASDAQ 

GEMX, LLC; NASDAQ ISE, LLC; NASDAQ MRX, 

LLC; NASDAQ PHLX LLC; The NASDAQ Stock 

Market LLC; New York Stock Exchange LLC; NYSE 

MKT LLC; and NYSE Arca, Inc., NYSE Chicago 

Stock Exchange, Inc., NYSE National, Inc. 

Consistent with estimates in the 

Proposing Release, in addition to the 

costs associated with the reporting 

burden, Managers could incur an initial 

technology-related burden of 325 hours, 

at an hourly estimated wage rate of 

$366,460 for an estimated total cost of 

$118,950 per Manager,461 to update 

their current systems to capture the 

required information and automate and 

facilitate the completion and filing of 

Form SHO. The Commission generally 

believes that the type of Managers that 

will trigger a Reporting Threshold will 

likely have sophisticated technologies 

and be able to implement systems to 

help automate the reporting 

requirements of Rule 13f–2. As 

discussed in the Proposing Release, the 

estimate of 325 initial technologyrelated burden hours for Managers filing 

Form SHO was based on the estimated 

initial filing burden (325 hours) for large 

hedge fund advisers to fulfill 

amendments to the reporting 

requirements for Form PF,462 and is 

similar to the initial technological 

infrastructure-related burden (355 

hours) for the proposed security-based 

swap position reporting requirements of 

proposed Rule 10B–1(a).463 While 

Managers most likely have other 

existing reporting obligations, the 

Commission recognizes that Managers 

may need to update their systems to 

ensure timely and accurate filing of the 

specific information required under 

Form SHO. 

One commenter stated that the 

estimated 325 hours initial technologyrelated burden was ‘‘not realistic’’ but 

did not provide an alternative 

estimate.464 One commenter stated that 

the initial estimated costs for initial 

technology projects per Manager 

represented a ‘‘significant portion’’ of a 

smaller Manager’s information 

technology budget but did not state that 

the estimate was inaccurate.465 As a 

result of not adopting the proposed 

hedging requirement, which a number 

of commenters thought would be 

operationally difficult to implement,466

the technology-related burden will 

likely be reduced from that which was 

estimated in the Proposing Release. 

The Commission did not receive any 

comments that provided an alternative 

hourly estimate for the initial 

technology related burden for Managers 

filing Form SHO, or an alternative, more 

accurate source for which to base the 

initial technology related burden for 

Managers filing Form SHO. 

Additionally, in response to the 

comment that the Commission generally 

underestimated the initial technologyrelated burden, and that the technologyrelated burden is likely reduced from 

the Proposing Release given the 

Commission’s decision not to adopt the 

proposed hedging requirement, the 

Commission continues to believe that an 

estimate of 325-hours for the initial 

technology-related burden is 

appropriate. 

PRA TABLE 2—ESTIMATED MANAGER BURDEN AND COSTS ASSOCIATED WITH FORM SHO INITIAL TECHNOLOGY

PROJECTS

Managers with 

proposed 

Form SHO 

reportable 

short interest 

positions 

Number of 

hours needed 

for initial 

technology 

projects 

(average) 

Industry burden 

hours for 

initial 

technology 

projects 

Wage rate 

(average) 

Total 

industry cost 

burden 

Form SHO Initial Technology Projects ....................................................... 1,000 325 325,000 $366 $118,950,000 

C. Burdens and Costs Associated With 

the Amendment to CAT 

1. Summary of Collections of 

Information 

The amendment to the CAT NMS 

Plan requires Participants to update 

their Compliance Rules to require 

reporting by Industry Members of 

whether an original receipt or 

origination of an order to sell an equity 

security is a short sale for which a 

market maker is claiming the bona fide 

market making exception to the locate 

requirement in Rule 203(b)(2)(iii) of 

Regulation SHO.467

2. Use of Information 

As discussed above, reporting of 

certain short sale information to the 

CAT provides valuable information for 

the Commission and other regulators in 

investigations and reconstruction of 

market events. Requiring Industry 

Members to identify short sales for 

which they are claiming the BFMM 

locate exception will provide the 

Commission staff and other regulators 

an additional tool to determine whether 

such activity qualifies for the exception, 

or instead is indicative of, for example, 

proprietary trading instead of bona fide 

market making. 

3. Respondents 

a. National Securities Exchanges and 

National Securities Associations 

The respondents for the amendment 

to CAT include the 25 Plan Participants 

(the 24 national securities exchanges 

and one national securities association 

(FINRA)).468


ddrumheller on DSK120RN23PROD with RULES2
75144 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

469This is based on FOCUS quarterly filings for 

2023 Q1. 

470See supra Part IV.B. 

471See Proposing Release, at 14977. 

472 Id. 

473See, e.g., SIFMA Letter, at 25; FIA PTG Letter, 

at 3; Virtu Letter, at 6. 

474The Commission derives estimated costs 

associated with Plan Processor and Industry 

Member staff time based on per hour figures from 

the SIFMA Report, modified by Commission staff to 

account for an 1,800-hour work-year and inflation, 

and multiplied by 5.35 to account for bonuses, firm 

size, employee benefits and overhead. 

475The estimated 300 hours of Plan Processor 

staff time include 200 hours by a Senior 

Programmer, 40 hours by a Senior Database 

Administrator, 40 hours for a Senior Business 

Analyst, and 20 hours for an Attorney. The 

Commission estimates that the initial, one-time 

external expense for Participants will be $113,800 

= (Senior Programmer for 200 hours at $386 an hour 

= $77,200) + (Senior Database Administrator for 40 

hours at $379 an hour = $15,160) + (Senior Business 

Analyst for 40 hours at $305 an hour = $12,200) + 

(Attorney for 20 hours at $462 an hour = $9,240). 

476See CAT NMS Plan Approval Order, 81 FR 

84911–43; see also OMB Control No. 3235–0671, 85 

FR 37721 (June 23, 2020) (notice of submission of 

request for approval of extension). 

477See CAT NMS Plan Approval Order, 81 FR 

84918. 

478See OMB Control No. 3235–0045 (Aug. 19, 

2016), 81 FR 57946 (Aug. 24, 2016) (Request to 

OMB for Extension of Rule 19b–4 and Form 19b– 

4 PRA). 

b. Members of National Securities 

Exchanges and National Securities 

Associations 

The respondents for the Amendment 

to CAT also include the Participants’ 

broker-dealer members, that is, Industry 

Members. The Commission understands 

that there are currently 3,501 registered 

broker-dealers; 469 however, not all 

broker-dealers are expected to have new 

CAT reporting obligations under the 

Amendment to CAT.470 Based on an 

analysis of CAT data from May 2023, 

conducted by Commission staff, the 

Commission estimates that 

approximately 100 broker-dealers will 

be required to report for the original 

receipt or origination of an order to sell 

an equity security whether the order is 

a short sale effected by a market maker 

in connection with bona fide market 

making activities in the security for 

which the BFMM locate exception in 

Rule 203(b)(2)(iii) of Regulation SHO is 

claimed. This is a decrease from the 

Commission’s estimate in the Proposing 

Release of 104 broker-dealers that would 

be required to report for the original 

receipt or origination of an order to sell 

an equity security whether the order is 

a short sale effected by a market maker 

in connection with bona-fide market 

making activities in the security for 

which the exception in Rule 

203(b)(2)(iii) of Regulation SHO is 

claimed, because there were 104 CAT 

reporters listed as equity market makers 

in CAT in November 2021, and 100 CAT 

reporters listed as equity market makers 

in CAT in May 2023.471 The 

Commission also included an estimate 

of 1,218 broker-dealers that would have 

been required to report ‘‘buy to cover’’ 

information on buy orders for equity 

securities to CAT in the Proposing 

Release,472 but since the Commission is 

not adopting the proposed ‘‘buy to 

cover’’ reporting requirement, such 

estimate is not included here. The 

Commission did not receive any 

comments on the estimated number of 

respondents under the proposed 

amendments to CAT. 

4. Total Initial and Annual Reporting 

and Recordkeeping Burdens 

The Commission received comments 

regarding the costs and burdens of the 

proposed amendments to CAT 

generally 473 but did not receive specific 

comments regarding the Proposing 

Release’s PRA estimates related to the 

proposed CAT amendments. General 

comments regarding costs and burdens 

of the proposed CAT amendments are 

addressed in Part IV. The Commission’s 

total burden estimates in this Paperwork 

Reduction Act section reflect the total 

burden on all Participants and Industry 

Members. The burden estimates per 

Participant or Industry Member are 

intended to reflect the average 

paperwork burden for each Participant 

or Industry Member, but some 

Participants or Industry Members may 

experience more burden than the 

Commission’s estimates, while others 

may experience less. The burden figures 

set forth in this section are based on a 

variety of sources, including 

Commission staff’s experience with the 

development of the CAT and estimated 

burdens for other rulemakings. Because 

the CAT NMS Plan applies to and 

obligates the Participants and not the 

Plan Processor, the Commission 

believes it is appropriate to estimate the 

Participants’ external cost burden based 

on the estimated Plan Processor staff 

hours required to comply with the 

proposed obligations.474 Put another 

way, pursuant to the Amendment to the 

CAT NMS Plan, the Participants will be 

obligated to make changes to the CAT, 

but the CAT is managed by the Plan 

Processor pursuant to contractual 

agreement, and so the Participants will 

be required to engage the Plan Processor 

to make any required changes. 

a. Participant Burdens 

The Amendment to CAT will require 

the Participants to engage the Plan 

Processor to modify the Central 

Repository to accept and process the 

new BFMM locate exception 

information on order receipt and 

origination reports. The Commission 

estimates that the Participants will incur 

an initial, one-time burden of 130 hours, 

or 5.2 hours per Participant, of staff time 

required to supervise and implement 

the changes necessary for the Plan 

Processor to accept and process the new 

data elements, and an initial, one-time, 

external cost of $113,800, or a per 

Participant expense of approximately 

$4,552 to compensate the Plan Processor 

for staff time required to make the initial 

necessary programming and systems 

changes to accept and process the new 

data elements, based on an estimate that 

it will take 300 hours of Plan Processor 

staff time to implement these 

changes.475 The Commission did not 

receive comment on these estimates. 

The Commission continues to believe 

that other Paperwork Reduction Act 

burdens that will apply to the 

Participants, including ongoing burdens 

and external expenses for the Plan 

Processor’s acceptance and processing 

of the new data elements, are already 

accounted for in the existing Paperwork 

Reduction Act estimate that applies for 

Rule 613 and the CAT NMS Plan 

Approval Order, submitted under OMB 

number 3235–0671.476 The prior 

Paperwork Reduction Act analysis 

incorporates any other potential 

Paperwork Reduction Act burdens for 

the Participants, because the existing 

Paperwork Reduction Act analysis 

accounts for initial and ongoing costs 

for, among other things, operating and 

maintaining the Central Repository, 

including the cost of systems and 

connectivity upgrades or changes 

necessary to receive and consolidate the 

reported order and execution 

information from Participants and their 

members, the cost to store data and 

make it available to regulators, the cost 

of monitoring the required validation 

parameters, and management of the 

Central Repository.477 In addition, the 

Commission anticipates that each 

exchange and national securities 

association will file one Form 19b–4 

filing to implement updated 

Compliance Rules. While such filings 

may impose certain costs on the 

exchanges, those burdens are already 

accounted for in the comprehensive 

Paperwork Reduction Act Information 

Collection submission for Form 19b– 

4.478 The Commission does not expect 

the baseline number of 19b–4 filings to 

increase as a result of the Amendment 

to CAT, nor does it believe that the 

incremental costs exceed those costs 

used to arrive at the average costs and/ 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75145 

479See CAT NMS Plan Approval Order, 81 FR 

84911–43. While there is no recordkeeping 

requirement related to reporting use of the BFMM 

locate exception, brokers or dealers should be 

prepared to monitor for compliance with conditions 

and maintain records documenting such 

compliance. See Regulation SHO Adopting Release, 

48011 n.27 (‘‘As with any rule, broker-dealers 

relying on [an] exception should be prepared to 

monitor for compliance with its conditions, and 

maintain records documenting such compliance.’’). 

There would be a minimal additional ongoing 

burden for such brokers or dealers to record that 

they have determined such eligibility for each 

transaction reported to CAT. 

480See, e.g., CAT NMS Plan Approval Order, 81 

FR 84930. 

481See CAT NMS Plan Approval Order, 81 FR 

84930. 

482The Commission is basing this figure on the 

estimated burden and external costs for a brokerdealer that handles orders subject to customer 

specific disclosures required by Rule 606(b)(3) to 

update their systems to capture the data and 

produce a report to comply with Rule 606. See 

Disclosure of Order Handling Information, 

Exchange Act Release No. 84528 (Nov. 2, 2018), 83 

FR 58338, 58383 (Nov. 19, 2018). This is a 

reasonable proxy for estimating the burdens and 

costs associated with updating data capture systems 

for reporting purposes here because in both 

rulemakings broker-dealers were required to update 

in-house data reported for pre-existing reporting 

obligations. 

483The Commission believes that the estimated 

burden and external costs for outsourcing Industry 

Members is reasonable because the burden on 

individual Industry Members should be 

significantly lower than insourcing Industry 

Members because of the difference in how these 

Continued 

or burdens reflected in the Form 19b– 

4 PRA submission. 

b. Broker-Dealer Burdens 

The Commission anticipates that 

certain Industry Members will have 

initial, one-time burdens and costs 

relating to the Amendment to CAT, to 

update systems and processes as 

necessary to capture and report use of 

the BFMM locate exception to CAT. The 

Commission has estimated these initial 

burdens and costs below. 

The Amendment to CAT will impose 

an ongoing annual burden relating to, 

among other things, personnel time to 

monitor each broker-dealer’s reporting 

of the required data and the 

maintenance of the systems to report the 

required data and implementing 

changes to trading systems that might 

result in additional reports to the 

Central Repository. However, the 

Commission estimates that the ongoing 

burden imposed by the Amendment to 

CAT related to reporting to the CAT is 

already accounted for in the existing 

information collections burdens 

associated with Rule 613 and the CAT 

NMS Plan Approval Order submitted 

under OMB number 3235–0671.479

Specifically, the CAT NMS Plan 

Approval Order takes into account 

requirements on broker-dealer members 

to comply with the CAT NMS Plan, 

including the requirement to maintain 

the systems necessary to collect and 

transmit information to the Central 

Repository,480 provides aggregate 

burden hour and external cost estimates 

for the broker-dealer data collection and 

reporting requirement of Rule 613, and 

did not quantify the burden hours or 

external cost estimates for each 

individual component of the brokerdealer’s data collection and reporting 

responsibility.481 The Amendment to 

CAT will not require any Industry 

Member to submit new reports to the 

CAT, but to add limited additional 

information to existing reports in certain 

circumstances for certain Industry 

Members. The Commission does not 

believe that this will alter the estimates 

of ongoing burden and external costs in 

the existing Paperwork Reduction Act 

Analysis and the ongoing burden 

associated with these new collection 

requirements are accounted for in the 

existing Paperwork Reduction Act 

Analysis. 

The Amendment to CAT will impose 

additional burdens on Industry 

Members that trade equity securities 

and rely upon or plan to rely upon the 

BFMM locate exception. Based on an 

analysis of data reported to the CAT in 

May 2023, and specifically the 

identification of all unique CAT 

Reporters that were identified as equity 

market makers (including different 

classes of market makers such as 

‘‘designated’’ or ‘‘lead’’ market makers, 

and secondary liquidity providers), 

approximately 100 CAT Reporters will 

be subject to the new reporting 

obligation. Some broker-dealers that rely 

upon this exception may retain records 

regarding their eligibility for this 

exception for specific orders or for 

orders originated by specific desks or 

units of their business. 

Regarding the obligation to report the 

BFMM locate exception information to 

the CAT, the Commission believes that 

it is appropriate to divide the 100 

Industry Members, i.e., the CAT 

reporters listed as equity market makers 

in CAT as of May 2023, that will be 

required to report this information into 

two categories: (i) Industry Members 

that report directly to the CAT; and (ii) 

Industry Members that use third-party 

reporting agents for CAT reporting. For 

purposes of this Paperwork Reduction 

Act analysis, the Commission estimates 

that of the 100 Industry Members that 

will be required to report this 

information, 58 Industry Members will 

be reporting this information directly to 

the CAT, and 42 Industry Members will 

be reporting this information through 

third-party reporting agents. The 

Commission believes this is a 

reasonable estimation because the 

majority of Industry Members that are 

identified as market makers in the CAT 

have developed their own systems and 

technology to report directly to the CAT. 

The Commission believes that the 

majority of market makers handle 

reporting themselves because they likely 

submit a sufficient number of reportable 

events. The Commission did not receive 

any comments regarding the estimated 

number of broker-dealers that would be 

required to report for the original receipt 

or origination of an order to sell an 

equity security whether the order is a 

short sale effected by a market maker in 

connection with bona-fide market 

making activities in the security for 

which the exception in Rule 

203(b)(2)(iii) of Regulation SHO is 

claimed, or about the estimated 

proportion of insourcing vs. outsourcing 

Industry Members. As such, the 

Commission is keeping the proportion 

of insourcing vs. outsourcing Industry 

Members the same as in the Proposing 

Release, but reflective of the estimated 

100 broker-dealers rather than 104 

broker-dealers from the Proposing 

Release. 

The Commission estimates that the 58 

insourcing Industry Members that report 

directly to the CAT will incur an initial, 

aggregate, one-time burden of 15,080 

hours, or that each of these CAT 

Reporters will incur an initial, average 

one-time burden of 260 hours, and that 

each of these 58 insourcing Industry 

Members will incur an initial, aggregate, 

one-time external expense of 

approximately $870,000 for software 

and hardware to facilitate reporting of 

the new data elements to CAT, or that 

each insourcing Industry Member will 

incur an initial, average one-time 

external expense of approximately 

$15,000.482 The Commission did not 

receive any comments about the cost 

and burden estimates for insourcing 

Industry members. 

The Commission estimates that the 42 

outsourcing Industry Members that use 

third-party reporting agents to report to 

the CAT will incur an initial, aggregate, 

one-time burden of 420 hours, or that 

each of these outsourcing Industry 

Members will incur an initial, one-time 

burden of 10 hours on average, and that 

these 42 outsourcing Industry Members 

will incur an initial, aggregate, one-time 

external expense of approximately 

$42,000 for software and hardware to 

facilitate reporting use of the BFMM 

locate exception to CAT, or that each 

outsourcing Industry Member will incur 

an initial, average one-time external 

expense of approximately $1,000.483


ddrumheller on DSK120RN23PROD with RULES2
75146 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

firms report to the CAT. Outsourcing Industry 

Members will not be required to change internal 

CAT reporting systems, but instead will be 

responsible for making any updates necessary for 

CAT reporting agents to report this information to 

the CAT. The outsourcing Industry Members will 

have external costs associated with paying CAT 

reporting agents for any additional fees relating to 

the change, but because CAT reporting agents can 

report on behalf of numerous outsourcing Industry 

Members at the same time, the costs of any updates 

to their systems can be distributed amongst 

outsourcing Industry Members. 

484See supra n.476. 

485See infra Part VIII.C.1 for additional 

discussion on potential market manipulation. 

The Commission did not receive any 

comments about the cost and burden 

estimates for outsourcing Industry 

Members. 

As discussed above, the Commission 

continues to believe that the ongoing 

burden associated with reporting to the 

CAT is already accounted for in the 

existing information collections burdens 

associated with Rule 613 and the CAT 

NMS Plan Approval Order submitted 

under OMB number 3235–0671.484

Because this information is already 

collected and maintained by market 

makers that engage in equity trading and 

claim the exception pursuant to 17 CFR 

240.17a–3 (‘‘Rule 17a–3 of the Exchange 

Act’’), there is no new ongoing burden 

associated with collecting or recording 

the information necessary to effectuate 

CAT reporting of this new element. 

PRA TABLE 3—SUMMARY OF ESTIMATED INITIAL ONE-TIME BURDENS RELATED TO CAT BFMM AMENDMENT

Name of information collection Type of burden 

Number of 

entities 

impacted 

Initial 

one-time 

hourly burden 

Aggregate 

one-time 

hourly burden 

Initial 

one-time 

cost 

Aggregate 

one-time 

cost 

CAT: Central Repository—Short Sale Data ................ Recordkeeping .................... 25 5.2 130 $4,552 $113,800 

CAT: Reporting of Bona Fide Market Making Exception—Insourcers.Direct Report ...................... 58 260 15,080 15,000 870,000 

CAT: Reporting of Bona Fide Market Making Exception—Outsourcers.Third Party Disclosure ........ 42 10 420 1,000 42,000 

D. Collection of Information Is 

Mandatory 

The information collections are 

required under Rule 13f–2 and Form 

SHO for Managers that meet the 

Reporting Threshold and the 

Amendment to CAT for Plan 

Participants to collect and process new 

CAT reportable information and for 

CAT Industry Members that engage in 

certain short sale activity. 

E. Retention Period of Recordkeeping 

Requirement 

Pursuant to 17 CFR 240.17a–4(b)(7) 

(‘‘Exchange Act Rule 17a–4(b)(7)’’), a 

broker-dealer must preserve for a period 

of not less than three years, the first two 

years in an easily accessible place, all 

written agreements (or copies thereof) 

entered into by such member, broker or 

dealer relating to its business as such, 

including agreements with respect to 

any account. 

Pursuant to 17 CFR 240.17a–4(e)(7), a 

broker-dealer must maintain and 

preserve in an easily accessible place 

each compliance, supervisory, and 

procedures manual, including any 

updates, modifications, and revisions to 

the manual, describing the policies and 

practices of the member, broker or 

dealer with respect to compliance with 

applicable laws and rules, and 

supervision of the activities of each 

natural person associated with the 

member, broker or dealer until three 

years after the termination of the use of 

the manual. 

Pursuant to 17 CFR 240.17a–1, every 

national securities exchange and 

national securities association shall 

keep and preserve at least one copy of 

all documents, including all 

correspondence, memoranda, papers, 

books, notices, accounts, and other such 

records as shall be made or received by 

it in the course of its business as such 

and in the conduct of its self-regulatory 

activity for a period of not less than five 

years, the first two years in an easily 

accessible place, subject to the 

destruction and disposition provisions 

of 17 CFR 240.17a–6 (‘‘Rule 17a–6’’). 

F. Confidentiality 

As discussed above, Rule 13f–2 

requires certain Managers to file 

monthly in EDGAR, on Form SHO, 

certain short sale volume data and short 

interest position data. However, the 

Commission will aggregate the 

information reported by Managers on 

Form SHO prior to publication to 

protect the identity of reporting 

Managers. 

To the extent that the Commission 

receives—through its examination and 

oversight program, through an 

investigation, or by some other means— 

records or disclosures from a brokerdealer that relate to or arise from the 

Rule that are not publicly available, 

such information will be kept 

confidential, subject to the provisions of 

applicable law. 

With respect to the Amendment to 

CAT, Rule 613, and the CAT NMS Plan, 

information collected and electronically 

provided to the Central Repository will 

only be available to the national 

securities exchanges, national securities 

association, and the Commission. 

Further, the CAT NMS Plan includes 

policies and procedures designed to 

ensure the security and confidentiality 

of all information submitted to the 

Central Repository, and to ensure that 

all SROs and their employees, as well as 

all employees of the Central Repository, 

shall use appropriate safeguards to 

ensure the confidentiality of such data. 

The Commission will receive 

confidential information pursuant to 

this collection of information, and such 

information will be kept confidential, 

subject to the provisions of applicable 

law. 

VIII. Economic Analysis 

A. Introduction 

The Commission is adopting a new 

rule and related form as well as an 

amendment that introduce new 

reporting requirements in connection 

with short sales. Rule 13f–2, Form SHO, 

and the amendment to CAT 

(collectively, the ‘‘adoptions’’) will 

improve the transparency of short 

selling activity to regulators, market 

participants and the investing public. 

The data provided by these adoptions 

will close informational gaps in the 

currently available data, which in turn 

will benefit market participants and 

help foster fair and orderly markets. The 

adoptions will also improve regulatory 

oversight and enhance regulators’ 

examination of market behavior and 

recreation of significant market events. 

These improvements may, in turn, 

discourage market manipulation to the 

extent that it occurs.485

The Commission is mindful of the 

economic effects that may result from 

the adoptions of Rule 13f–2, Form SHO, 

and the amendment to CAT, including 

the benefits, costs, and the effects on 

efficiency, competition, and capital 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75147 

486Exchange Act section 3(f) requires the 

Commission, when it is engaged in rulemaking 

pursuant to the Exchange Act and is required to 

consider or determine whether an action is 

necessary or appropriate in the public interest, to 

consider, in addition to the protection of investors, 

whether the action would promote efficiency, 

competition, and capital formation. See 15 U.S.C. 

78c(f). In addition, Exchange Act section 23(a)(2) 

requires the Commission, when making rules 

pursuant to the Exchange Act, to consider among 

other matters the impact that any such rule would 

have on competition and not to adopt any rule that 

would impose a burden on competition that is not 

necessary or appropriate in furtherance of the 

purposes of the Exchange Act. See 15 U.S.C. 

78w(a)(2). 

487See infra note 506 and the accompanying 

discussion in the text on the definition of 

‘‘Manager’’. 

488See infra Part VII.C.1. The Commission 

expects that for many securities, a limited number 

of Manager positions may surpass the reporting 

requirement thresholds. Given the eventual public 

release of the aggregate position sizes, there is a risk 

that other market participants will be able to 

potentially identify the Managers with large short 

positions and orchestrate short squeeze efforts 

against them (should they seem vulnerable against 

a short squeeze). Nevertheless, the Commission 

maintains the ability of identifying such behavior 

using CAT data, which could mitigate initiation of 

such behavior. 

489See supra note 10 for description of the locate 

requirement of Rule 203 of Regulation SHO. 

formation.486 The Commission 

recognizes that the adoptions might 

impose significant compliance costs on 

market participants. Requiring 

Managers 487 to report large positions 

and short sale activity will likely 

impose significant initial and ongoing 

costs on Managers. The amendment to 

CAT will also impose compliance costs 

on broker-dealers. The Commission is 

cognizant of these costs and has 

modified the Proposals in a way that is 

intended to reduce the burdens incurred 

by market participants without 

sacrificing the transparency that is 

expected to result from the adoption of 

the Proposals. Modifications from the 

proposed rule and form that are likely 

to reduce reporting costs to Managers 

relative to the Proposals include: 

revising a key reporting threshold based 

on a monthly average calculation 

instead of a daily calculation, which is 

expected to reduce the number of 

reporting entities; streamlining the 

reporting requirements of Forms SHO; 

not adopting the ‘‘buy to cover’’ CAT 

reporting requirement; and not adopting 

Rule 205. Overall, the Commission has 

sought to balance the costs of the 

adoptions against the benefit to 

transparency that will be provided to 

regulators and the public. 

The Commission recognizes that the 

adoptions may lead to tradeoffs in 

market quality, with a risk of negative 

effects on price efficiency. A potential 

reduction in market manipulation 

through improved regulatory oversight 

stemming from the adoptions may have 

a positive impact on market quality. 

Furthermore, the adoptions will provide 

market participants with improved 

transparency into short selling activity, 

which might also lead to improved price 

efficiency. On the other hand, Rule 13f– 

2 and the disclosures Form SHO 

requires will increase the costs and risks 

of implementing large short positions, 

which might reduce price efficiency by 

reducing short selling and the positive 

effects of such short selling. 

Furthermore, public disclosure of 

information resulting from Rule 13f–2 

and Form SHO might facilitate short 

squeezes, which in turn might also 

reduce market quality.488

The Commission has considered the 

economic effects of the adoptions and 

wherever possible, has quantified their 

likely economic effects. The 

Commission is providing both a 

qualitative assessment and quantified 

estimates of the adopted rule and CAT 

amendment’s economic effects where 

feasible. The Commission has received 

comments on the Proposals and has 

addressed commenters’ concerns with 

the economic analysis. The Commission 

has incorporated data and other 

information to assist it in the analysis of 

the economic effects of the adoptions. 

However, as explained in more detail 

below, because the Commission does 

not have, and in certain cases does not 

believe it can reasonably obtain data 

that may inform the Commission on 

certain economic effects, the 

Commission is unable to quantify 

certain economic effects. Further, even 

in cases where the Commission has 

some data, quantification is not 

practicable due to the number and type 

of assumptions necessary to quantify 

certain economic effects, which render 

any such quantification unreliable. Our 

inability to quantify certain costs, 

benefits, and effects does not imply that 

the Commission believes such costs, 

benefits, or effects are not significant. 

The Commission is adopting the 

Manager reporting and disclosures to 

implement the statutory mandate of 

section 929X of the Dodd-Frank Act. 

Accordingly, many of the costs and 

benefits of Rule 13f–2 and Form SHO 

stem from the Commission’s 

implementation of the statutory 

mandate. In addition, the Commission is 

exercising discretion in its design and 

implementation of Rule 13f–2 and Form 

SHO and recognizes that this discretion 

has economic effects. Specifically, the 

Commission is using this discretion to 

ensure that the disclosures are additive 

to currently available data and will be 

useful to both market participants and 

regulators, with a focus on addressing 

data limitations exposed by market 

events, especially the market volatility 

in January 2021. Additionally, the 

Commission is adopting a Proposed 

CAT amendment in order to address 

such data limitations outside of the 

context of the statutory mandate of 

section 929X. 

The Commission has access to several 

sources of data that provide some short 

selling information, one of which is 

CAT. CAT data can be used by 

regulators for regulatory purposes, 

including analysis and reconstruction of 

broad-based market events; in market 

analysis in support of regulatory 

decisions; in market surveillance, 

investigations, and other enforcement 

activities. At times, these regulatory 

functions can benefit from information 

on short sale positions of market 

participants and how these positions 

change over time. CAT does not include 

data that can be used to track such 

positions, and as discussed further 

above, Commission staff experience in 

reconstructing the events of January 

2021 provided insights into the 

challenges of using existing CAT data 

for this purpose. Other existing data 

sources, including public data sources, 

are also limited for these purposes as 

well as for informing members of the 

public and market participants. 

Specifically, current data fail to 

distinguish the type of trader engaged in 

short selling or identify individual short 

positions, as well as the fluctuation in 

those positions, even for regulatory use. 

Furthermore, current data do not track 

the use of the bona fide market maker 

exemption when short selling without 

the ‘‘locate’’.489 The adopted rule will 

serve to increase the Commission’s 

awareness and understanding of short 

sale activity by Managers with large 

short sale positions by requiring 

reporting of their reliance on the bona 

fide marker maker locate exception. The 

adopted amendment will serve the 

Commission in its regulatory capacity. 


ddrumheller on DSK120RN23PROD with RULES2
75148 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

490One commenter stated that the data reported 

from Form SHO would only provide very limited 

additional relevant insight relative to FINRA short 

interest data. See SBAI Letter at 2. The Commission 

reiterates that Form SHO data are additive to 

existing data, including FINRA short interest data. 

More specifically, publicly released Form SHO data 

will indicate which equities have large short 

positions held by institutional investment 

managers. This is different from seeing large short 

interest, which may indicate many smaller 

positions, including those held by retail investors. 

Large short positions accumulated by Managers are 

often based on fundamental research, in contrast to 

smaller positions which more likely stem from 

hedging or arbitrage strategies. Therefore, 

information on the magnitude of aggregate large 

short positions, especially in relation to overall 

short interest, may highlight the degree to which 

short sales of a particular security are concentrated 

among Managers guided by fundamental research 

relative to hedging or arbitrage strategies. Thus, 

Form SHO will provide novel information on short 

sale behavior relative to other short sale data 

sources. 

491FINRA requires all members to report settled 

short positions in equities of all customer and 

proprietary accounts twice per month. According to 

the schedule it has adopted, FINRA publishes the 

short sale data about a week after each reporting 

due date. See, e.g., Short Interest Reporting, 

available at https://www.finra.org/filing-reporting/ 

regulatory-filing-systems/short-interest. 

492FINRA reports daily off-exchange short sale 

volume data that aggregate, for each exchange-listed 

security, short sale transactions reported to a FINRA 

TRF or ADF. See Short Sale Volume Data, FINRA, 

available at https://www.finra.org/finra-data/ 

browse-catalog/short-sale-volume-data. Registered 

exchanges also report daily short sale volume 

aggregated at the security level, often charging a fee. 

See, e.g., TAQ Group Short Sales & Short Volume, 

New York Stock Exchange, available at https://

www.nyse.com/market-data/historical/taq-nysegroup-short-sales. 

493Specifically, one will be able to look at a 

particular securities lending data to see if changes 

in short interest correspond to many smaller 

lending transactions or a smaller quantity of large 

securities loans, which may indicate market 

sentiment towards the particular company. 

However, it is impossible to discern whether these 

securities loans are being borrowed by numerous 

short sellers or instead concentrated among a small 

number of large short sellers. This information will 

be covered by Rule 13f–2 if the short seller(s) 

crosses the Report Thresholds. In addition, unlike 

FINRA short interest data, Rule 13f–2 data will 

incorporate Managers that are not FINRA members. 

Furthermore, while fees are required to access 

exchanges’ short volume and short transaction data, 

market participants will not have to pay a fee to 

view publicly released Form SHO data. 

494Unlike the Commission, however, the public 

will observe anonymized, aggregated data covering 

gross short sale positions of Managers that exceed 

at least one of the Reporting Thresholds. 

495One commenter stated that Form SHO data 

collected by the Commission would not fully 

capture the short selling market. See SBAI Letter at 

3. The Commission has not stated that Form SHO 

data provides a complete perspective of the short 

selling market. However, Form SHO data will reveal 

large short positions of Managers, which is not 

readily available from any other data source. 

496See infra Part VIII.C.1 for discussion of how 

the Commission might use Form SHO data for 

understanding market events. 

497See, e.g., Nasdaq v. SEC, 34 F.4th 1105, 1111– 

15 (D.C. Cir. 2022). This approach also follows SEC 

staff guidance on economic analysis for rulemaking. 

See Staff’s ‘‘Current Guidance on Economic 

Analysis in SEC Rulemaking’’ (March 16, 2012), 

available at https://www.sec.gov/divisions/riskfin/ 

rsfi_guidance_econ_analy_secrulemaking.pdf (‘‘The 

economic consequences of proposed rules 

(potential costs and benefits including effects on 

efficiency, competition, and capital formation) 

should be measured against a baseline, which is the 

best assessment of how the world would look in the 

absence of the proposed action.’’); Id. at 7 (‘‘The 

baseline includes both the economic attributes of 

the relevant market and the existing regulatory 

structure.’’). The best assessment of how the world 

would look in the absence of the proposed or final 

action typically does not include recently proposed 

actions, because doing so would improperly assume 

the adoption of those proposed actions. 

Existing data sources fail to accurately 

represent economic short positions of 

Managers due to several limitations.490

While FINRA publishes aggregate short 

interest on a bimonthly basis, these data 

do not reflect the timing with which 

short positions expand or shrink in the 

two-week period between reporting 

dates.491 Some other data sources report 

daily short sale volume 492 without 

distinguishing between short sale 

transactions that affect economic short 

positions and short sale transactions 

meant for purposes such as liquidity 

provision or hedging of long positions. 

As such, these existing short volume 

data may not be combined with the 

bimonthly short interest data to 

construct aggregate daily short positions 

of any particular Manager. Securities 

lending data, bolstered by the recently 

adopted 17 CFR 240.10c–1a (‘‘Exchange 

Act Rule 10c–1a’’), will offer a clearer 

picture of the relationship between 

short interest and securities being 

lent; 493 however, this does not allow 

the Commission or the public to observe 

and monitor large short positions of 

Managers.494 No existing data identify 

short positions of individual traders. 

Even though some regulatory data, e.g., 

CAT data, identify short transactions of 

individual traders, they may not be 

utilized to reconstruct short positions 

because economic short positions may 

change in the absence of any short sale 

transactions. Thus, the Commission is 

adding to the existing data sources to 

further illuminate the short selling 

market.495

These data limitations inhibit 

regulators from performing functions 

such as market surveillance and market 

reconstruction. For example, the 

Commission does not have regular 

access to information about Managers 

who hold large short positions, even if 

those positions are held for a long 

period of time. If the positions are 

sufficiently large and prices move 

against the positions, the Commission 

currently cannot efficiently assess the 

risk that these positions impose on the 

market more broadly.496 Further, with 

existing data, the Commission may have 

difficulty reconstructing significant 

market events, thereby inhibiting the 

Commission from quickly 

understanding market events and 

providing efficient market oversight. 

B. Baseline 

The baseline against which the costs, 

benefits, and the effects on efficiency, 

competition, and capital formation of 

the final rule are measured consists of 

the current state of the equity market, 

current practices of Managers and 

broker-dealers, and the current 

regulatory framework. The economic 

analysis considers existing regulatory 

requirements, including recently 

adopted rules, as part of its economic 

baseline against which the costs and 

benefits of the final rule are 

measured.497


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75149 

498See, e.g., MFA Letter 2, at 3–4 (‘‘We believe 

the Commission should take into account the sheer 

scope of all its recently proposed rules when 

determining whether to adopt any final rules or in 

setting compliance dates for any of the new 

requirements’’); Eric J. Pan, President and CEO, and 

Susan Olson, General Counsel, Investment 

Company Institute (Aug. 17, 2023), at 3, available 

at https://www.sec.gov/comments/s7-04-22/s70422- 

246959-547222.pdf (‘‘ICI Letter 2’’) (‘‘we request 

that the Commission . . . publish a thorough 

analysis of the cumulative effects of the 

Interconnected Rules that accounts for 

interconnections and dependencies among them’’). 

499Reporting of Securities Loans, Release No. 34– 

93613 (Nov. 18, 2021), 86 FR 69802 (Dec. 8, 2021) 

(see Ji rˇı ́ Kro ́l,Deputy CEO, Global Head of 

Government Affairs, Alternative Investment 

Management Association Ltd (Aug. 11, 2023), at 4, 

available at https://www.sec.gov/comments/s7-08- 

22/s70822-243880-514482.pdf) (‘‘AIMA Letter 2’’); 

Modernization of Beneficial Ownership Reporting, 

Release No. 33–11030 (Feb. 10, 2022), 87 FR 13846 

(Mar. 10, 2022) (see MFA Letter 2, at 3; Jennifer 

Han, Executive Vice President, Chief Counsel and 

Head of Regulatory Affairs, Managed Funds 

Association, and National Association of Private 

Fund Managers (July 21, 2023), at 14–15, available 

at https://www.sec.gov/comments/s7-08-22/s70822- 

233179-486723.pdf) (‘‘NAPFM Letter’’); ICI Letter 2, 

at 7 n. 13); Amendments to Form PF to Require 

Current Reporting and Amend Reporting 

Requirements for Large Private Equity Advisers and 

Large Liquidity Fund Advisers, Release No. IA–5950 

(Jan. 26, 2022), 87 FR 9106 (Feb. 17, 2022) (see MFA 

Letter 2, at 3; NAPFM Letter 10–12); Private Fund 

Advisers; Documentation of Registered Investment 

Adviser Compliance Reviews, Release No. 1A–5955 

(Feb. 9, 2022), 87 FR 16886 (Mar. 24, 2022) (see 

MFA Letter 2, at 3; NAPFM Letter 10–12); 

Shortening the Securities Transaction Settlement 

Cycle, Release No. 34–94196 (Feb. 9, 2022), 87 FR 

10436 (Feb. 24, 2022) (see ICI Letter 2 at 7 n. 13). 

500See Reporting of Securities Loans, Release No. 

34–98737 (Oct. 13, 2023) (‘‘Rule 10c–1a’’). The 

securities loan reporting rule requires any person 

who loans a security on behalf of itself or another 

person to report information about securities loans 

to a registered national securities association 

(namely, FINRA) and requires FINRA to make 

certain information it receives available to the 

public. The covered persons will include market 

intermediaries, securities lenders, broker-dealers, 

and reporting agents. The final rule’s compliance 

dates require that FINRA propose its rules within 

four months of the effective date of final Rule 10c– 

1a, or approximately May 2024, and finalize them 

no later than 12 months after the effective date of 

final Rule 10c–1a, or approximately January 2025; 

that FINRA implement data retention and 

availability requirements for reporting 24 months 

after the effective date of final Rule 10c–1a, or 

approximately January 2026; that covered persons 

report Rule 10c–1a information to FINRA starting 

on the first business day thereafter; and that FINRA 

publicly report Rule 10c–1a information within 90 

calendar days thereafter, or approximately May 

2026. See Rule 10c–1a, Part VIII. 

501See Modernization of Beneficial Ownership 

Reporting, Release No. 33–11253 (Oct. 10, 2023) 

(‘‘Beneficial Ownership Reporting’’). Among other 

things, the amendments generally shorten the filing 

deadlines for initial and amended beneficial 

ownership reports filed on Schedules 13D and 13G, 

and require that Schedule 13D and 13G filings be 

made using a structured, machine-readable data 

language. The new disclosure requirements and 

filing deadlines for Schedule 13D are effective 90 

days after publication in the Federal Register. The 

new filing deadline for Schedule 13G takes effect 

on September 30, 2024, and the rule’s structured 

data requirements have a one-year implementation 

period ending December 18, 2024. See Beneficial 

Ownership Reporting, Part II.G. 

502See Private Fund Advisers; Documentation of 

Registered Investment Adviser Compliance Reviews, 

Release No. IA–6383 (Aug. 23, 2023), 88 FR 63206 

(Sept. 14, 2023) (‘‘Private Fund Advisers Adopting 

Release’’). The Private Fund Advisers Adopting 

Release includes new rules designed to protect 

investors who directly or indirectly invest in 

private funds by increasing visibility into certain 

practices and restricting other practices, along with 

amendments to the Advisers Act books and records 

rule and compliance rule. The amended Advisers 

Act compliance provision for registered investment 

advisers has a November 13, 2023 compliance date. 

The compliance date is March 14, 2025 for the 

rule’s quarterly statement and audit requirements 

for registered investment advisers with private fund 

clients. For the rule’s adviser-led secondaries, 

restricted activity, and preferential treatment 

requirements, the compliance date is September 14, 

2024 for larger advisers and March 14, 2025 for 

smaller advisers. See Private Fund Advisers 

Adopting Release, Parts IV, VI.C.1. 

503See Settlement Cycle Adopting Release. 

Settlement Cycle Adopting Release shortens the 

standard settlement cycle for most broker-dealer 

transactions from two business days after the trade 

date to one business day after the trade date 

(‘‘T+1’’). With certain exceptions, the rule has a 

compliance date of May 28, 2024. See Settlement 

Cycle Adopting Release, Parts VII, VII.B.3. 

504See Form PF; Event Reporting for Large Hedge 

Fund Advisers and Private Equity Fund Advisers; 

Requirements for Large Private Equity Fund Adviser 

Reporting, Release No. IA–6297 (May 3, 2023), 88 

FR 38146 (June 12, 2023) (‘‘May 2023 SEC Form PF 

Amending Release’’). The Form PF amendments 

require large hedge fund advisers and all private 

equity fund advisers to file reports upon the 

occurrence of certain reporting events. For new 

sections 5 and 6 of Form PF, the compliance date 

is December 11, 2023; for the amended, existing 

sections, it is June 11, 2024. See May 2023 SEC 

Form PF Amending Release, Part II.E. 

505 In addition, commenters indicated there could 

also be overlapping compliance costs between the 

final amendments and proposals (or in the case of 

Release No. 34–93784, a portion of the proposal) 

that have not been adopted. Cybersecurity Risk 

Management for Investment Advisers, Registered 

Investment Companies, and Business Development 

Companies, Release No. 33–11028 (Feb. 9, 2022), 87 

FR 13524 (Mar. 9, 2022) (see MFA Letter 2, at 3; 

NAPFM Letter 18–19); Outsourcing by Investment 

Advisers, Release No. IA–6176 (Oct. 26, 2022), 87 

FR 68816 (Nov. 16, 2022) (see MFA Letter 2, at 3; 

NAPFM Letter 17–18); Enhanced Disclosures by 

Certain Investment Advisers and Investment 

Companies about Environmental, Social, and 

Governance Investment Practices, Release No. 33– 

11068 (May 25, 2022), 87 FR 36654 (June 17, 2022) 

(see MFA Letter 2, at 3; NAPFM Letter 19–20); 

Safeguarding Advisory Client Assets, Release No. 

IA–6240 (Feb. 15, 2023), 88 FR 14672 (Mar. 9, 2023) 

(see MFA Letter 2, at 3; NAPFM Letter 9–10); 

Prohibition Against Fraud, Manipulation, or 

Deception in Connection With Security-Based 

Swaps; Prohibition Against Undue Influence Over 

Chief Compliance Officers; Position Reporting of 

Large Security-Based Swap Positions, Release No. 

34–93784 (Dec. 15, 2021), 87 FR 6652 (Feb. 4, 2022) 

(see MFA Letter 2, at 3; NAPFM Letter 13–14; 

AIMA Letter 2, at 3; ICI Letter 2, at 7 n. 13); 

Prohibition Against Conflicts of Interest in Certain 

Securitizations, Release No. 33–11151 (Jan. 25, 

2023), 88 FR 9678 (Feb. 14, 2023) (see MFA Letter 

2, at 3; NAPFM Letter at 21–22); Further Definition 

of ‘‘As a Part of a Regular Business’’ in the 

Definition of Dealer and Government Securities 

Dealer, Release No. 34–94524 (Mar. 28, 2022), 87 

FR 23054 (Apr. 18, 2022) (see NAPFM Letter 12– 

13); Standards for Covered Clearing Agencies for 

U.S. Treasury Securities and Application of the 

Broker-Dealer Customer Protection Rule With 

Respect to U.S. Treasury Securities, Release No. 34– 

95763 (Sept. 14, 2022), 87 FR 64610 (Oct. 25, 2022) 

(see NAPFM Letter 16–17); Amendments Regarding 

the Definition of ‘‘Exchange’’ and Alternative 

Trading Systems (ATSs) That Trade U.S. Treasury 

and Agency Securities, National Market System 

(NMS) Stocks, and Other Securities, Release No. 

34–94062 (Jan. 26, 2022), 87 FR 15496 (Mar. 18, 

2022) (see NAPFM Letter 22–23). To the extent 

those proposals are adopted, the baseline in those 

subsequent rulemakings will reflect the existing 

regulatory requirements at that time. 

506See also Exchange Act section 3(a)(35) 

defining when a person exercises ‘‘investment 

discretion’’ with respect to an account. 

507See section 2(a)(8) of the Investment Company 

Act. The term ‘‘company’’ in the Exchange Act 

‘‘ha[s] the same meaning[ ] as in the Investment 

Company Act of 1940.’’ Exchange Act section 

3(a)(19). 

Several commenters requested the 

Commission consider interactions 

between the economic effects of the 

proposed rule and other recent 

Commission proposals.498 Commenters 

indicated there could be interactions 

between this rulemaking and five 

proposals 499 that have since been 

adopted: Rule 10c–1a,500 Beneficial 

Ownership Reporting,501 Private Fund 

Advisers,502 Settlement Cycle,503 and 

the May 2023 SEC Form PF Amending 

Release.504 These rules were not 

included as part of the baseline in the 

Proposing Release because they were 

not adopted at that time. In response to 

commenters, this economic analysis 

considers potential economic effects 

arising from any overlap between the 

compliance period for the final 

amendments and each of these recently 

adopted rules.505

1. Institutional Investment Managers 

The potential universe of persons who 

meet the definition of Manager is broad 

and diverse. Exchange Act section 

13(f)(6)(A) defines the term 

‘‘institutional investment manager’’ as 

‘‘includ[ing] any person, other than a 

natural person, investing in or buying 

and selling securities for its own 

account, and any person exercising 

investment discretion with respect to 

the account of any other person.’’ 506

Exchange Act section 3(a)(9) states that 

‘‘[t]he term ‘person’ means a natural 

person, company, government, or 

political subdivision, agency, or 

instrumentality of a government.’’ 

‘‘ ‘Company’ means a corporation, a 

partnership, an association, a joint-stock 

company, a trust, a fund, or any 

organized group of persons whether 

incorporated or not; or any receiver, 

trustee in a case under title 11 of the 

United States Code or similar official or 

any liquidating agent for any of the 

foregoing, in his capacity as such.’’ 507

As a result, Managers exercising 

discretion over the accounts of others 

include but are not limited to 


ddrumheller on DSK120RN23PROD with RULES2
75150 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

508To the extent that a natural person exercising 

discretion over the account of another person has 

a short position exceeding the thresholds, that 

natural person would be subject to the costs 

associated with Rule 13f–2 and the Form SHO. We 

expect such a natural person would likely use the 

fillable web form provided by EDGAR to input 

Form SHO disclosures. Few Managers that are 

natural persons would be likely to have short 

positions large enough to exceed the threshold. See 

infra Part VIII.C.6 for more information on 

Managers’ costs. 

509Peter Molk Frank Partnoy, Institutional 

Investors as Short Sellers?, 99 B.U. L. Rev. 837, 839 

(2019). Molk and Partnoy’s paper ‘‘identif[ies] the 

regulatory and other barriers that keep key 

categories of institutions, specifically, mutual 

funds, insurance companies, pension funds, banks, 

sovereign wealth funds, endowments, and 

foundations, from acquiring significant short 

positions.’’ Id. at 844. 

510As of Dec. 20212, there were 9,050 mutual 

funds (excluding money market funds) with 

approximately $22,652 billion in total net assets, 

2,819 ETFs organized as an open-end fund or as a 

share-class of an open-end fund with approximately 

$5,910 billion in total net assets, 680 registered 

closed-end funds with approximately $363 billion 

in total net assets, 701 unit investment trusts with 

approximately $2,184 billion in total net assets, and 

15 variable annuity separate accounts registered as 

management investment companies on Form N–3 

with $237 billion in total net assets. Estimates of the 

number of registered investment companies and 

their total net assets are based on an analysis of 

Form N–CEN filings as of July 31, 2023. For openend management funds, closed-end funds, and 

management company separate accounts, total net 

assets equals the sum of monthly average net assets 

across all funds in the sample during the reporting 

period. See Item C.19.a (Form N–CEN). For UITs, 

we use the total assets as of the end of the reporting 

period, and for UITs with missing total assets 

information, we use the aggregated contract value 

for the reporting period instead. See Item F.11 and 

F.14.c in Form N–CEN. 

511 Daniel Deli et al., Use of Derivatives By 

Registered Investment Companies at 8, DERA White 

Paper (2015), available at https://www.sec.gov/files/ 

derivatives12-2015.pdf. 

512This is based on an analysis of data provided 

by registered investment companies to the 

Commission on Form N–PORT filings received 

through July 31, 2023. 

513As of 2022 Q4, there are 1,107 hedge funds out 

of 6,553 Equity Single-Strategy hedge funds 

(excluding fund-of-funds hedge funds) that employ 

short selling in an Long/Short and Short Bias 

strategy. Assets under management (AUM) in these 

types of hedge funds total approximately $1.165 

trillion. 2022 Q2 Private Fund Statistics, Division 

of Investment Management Analytics Office, 

available at https://www.sec.gov/divisions/ 

investment/private-funds-statistics.shtml. Data 

includes both U.S. and non-U.S. domicile hedge 

funds managed by SEC-registered investment 

advisers with at least $150 million in private fund 

assets under management. The data do not include 

hedge funds that were classified as multi-strategy 

on Form PF. These hedge funds could employ short 

selling as part of their multi-strategy. Data for nonU.S. domicile hedge funds with an equity short-bias 

strategy is not publicly available for 2022 Q2. In 

this case the last publicly available values were 

used (7 funds with a total AUM of $1 billion) from 

2019 Q3. As of the end of 2021, hedge fund assets 

totaled approximately $4 trillion. Global Hedge 

Fund Industry Assets Top $4 Trillion for the First 

Time, Reuters (Jan. 20, 2022) (retrieved from Factiva 

database). 

514For example, according to Molk and Partnoy 

‘‘insurance companies generally are not active short 

sellers. Short selling by insurance companies is 

used almost exclusively to hedge positions, and 

generally is not used with respect to equity 

positions at all.’’ Supra note 509, at 850. See also 

Molk and Partnoy discussion about banks and 

trusts. ‘‘Trust administrators . . . have a history of 

adopting conservative investment strategies. 

Although shorting can be used to reduce risk when 

matched with similar long positions, using short 

selling as an income generation tool is not 

consistent with the overall conservative investment 

tradition.’’ Id. at 854. 

515A portion of these filings are Form 13Fs filed 

to declare that the filer’s holdings are reported on 

another filer’s Form 13F. Thus, not all 8,551 

Managers’ Form 13Fs represent unique holdings. 

516The statistic is computed by the Commission 

from data filed on Form 13F. 

517See supra Part VII.B.1 for more information on 

the estimates of how many Managers would have 

reporting obligations. The Commission estimated 

the number of reporting Managers using the short 

sale activity of Managers that submitted Form SH. 

Only Managers that exercised investment discretion 

over accounts with aggregate fair market values of 

at least $100,000,000 in securities described in Rule 

13f–1(c) under the Exchange Act, and effected short 

sales of those securities, were required to file Form 

SH. Given that Managers included in the Form SH 

data may be a subset of Managers with obligations 

under Rule 13f–2, the estimate of 252 Managers is 

likely lower than the number who will ultimately 

report Form SHO. However, the Commission lacks 

data to better estimate the universe of Managers 

with obligations under 13f–2. See also infra Part 

VIII for a discussion of the applicability of Form SH 

data to estimating the number of Managers affected 

by Rule 13f–2. 

investment advisers exercising 

investment discretion over client assets, 

including investment company assets 

such as mutual funds, ETFs, and closedend funds; banks and bank trust 

corporations offering investment 

management services; pension fund 

managers; firms, including brokerdealers and insurance companies, 

managing corporate or employee 

investment assets; and individuals 

exercising investment discretion over 

the accounts of others. Also, as a result 

of the definition of Manager, the set of 

Managers excludes natural persons 

buying and selling securities only for 

their own account but does include 

natural persons exercising discretion 

over the account of another person.508

Notwithstanding the broad statutory 

definition of Manager, it is the 

Commission’s understanding that only a 

fraction of Managers is believed to 

engage in short selling and fewer still 

engage in any substantial short selling. 

Registered broker-dealers’ market 

making operations, for example, engage 

in short selling but, with the exception 

of option market makers, generally do 

not hold large positions overnight. The 

Commission is also aware, for example, 

that advisers to both hedge funds and 

registered investment companies engage 

in short selling to varying degrees. 

However, with the exception of hedge 

funds, institutional investors are viewed 

as ‘‘largely absent’’ from the short 

selling portion of the financial 

markets.509 Using actual investment 

strategies employed by registered 

investment companies 510 as a proxy for 

the number of Managers in the public 

fund markets engaged in short selling, 

the number of such Managers is likely 

to be relatively small. A Division of 

Economic and Risk Analysis White 

Paper survey of all mutual fund Form 

N–SAR filings in 2014 found that 

‘‘[w]hile 64 percent of all funds were 

allowed to engage in short selling, only 

5 percent of all funds actually did 

so.’’ 511 As of December 2022, there were 

7,164 registered investment companies 

with total equity positions valued at 

approximately $14.7 trillion. Of those, 

138 funds had short positions with a 

total short position value of 

approximately $15 billion. Of the funds 

with short positions, only 15 funds held 

positions equal to or greater than $10 

million.512 Additionally, according to 

an analysis of publicly available Form 

PF data, approximately sixteen percent 

of single-strategy hedge funds employ 

strategies involving short selling.513

While information about Managers’ 

investments other than from funds 

managed by investment advisers is 

limited, the Commission understands 

that such other Managers, other than 

options market makers due to their 

routine use of hedging transactions, do 

not frequently establish short positions 

that would be large enough to be subject 

to the rule’s reporting requirement.514

One possible proxy for the number of 

Managers that might potentially have a 

reporting obligation is a fraction of the 

number of Managers reporting positions 

on Form 13F because such persons by 

definition manage accounts holding 

section 13(f) securities having an 

aggregate fair market value of at least 

$100 million, making such Managers 

more likely to have the resources to 

engage in short selling that exceeds Rule 

13f–2’s thresholds. As of March 31, 

2023, 8,551 Managers 515 with 

investment discretion over 

approximately $38.79 trillion reported 

holdings on Form 13F in Section 13(f) 

securities.516 The Commission also 

believes that registered investment 

advisers, particularly those managing 

hedge funds, are the primary Managers 

likely to be affected by Rule 13f–2. 

Though the Commission lacks data to 

quantify the exact number affected 

parties, the Commission estimates that 

the total number of Managers with 

reporting obligations will be between 

252 and 1,000.517

2. Short Selling 

Short selling is a widely used market 

practice, which allows investors to 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75151 

518See Rule 200(a) of Regulation SHO, 17 CFR 

242.200(a). See also Regulation SHO Adopting 

Release. 

519One commenter supported this statement, 

stating that short selling provides liquidity and is 

an important hedging tool. See SBAI Letter at 2. 

520See infra Part VIII.B.4.i for a discussion of 

existing short interest data. 

521Regulation T specifies that in most situations 

margin requirements for equity short sales must be 

150%. See 12 CFR 220.12. 

522On Feb. 15, 2023, the Commission adopted a 

rule to shorten the settlement cycle to one business 

day; compliance by broker-dealers will be required 

as of May 28, 2024. See Settlement Cycle Adopting 

Release. 

523One commenter stated that biotechnology 

companies, 90% of which have market 

capitalizations that would qualify as small-cap or 

micro-cap stocks, face an outsized proportion of 

short positions. See infra note 593. 

524See DERA 417(a)(2) Study. Figure F.1 in the 

DERA 417(a)(2) Study (showing that the level of 

short selling as a percentage of trading volume grew 

from 2007 to 2013 to about 50%). See also D. 

Rapach, M.C. Ringgenberg, and G. Zhou, Short 

Interest and Aggregate Stock Returns, J. of Fin. 

Econ. 46–65 (2016). 

525The Commission analyzed trading volume for 

common shares during the year 2019. This analysis 

revealed that the average common share during this 

period traded approximately 5% of shares 

outstanding each week, with approximately half of 

all trades involving short sellers. Consequently, 

total short selling volume amounts to 

approximately 5% of shares outstanding every two 

weeks for a typical stock. In contrast, from 2015 

through 2019, absolute changes in short interest 

approximately every two weeks have equaled about 

a half of a percent of shares outstanding. Thus, the 

total amount of short selling volume occurring is an 

order of magnitude larger than the changes in short 

interest over the same time period. These statistics 

suggest that the majority of short selling 

transactions likely do not involve long term traders 

building short positions. Additionally, the 

correlation coefficient for bimonthly changes in 

short interest and short selling volume in 2019 is 

only about 0.018. This low correlation suggests that 

the economic forces driving total short selling 

volume and changes in short interest are likely 

different. 

526See infra Part VIII.C.3 for a more detailed 

discussion of short selling and liquidity provision. 

profit if an asset declines in value or to 

hedge risks. Market participants can 

build an economic short position using 

traditional means (i.e., borrowing shares 

and selling them into the market to buy 

back later) or they can gain short 

exposure using derivatives. This section 

provides an overview of the current 

state of obtaining short exposure to 

equities and the different means of short 

selling—i.e., traditional means and 

using derivatives. 

a. Short Selling Equities 

A short sale is the sale of a security 

that the seller does not own or any sale 

that is consummated by the delivery of 

a security borrowed by, or for the 

account of, the seller.518 In general, 

short selling is used to profit from an 

expected downward price movement, to 

provide liquidity in response to 

unanticipated demand, or to hedge the 

risk of an economic long position in the 

same security or in a related security.519

To short sell a stock, the short seller 

borrows shares of a stock from a 

lender—typically a long-term investor 

such as a mutual fund or pension 

fund—and sells those shares into the 

market. Later, the short seller purchases 

the same number of shares and returns 

them to the lender. The profit on the 

transaction for the short seller is the 

difference between the price at which 

the shares were initially sold and the 

price at which the investor re-purchased 

the shares—less any fees such as 

securities lending fees. If the price of the 

stock goes down then this difference 

will be positive and the short seller will 

make money. Short selling contributes 

to price efficiency when short sellers 

trade to incorporate negative 

information into stock prices. 

In addition to short selling based on 

negative sentiment, market participants 

also short sell to hedge existing 

positions. Hedging is a particularly 

potent motive to short sell a stock for 

options market makers who can hedge 

the risk of writing a call option by short 

selling the underlying stock in the stock 

market. Other investors use short selling 

to hedge out an unwanted component of 

a stock’s return. For example, an 

investor who wants to buy a particular 

stock to trade on stock specific 

information but does not want to expose 

itself to industry risk can hedge industry 

risk by short selling an industry index 

ETF while purchasing the underlying 

security. Market makers also use short 

selling extensively to maintain two 

sided quotes in the temporary absence 

of inventory. Lastly, traders may use 

short selling as part of algorithmic 

trading strategies attempting to benefit 

from temporary pricing anomalies. 

While short selling to trade on 

information or to hedge generally results 

in short positions that are held for some 

time, registered broker-dealers engaged 

in market making operations and 

algorithmic technical traders generally 

close their positions by the end of the 

day and thus their short positions 

generally do not show up in existing 

measures of short interest.520

Short selling generally entails more 

risk than holding a long position. At 

worst, a buyer of a long position can 

lose its entire investment. This is not 

true for a short seller. If the stock price 

increases from the short sale price, the 

investor loses money and since prices 

could potentially rise indefinitely, the 

short seller could lose more than the 

value of its original investment. 

Additionally, margin requirements for 

short selling are typically 150 percent— 

including the proceeds of the short sale 

plus an additional 50 percent of the 

value of the short position.521 If the 

stock price goes up, the investor may 

receive a margin call, which would 

require the investor to commit 

additional assets to meet margin 

requirements. To protect itself from 

losses, if an investor is unable to meet 

margin requirements, the broker-dealer 

may close the short position at a 

significant loss to the short seller. These 

dynamics can make it difficult for 

investors to maintain short positions in 

highly volatile stocks. 

Short selling is facilitated by the 

securities lending market. Borrowing 

shares generally occurs two days after 

the short sale is executed. This is 

because stock market transactions 

normally settle two business days after 

the transaction occurs, while securities 

lending transactions settle on the same 

day.522 Consequently, a short seller (or 

its broker-dealer) will gauge the ability 

to borrow shares prior to executing the 

short sale, referred to as obtaining a 

‘‘locate,’’ but would actually borrow the 

share on the day that it is required to 

deliver the share to settle the stock 

market transaction. 

Short selling is prevalent in equity 

markets in general. A common ratio 

used to capture the amount of short 

selling is the short interest ratio, which 

measures the fraction of shares sold 

short at a given point in time divided by 

the total shares outstanding for that 

security. Figure 1 below presents the 

time series average for short interest 

outstanding for equities with different 

characteristics. This Figure shows that 

short interest tends to be higher for 

small-cap stocks than for mid- or largecap stocks.523

Another way to measure the 

prevalence of short selling in financial 

markets is by analyzing the fraction of 

transactions that involve a short seller. 

Short sellers are involved in nearly 50 

percent of trading volume, while only 

about 2 percent of shares outstanding 

are held short in the U.S. equity 

markets.524 This average volume of 

short selling tends to be much higher 

than the typical changes in short 

interest,525 suggesting that a significant 

fraction of short selling volume is 

reversed very quickly. Such short 

selling is indicative of the fact that short 

selling is a key component of modern 

market making strategies and technical 

algorithmic trading.526

BILLING CODE 8011–01–P 


ddrumheller on DSK120RN23PROD with RULES2
75152 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

527See Robert Battalio and Paul Schultz, 

Regulatory Uncertainty and Market Liquidity: The 

2008 Short Sale Ban’s Impact on Equity Option 

Markets, 66 J. of Fin. 2013–2053 (2011); B.D. 

Grundy, B. Lim, and P. Verwijmeren, Do Option 

Markets Undo Restrictions on Short Sales? Evidence 

from the 2008 Short-Sale Ban, 106 J. of Fin. Econ. 

331–348 (2012). See also G.J. Jiang, Y. Shimizu, and 

BILLING CODE 8011–01–C 

b. Taking Short Positions Via 

Derivatives 

Trading in derivatives affects short 

selling in two key ways. First, 

derivatives offer investors an alternative 

means to express negative sentiment 

rather than short selling the stock. For 

instance, an investor wishing to profit 

from the decline of a security’s value 

can also trade in various derivative 

contracts, including options and 

security-based swaps. Providing 

evidence of this alternative means of 

short selling, academic research shows 

that investors do indeed use options as 

an alternative means to obtain short-like 

economic exposure when standard short 

selling is restricted.527


ddrumheller on DSK120RN23PROD with RULES2ER01NO23.000</GPH>

Figure 1: Short Interest Ratio for Non-Financial Common Stocks, Jan. 2005 - Feb. 2023 

12.5 

2.5 

Cl .,. 

i i 

- l.lqJe(lllrketCllp>s$1Clbn) .... Mill(Saa<aMllllllltCllp <$1Gba) --· Smal(lllrketCllp<$2bn) 11 ■ SINOO I 

This figure plots the weighted average short interest ratio for three groups of stocks based on market capitalization 

on a bi-weekly basis from for January 2005 to April 2023. Large cap stocks are defmed as having a market 

capitalization of greater than $10 billion, mid cap as $2 billion to less than $10 billion, and small cap as less than $2 

billion. We estimate the short interest ratio for each stock as the number of shares in short interest reported by the 

exchanges on a bi-weekly basis and obtained from the Compustat North America Supplemental Short Interest File 

(for NYSE- and Nasdaq-listed stocks), divided by shares outstanding obtained from the Center for Research in 

Security Prices, LLC (CRSP) daily stock files. Since short interest is reported as of the settlement date, we match 

short interest to the trading date two days prior to the short interest report date. The sample includes non-fmancial 

(i.e., excluding stocks with SIC code between 6000 and 6999) and common stocks (i.e., CRSP share code of 10 or 

11). Following Blocher & Ringgenberg (2019), we discard stocks whose short interest ratio and adjusted short 

interest ratio (where the adjusted short ratio is adjusted for stock splits, buybacks, etc.) differ by more than 10%, in 

order to exclude potential asynchronous adjustments for stock splits in the shares outstanding and short interest 

datasets. Furthermore, stock-date observations for which a stock has multiple gvkey 's (Compustat identifier) or 

permno's (CRSP identifier) per date are removed. We then take the value-weighted average short interest ratio 

within a group, using market capitalization as weights. Market capitalization is calculated as shares outstanding 

multiplied by the closing price ( obtained from the CRSP daily stock files) two days prior to the short interest record 

date. S&P 500 values are obtained from the CRSP Index file. See Jesse Blocher, Matthew C. Ringgenberg, et al., 

When Do Short Sellers Exit Their Positions?, SSRN (Aug. 27, 2018), available at 

https:/ /ssm.com/abstract=2634579. 
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75153 

C. Strong, Back to the Futures: When Short Selling 

is Banned (2019), available at https://

papers.ssrn.com/sol3/papers.cfm?abstract_

id=3420275. 

528On Sept. 19, 2019, the Commission approved 

the ‘‘Recordkeeping and Reporting Requirements 

for Security-Based Swap Dealers, Major Securitybased Swap Participants, and Broker-Dealers’’ 

which established a regulatory regime for securitybased swaps under Title VII of the Dodd-Frank Act. 

See Recordkeeping and Reporting Requirements for 

Security-Based Swap Dealers, Major Security-Based 

Swap Participants, and Broker-Dealers, Exchange 

Act Release No. 87005 (Sept. 19, 2019), 84 FR 68550 

(Dec. 16, 2019), available at https://www.sec.gov/ 

rules/final/2019/34-87005.pdf. 

529Convertible debt securities are also employed 

in hedging strategies whereby the equity is sold 

short while the convertible security of that equity 

is held long. 

530On July 9, 2012, the Commission approved 

rules and definitions of Security based swaps. See 

17 CFR parts 230, 240, and 241; Further Definition 

of ‘‘Swap,’’ ‘‘Security-Based Swap,’’ and ‘‘SecurityBased Swap Agreement’’; Mixed Swaps; SecurityBased Swap Agreement Recordkeeping, Commodity 

Futures Trading Commission and Securities and 

Exchange Commission, 77 FR 48208 (Aug. 13, 

2012), available at https://www.sec.gov/rules/final/ 

2012/33-9338.pdf. 

531See, e.g., 2015 Regulation SBSR Adopting 

Release, supra note 97; Security-Based Swap Data 

Repository Registration, Duties, and Core 

Principles, Exchange Act Release No. 74246 (Feb. 

11, 2015), 80 FR 14437 (Mar. 19, 2015); Regulation 

SBSR—Reporting and Dissemination of SecurityBased Swap Information, Exchange Act Release No. 

78321 (July 14, 2016), 81 FR 53545 (Aug. 12, 2016) 

(‘‘2016 Regulation SBSR Adopting Release’’). See 

also Order Approving Application for Registration 

as a Security-Based Swap Data Repository, 86 FR 

8977 (Feb. 10, 2021), available at https://

www.sec.gov/rules/other/2021/34-91798.pdf. 

532See Regulation SHO Adopting Release. 

533 In a ‘‘naked’’ short sale, the seller does not 

borrow or arrange to borrow the securities in time 

to make delivery to the buyer within the standard 

two-day settlement cycle. As a result, the seller fails 

to deliver securities to the buyer when delivery is 

due (also known as a ‘‘failure to deliver’’). 

534Efficient markets require that prices fully 

reflect all buy and sell interest. Market participants 

who believe a stock is overvalued may engage in 

short sales in an attempt to profit from a perceived 

divergence of prices from true economic values. 

Such short sellers add to stock pricing efficiency 

because their transactions inform the market of 

their evaluation of future stock price performance. 

This evaluation is reflected in the resulting market 

price of the security. See Exchange Act Release No. 

48709 (Oct. 28, 2003), 68 FR 62972 (Nov. 6, 2003), 

available at https://www.sec.gov/rules/proposed/ 

34-48709.htm#P179_15857. 

535Market liquidity is generally provided through 

short selling by market professionals, such as 

market makers, who offset temporary imbalances in 

the buying and selling interest for securities. Short 

sales effected in the market add to the selling 

interest of stock available to purchasers, and reduce 

the risk that the price paid by investors is 

artificially high due to a temporary contraction of 

selling interest. Short sellers covering their sales 

also may add to the buying interest of stock 

available to sellers. See Exchange Act Release No. 

48709 (Oct. 28, 2003), 68 FR 62972 (Nov. 6, 2003), 

available at https://www.sec.gov/rules/proposed/ 

34-48709.htm#P179_15857. 

536As initially adopted, Regulation SHO included 

two major exceptions to its then existing close out 

requirements: the ‘‘grandfather’’ provision and the 

‘‘options market maker’’ exception. Due to 

continued concerns regarding failures to deliver, 

and the fact that the Commission continued to 

observe certain securities with failures to deliver 

that were not being closed out consistent with its 

then existing close out requirements, the 

Commission eliminated the ‘‘grandfather’’ provision 

in 2007 and the ‘‘options market maker’’ exception 

in 2008. See Exchange Act Release No. 56212 (Aug. 

7, 2007), 72 FR 45544 (Aug. 14, 2007) (eliminating 

the ‘‘grandfather’’ provision to Regulation SHO’s 

close out requirement), available at https://

www.sec.gov/rules/final/2007/34-56212fr.pdf; 

Exchange Act Release No. 58775 (Oct. 14, 2008), 73 

FR 61690 (Oct. 17, 2008) (eliminating the ‘‘options 

market maker’’ exception to Regulation SHO’s close 

out requirement), available at https://www.sec.gov/ 

rules/final/2008/34-58775fr.pdf. 

537 In 2008, the Commission adopted 17 CFR 

242.204T (‘‘temporary Rule 204T’’), and in 2009 

adopted Rule 204. Rule 204 further strengthens 

Regulation SHO’s close out requirements by making 

those requirements applicable to failing to deliver 

results from sales of all equity securities, while 

reducing the time-frame within which failures to 

deliver must be closed out. See Exchange Act 

Release No. 60388 (July 27, 2009), 74 FR 38266 

(July 31, 2009), available at https://www.sec.gov/ 

rules/final/2009/34-60388fr.pdf. 

538 In 2004, the Commission initiated a year-long 

pilot to study the removal of short sale price tests 

for approximately one-third of the largest stocks. 

After review of the pilot’s data, the Commission 

proposed the elimination of all short sale price 

tests. In June 2007, the Commission adopted a rule 

that eliminated all short sale price tests, including 

Rule 10a–1, a predecessor to Regulation SHO. The 

rule became effective in July 2007. In 2010, the 

Commission reinstituted a short sale price test 

restriction by adopting Rule 201. See Exchange Act 

Release No. 61595 (Feb. 26, 2010), 75 FR 11232 

(Mar. 10, 2010), available at https://www.sec.gov/ 

rules/final/2010/34-61595fr.pdf. 

Among the most popular derivative 

contracts are options, specifically put 

and call options. Call options give the 

owner of the option the right but not the 

obligation to purchase a stock at a 

specific price on a future date. Put 

options are similar but give the owner 

of the option the right but not the 

obligation to sell a stock at a specific 

price at a future date. In a put option the 

seller of the option is taking a long 

position in the underlying security 

while the purchaser of the put is taking 

a short position. The opposite is true for 

a call option. 

In addition to options, convertible 

securities (in which the security can be 

converted into an equity security) and 

security-based swaps can be used to 

create the same economic exposure as a 

short position.528 Convertible debt 

securities offer the owner a stream of 

payments and the ability to convert the 

security into equity should the owner’s 

strategy deem this beneficial.529

Security-based swaps include totalreturn swaps in which two 

counterparties agree to exchange or 

‘‘swap’’ payment with each other as a 

result of changes in a security 

characteristic, such as its price.530 As 

with options, in each of these derivative 

contracts one party is inherently long 

and the other party is inherently short. 

These derivatives, and other more exotic 

derivatives, tend not to be as 

standardized as options, and are traded 

over-the-counter. Security-based swap 

transactions are reported to and publicly 

disseminated by security-based swap 

data repositories.531

In addition to providing an alternative 

means of expressing a bearish 

sentiment, trading in derivatives 

frequently leads to related trading in the 

stock market as derivatives’ 

counterparties seek to hedge their risk. 

For example, an options market maker 

who sells a put has taken on long 

exposure to the underlying security and 

may hedge this position by opening a 

short position in the underlying 

security. Thus, option market makers 

who sell large quantities of put options 

may amass large short positions in the 

underlying equities to hedge their 

options exposure. 

3. Current Short Selling Regulations 

The Commission adopted Regulation 

SHO 532 to update short sale regulation 

in light of numerous market 

developments since short sale 

regulation was first adopted in 1938 and 

to address concerns regarding persistent 

failures to deliver and potentially 

abusive ‘‘naked’’ short selling.533

In adopting Regulation SHO, the 

Commission recognized that short sales 

can provide important pricing 

information 534 and liquidity to the 

market.535 However, the Commission 

was also concerned with the negative 

effect that failures to deliver may have 

on shareholders and the markets. For 

example, large and persistent failures to 

deliver may deprive shareholders of the 

benefits of ownership, such as voting 

and lending, and sellers that fail to 

deliver securities on settlement date 

may attempt to use their failures to 

engage in trading activities to 

improperly depress the price of a 

security. 

Due to continued concerns regarding 

failures to deliver, and to promote 

market stability and preserve investor 

confidence, the Commission has 

amended Regulation SHO on several 

occasions. For example, the 

Commission eliminated certain original 

exceptions to Regulation SHO’s closeout requirements,536 strengthened those 

same close-out requirements by 

adopting Rule 204,537 and reintroduced 

a short sale price test restriction by 

adopting Rule 201.538 In addition, the 

Commission adopted a targeted 

antifraud rule, Rule 10b–21, to further 

address failures to deliver in securities 


ddrumheller on DSK120RN23PROD with RULES2
75154 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

539Rule 10b–21 is an antifraud provision that 

supplements existing antifraud rules, including 17 

CFR 240.10b–5 (‘‘Rule 10b–5’’), and was adopted to 

further evidence the liability of short sellers. 

Specifically, Rule 10b–21 applies to short sellers, 

including broker-dealers acting for their own 

accounts, who deceive specified persons about their 

intention or ability to deliver securities in time for 

settlement, while failing to deliver securities by 

settlement date. Among other things, the rule 

highlights the specific liability of short sellers who 

deceive their broker-dealers about their source of 

borrowable shares for purposes of complying with 

Regulation SHO’s locate requirement, or who 

misrepresent to their broker-dealers that they own 

the shares being sold and subsequently fail to 

deliver shares. See supra note 14, available at 

https://www.sec.gov/rules/final/2008/34-58774.pdf. 

540See supra Part IV.B for a discussion on the use 

of the bona fide market making locate exception. 

541See DERA 417(a)(2) Study at 17–18, supra 

note 6. 542See Short Interest—What It Is, What It Is Not, 

FINRA Inv’r Insights (Apr. 12, 2021), available at 

https://www.finra.org/investors/insights/shortinterest. 543 Id. (Short interest for a listed security at any 

date reported by FINRA is ‘‘a snapshot of the total 

open short positions in a security existing on the 

books and records of brokerage firms on a given 

date.’’). 544FINRA Rule 4560 excludes short sales in 

‘‘restricted equity securities,’’ as defined in 

Securities Act Rule 144, from the reporting 

requirement. 545See FINRA Rule 4560(b)(1). 546See FINRA Market Regulation Department, 

General for Short Interest Reporting Instructions 

(Dec. 18, 2008) (reporting instructions to FINRA 

member firms), available at https://www.finra.org/ 

Industry/Compliance/RegulatoryFilings/ 

ShortInterestReporting/P037072. 547See DERA 417(a)(2) Study at 17–18, supra 

note 6. 548See supra note 491. FINRA and the listing 

exchanges make these data publicly available with 

biweekly updates. 

549See, e.g., Peter N. Dixon and Eric K. Kelley, 

Business Cycle Variation in Short Selling Strategies: 

Picking During Expansions and Timing During 

Recessions, 57(8) J. of Fin. and Quantitative 

Analysis 3018–3047 (2022); see also Ekkehart 

Boehmer, Zsuzsa R. Huszar, and Bradford D. Jordan, 

The Good News in Short Interest, 96 (1) Journal of 

Financial Economics 80–97 (2010); Stephen 

Figlewski, The Informational Effects of Restrictions 

on Short Sales: Some Empirical Evidence, 16 (4) J. 

of Fin. and Quantitative Analysis 463–476 (1981). 

550For example, the public will not have 

information on stock-specific volatility in real-time 

that may relate to short selling of the particular 

stock. Such volatility may be explained, though 

only through assumption, once the bimonthly short 

interest data becomes available. Assumption is 

necessary because the data are still not at the daily 

level. 

551See Short Sale Volume and Transaction Data, 

available at https://www.sec.gov/answers/ 

shortsalevolume.htm (showing hyperlinks to the 

websites where SROs publish this data). See also 

supra note 492. See, e.g., FINRA’s Daily Short Sale 

Volume Files (which provide aggregated volume by 

security on all short sale trades executed and 

reported to a FINRA reporting facility during 

normal market hours). See FINRA Information 

Notice, Publication of Daily and Monthly Short Sale 

Reports (Sept. 29, 2009), available at https://

www.finra.org/sites/default/files/NoticeDocument/ 

p120044.pdf. 

552See FINRA’s Monthly Short Sale Transaction 

Files (which provide detailed trade activity of all 

short sale trades reported to a consolidated tape. 

See supra note 492. See also Short Sale Volume and 

Transaction Data, available at https://www.sec.gov/ 

answers/shortsalevolume.htm. Additional 

that have been associated with ‘‘naked’’ 

short selling.539

Regulation SHO requires brokerdealers to properly mark sale orders as 

‘‘long,’’ ‘‘short,’’ or ‘‘short exempt,’’ to 

locate a source of shares prior to 

effecting a short sale (also known as the 

locate requirement), and to close out 

failures to deliver that result from long 

or short sales. In addition, if the price 

of an equity security has experienced 

significant downward price pressure, 

Regulation SHO temporarily restricts 

the price at which short sales may be 

effected. 

Regulation SHO imposes certain 

recordkeeping obligations on brokerdealers. However, the Commission does 

not have market-wide information on 

how often the bona fide market making 

exception is used. Furthermore, bona 

fide market making information is not 

reported on a regular basis, instead the 

Commission must request bona fide 

market making records on a brokerdealer by broker-dealer basis.540

In addition, regulations currently do 

not require market participants to 

record, report, or track when short 

sellers ‘‘buy to cover’’ their short sales. 

This makes it difficult for regulators to 

assess compliance with Rule 105 and 

with close out requirements in Rule 204. 

4. Existing Short Selling Data 

There are several sources of short 

selling data that are available both 

publicly and for regulatory purposes. In 

general, these data sources lack 

information about levels of and the 

timing of changes in economic short 

positions for specific Managers in 

specific securities. Some sources report 

aggregate short positions at the security 

level, but their content is not granular 

enough to further the understanding of 

short selling strategies. Other sources 

provide granular short volume 

information, but they are unable to 

distinguish short transactions that 

impact short positions from those that 

do not and do not contain all activity 

that can change short positions. Some 

regulatory data sources report short 

transactions at the individual investor 

level, but using these data to estimate 

short positions would be significantly 

inaccurate and inefficient. 

a. Bimonthly Short Interest Data 

One of the primary data sources for 

aggregate short selling data is the 

bimonthly short interest data collected 

by FINRA.541 FINRA collects aggregate 

short interest information in individual 

securities on a bimonthly basis as the 

total number of shares sold short in a 

given stock as of the middle and end of 

each month. Then the exchange that 

lists the given stock, or FINRA itself in 

the case of OTC stocks, distributes the 

collected data.542 FINRA computes 

short interest using information it 

receives from its broker-dealer members 

pursuant to FINRA Rule 4560 reflecting 

all trades cleared through clearing 

broker-dealers.543 FINRA Rule 4560 

requires generally that broker-dealers 

that are FINRA members report ‘‘short 

positions’’ in customer and proprietary 

firm accounts in all equity securities 

twice a month through FINRA’s webbased Regulation Filing Applications 

(RFA) system.544 FINRA defines ‘‘short 

positions’’ for this purpose simply as 

those resulting from ‘‘short sales’’ as 

defined in Rule 200(a) of Regulation 

SHO under the Exchange Act.545

Member firms must report their short 

positions to FINRA regardless of 

position size.546 The process of 

gathering and validating short interest 

data takes approximately two weeks.547

Thus the data are available with 

approximately a two week lag. 

FINRA short interest data are widely 

available and are used by academics and 

other market participants.548

Furthermore, these short interest data 

are found to predict future stock and 

market returns over the monthly and 

annual horizons, suggesting that the 

bimonthly short interest data capture 

the economic short selling based on 

fundamental research.549 However, 

these data face two major limitations. 

First, the information does not provide 

insight into the timing with which short 

positions are established or covered 

over the two-week reporting period. 

This precludes the possibility of 

understanding the behavior of aggregate 

economic short selling in the two weeks 

leading up to the reporting date.550

Second, given that short interest is 

aggregated at the security-level, the 

aggregation does not provide an 

understanding of certain aspects of the 

underlying short selling activity. For 

example, the data cannot inform on 

whether short sentiment is broadly or 

narrowly held or held by persons with 

larger positions. The data also does not 

inform on the extent to which short 

interest has been hedged. 

b. Short Selling Volume and 

Transactions From SROs 

Since 2009, many SROs have been 

publishing two short selling data sets, 

including same day publication of daily 

aggregated short sale volume in 

individual securities 551 and publication 

of short sale transaction information on 

no more than a two-month delay.552


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75155 

transaction data has been available at various times, 

including transaction data from the Regulation SHO 

Pilot, which has been discontinued by most 

exchanges in July 2007 when the uptick rule was 

removed. See Exchange Act Release No. 55970 

(June 28, 2007), 72 FR 36348 (July 3, 2007), 

available at https://www.sec.gov/rules/final/2007/ 

34-55970.pdf. The Pilot data comprised short 

selling records available from each of nine markets: 

American Stock Exchange, Archipelago Exchange, 

Boston Stock Exchange, Chicago Stock Exchange, 

NASD, Nasdaq Stock Market, New York Stock 

Exchange, National Stock Exchange, and the 

Philadelphia Stock Exchange. See SEC Division of 

Trading and Markets, Regulation SHO Pilot Data 

FAQ, available at https://www.sec.gov/spotlight/ 

shopilot.htm#pilotfaq. 

553See, e.g., TAQ Group Short Sale & Short 

Volume, New York Stock Exchange, available at 

https://www.nyse.com/market-data/historical/taqnyse-group-short-sales (for short sale data relating 

to all NYSE owned exchanges). See Short Sale 

Volume and Transaction Reports from Nasdaq 

Trader, available at https://nasdaqtrader.com/ 

Trader.aspx?id=shortsale (for short sale data for 

Nasdaq exchanges); see also Short Sale Daily 

Reports, Chicago Board Options Exchange (for Cboe 

exchanges), available at https://datashop.cboe.com/ 

us-equity-short-volume-and-trades. 

554Each TRF provides FINRA members with a 

mechanism for the public reporting of transactions 

effected otherwise than on an exchange. See FINRA, 

Market Transparency Trade Reporting Facility, 

available at https://www.finra.org/Industry/ 

Compliance/MarketTransparency/TRF/. 

555See supra note 285. 

556For example, a short sale transaction that takes 

place in late June could be released in a dataset in 

the month of August. 

557See Rule 200(g) of Regulation SHO specifies 

when an order can be marked as long. See also Part 

IV.B; Regulation SHO Adopting Release. An 

economic long sale is a sale of an owned, not 

borrowed, security. 

558See 2009 letter from Securities Industry and 

Financial Markets Association (‘‘SIFMA’’) 

commenting on an alternative short sale price test, 

expressing concern that compliance with 

Regulation SHO short selling marking requirements 

‘‘will result in a substantial over-marking of orders 

as ‘‘short’’ in situations where firms are, in fact, 

‘‘long’’ the securities being sold.’’ Letter from 

Securities Industry and Financial Markets 

Association (‘‘SIFMA Letter’’), available at https:// 

www.sec.gov/comments/s7-08-09/s70809-4654.pdf. 

559One reason for this is that the ‘‘permitted 

purpose requirement’’ of the Board of Governors of 

the Federal Reserve System’s Regulation T, which 

broadly governs the lending activities of brokerdealers, specifies that a broker dealer may generally 

borrow or lend U.S. securities from or to a (nonbroker-dealer) customer solely ‘‘for the purpose of 

making delivery of the securities in the case of short 

sales, failure to receive securities required to be 

delivered, or other similar situations,’’ unless an 

exemption applies. See 12 CFR 220.10(a). 

560Some research has used stock lending data as 

a proxy for actual short sales. See, e.g., Oliver 

Wyman, The Effects of Short Selling Public 

Disclosure of Individual Positions on Equity 

Markets, Alternative Investment Management 

Association (Feb. 2011), available at https://

www.managedfunds.org/industry-resources/ 

industry-research/the-effects-of-short-selling-publicdisclosure-of-individual-positions-on-equitymarkets/. 

561While the adoption of Rule 10c–1a occurred 

before the adoption of 

Rule 13f–2, and Rule 10c–1a has certain 

intermediate compliance dates related to FINRA 

rulemaking that precede Rule 13f–2 compliance 

dates, we expect that the reporting and publication 

of Rule 13f–2 information will occur before the 

reporting and publication of Rule 10c–1a 

information. See supra Part VI and infra note 585. 

Rule 10c–1a is thus part of the baseline for Rule 

13f–2, but significant aspects of Rule 10c–1a will 

be implemented later. 

562Several commercial entities sell data on 

securities lending to clients. See, e.g., 2011 Letter 

from Data Explorers (hereafter ‘‘Data Explorers 

Letter’’) in response to the request for comment 

relating to the proposed study of the cost and 

benefits of short selling required by Dodd Frank Act 

section 417(a)(2) available at https://www.sec.gov/ 

comments/4-627/4627-152.pdf. As some 

commenters have stated, stock lending facilitates 

short selling. See, e.g., Speech by Chester Spatt, 

former Chief Economist of the SEC (Apr. 20, 2007), 

available at https://www.sec.gov/news/speech/ 

2007/spch042007css.htm. The information sold by 

vendors may include volume of loans, lending 

costs, and the percentage of available stock out on 

loan. 

563See DERA 417(a)(2) Study at 22–23. See also 

Rule 10c–a, Part IX.B.5. 

Some SROs make the historical daily 

short volume data available to market 

participants for a fee.553 The fact that 

market participants and academic users 

pay these subscription fees indicate that 

these data are utilized. In addition to 

these daily short volume data, several 

SROs provide intraday short sale 

transaction information for the orders 

that execute on their respective venues. 

As an example, FINRA provides 

information from FINRA’s Trade 

Reporting Facility (‘‘TRF’’) and 

Alternative Display Facility (‘‘ADF’’) 554

(the TRF and ADF are together referred 

to herein as ‘‘FINRA’s Reporting 

Facilities’’). Overall, these different 

sources of daily and intraday short 

volume data provide greater, though 

different, levels of granularity relative to 

the bimonthly short interest 

observations discussed earlier. 

Despite offering higher granularity 

than bimonthly short interest data, these 

existing short volume data provided by 

the SROs, including FINRA, have a 

number of limitations. First, the data do 

not provide insight into the activities of 

either individual traders, or different 

trader types. Consequently, it is not 

possible with existing short selling data 

provided by the SROs to separate 

trading volume associated with market 

makers, algorithmic traders, investment 

managers, or other trader types. Form 

SHO will address this limitation by 

providing data on the gross short sale 

positions and activity of investment 

managers with large short sale positions. 

Additionally, the data do not provide 

insight into activities that may reduce 

exposure, making the use of these data 

to estimate investor sentiment fraught 

with potential bias. Moreover, these 

data provide information only on short 

sales, whereas short positions could also 

change because investors can increase 

or decrease their positions in ways other 

than short selling the stock. For 

example, investors can increase their 

short positions by exercising put 

options and delivering borrowed shares 

or by delivering borrowed shares when 

they are assigned call options. Investors 

can reduce their short positions in an 

equity when they, for example, ‘‘buy to 

cover’’ their positions, purchase shares 

in a secondary offering,555 convert 

bonds to stock, or redeem ETF shares 

containing the equity. As a result, the 

short selling volume and transactions 

data cannot easily explain changes in 

short interest, exposing a gap between 

these two types of existing data. 

Aggregate short selling statistics and 

short selling transactions data have 

different lags with which they are 

available. Aggregate short selling 

volume statistics are usually made 

available by the SROs by the end of the 

following business day. For the 

transactions data, the lag can be much 

longer, and in some cases the data are 

released with a one-month lag— 

implying that some short selling 

transactions data are not available for 

two months.556

There is also a concern that these data 

may over-represent the total volume of 

short sales occurring in the market. This 

is because Regulation SHO provides 

specific criteria regarding what is a long 

sale.557 If a market participant is unclear 

whether its trade will meet all the 

requirements at settlement to be marked 

a long sale, then it may choose to mark 

the trade as short to not run afoul of 

Regulation SHO requirements, even if 

the trade is likely an economic long 

sale.558

c. Securities Lending 

Securities lending data provide 

information on stock loan volume, 

lending costs, and the percentage of 

available stock out on loan. In the equity 

market, a primary reason for end 

borrowers to engage in a securities loan 

is to facilitate a short sale,559 leading to 

a close correlation between information 

about certain loan volumes and short 

interest. Therefore, some market 

participants use securities lending data 

as a measure of short sale positions.560

Since the proposing release, the 

Commission has adopted Rule 10c–1a. 

Below, we describe the baseline 

securities lending data—commercial 

securities lending data as well as 

forthcoming Rule 10c–1a data.561

i. Commercial Securities Lending Data 

The securities lending industry 

appears to use commercial securities 

lending data widely,562 though these 

data are generally available only by 

subscription.563 The use of commercial 


ddrumheller on DSK120RN23PROD with RULES2
75156 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

564For example, while the Commission believes 

that certain currently available securities lending 

data products may be biased due to missing 

observations, the extent of the biases cannot be 

quantified as the data that would be needed to 

assess the extent of the bias are missing. 

565 Voluntary data contributions are provided 

either through customer market surveys or using a 

give-to-get model. The Commission believes that 

both give-to-get and customer market survey data 

lack comprehensiveness, as it is unlikely that the 

full universe of lending programs and borrowers 

contribute all data to any given data vendor. The 

voluntary nature of submissions to both give-to-get 

and customer market survey data may mean that 

some data may be withheld. Market participants 

that choose not to disclose their data to the 

commercial data vendors likely make that choice 

because it is in their strategic interest not to 

disclose, resulting in nonrandom omissions. These 

omissions likely insert bias into the commercial 

databases. 

566See Rule 10c–1a, Part IX.B.2 for a more 

detailed discussion. 

567Rule 10c–1a will provide the Commission and 

market participants with access to comprehensive 

securities lending data market data. See Rule 10c– 

1a; see also supra note 561. 

568See infra Part VIII.C.2. 

569While most loans that facilitate short sales 

likely come from this category of ‘customer’ loans, 

not all will. Some large market participants do not 

use broker dealers as an intermediary when 

sourcing loans, rather they maintain relationships 

directly with lending programs to source shares 

when they wish to short sale. These transactions 

would show up in the data as loans to ‘‘Other’’ 

entities. Lastly, to the extent that a broker dealer 

borrows shares to facilitate their own short selling, 

the loan would show up in the data as a loan to 

a broker dealer. However, by summing up all 

‘customer’ and ‘other’ loans, market participants 

could likely estimate aggregate short interest with 

considerable accuracy. However, only publicly 

released Form SHO data will isolate large gross 

short sale positions of Managers. The delay of 21 

days is due to the settlement of the loan occurring 

in T+1 manner plus the publication of the data 20 

days after settlement. 

570The ability to identify changes in customer 

short positions is reduced to the extent that some 

short sellers, such as large institutions, have 

relationships with and are able to spread their 

borrowing across multiple prime brokers, which 

would make short interest appear less concentrated. 

571 It is important to note that only regulators 

have access to CAT data. 

security lending data as proxy for 

economic short interest has several 

limitations. These include the fact that 

commercial vendors of the securities 

lending data often impose access 

restrictions via give-to-get models. In 

addition, the data are not 

comprehensive and are based on 

voluntary contributions, which leads to 

self-selection bias. In this setting, the 

entities contributing data are mindful of 

whether other entities can access the 

data. As such, participation rates in data 

sharing reflects strategic considerations 

that may lower the extent of data shared 

by each entity, reducing the information 

content of the pool of data collected by 

each vendor. 

The data for securities lending is 

potentially biased 564—either containing 

information about the wholesale market 

or the customer market, but not both, 

making it difficult for a given market 

participants to obtain comprehensive 

security lending information from one 

source. Furthermore, even the 

cumulative data provided by vendors is 

still not be comprehensive, primarily 

because it is based on voluntary data 

contributions.565 The reliance on 

voluntary data contributions increases 

the likelihood that data are missing in 

a non-random manner which can 

introduce biases into the data. To this 

end, the existing data accessible by an 

individual market participant may not 

accurately proxy short selling activity. 

Existing commercial securities 

lending data only provide a noisy proxy 

of short sentiment. This is because 

current commercial securities lending 

data originates from either surveys of a 

subset of asset managers about their 

securities lending experience, or it 

comes from give-to-get arrangements 

where those involved in securities 

lending must give data to the data 

providers in order to be able access data 

from the data providers. Because the 

survey data are not comprehensive it 

can only provide a noisy proxy of actual 

short sentiment. The give-to-get data 

also provides only a noisy proxy 

because it too relies on voluntary data 

submissions. It is also generally limited 

to information about loans from lending 

programs to broker dealers (‘‘Wholesale 

Loans’’), which are made largely to 

facilitate clearing and settlement on a 

net basis at a clearing broker, rather than 

by transaction or position.566 Thus, 

Wholesale Loans are not traceable to 

individual short sellers. Further, the 

Commission understands that brokerdealers will usually source shares to 

meet their net clearing and settlement 

requirements from other sources, such 

as their own inventory or customer 

margin accounts, before engaging in 

Wholesale Loans. Thus, current 

commercial securities lending data 

serve only as an imperfect measure of 

short sentiment. 

ii. Rule 10c–1a Data 

On October 13, 2023, the Commission 

adopted Rule 10c–1a.567 Rule 10c–1a 

requires that the data elements in 

paragraph (c) of Rule 10c–1a, except for 

the size of the loan, are required to be 

made publicly available by an RNSA not 

later than the morning of the business 

day immediately after the covered 

securities loan is effected. Rule 10c–1a 

requires that the size of the loan be 

made publicly available by an RNSA on 

the twentieth day immediately after the 

covered securities loan is effected. In 

addition, Rule 10c–1a requires covered 

persons to report to an RNSA the legal 

name of each party to the loan (lender, 

borrower, and intermediary) and that an 

RNSA keep such information 

confidential. Next-day summary volume 

information will indicate the magnitude 

but not the direction of the activity, 

such that loan decreases are added to, 

not subtracted from, loan increases. 

Therefore, these data will not allow a 

viewer to discern between increases in 

aggregate short positions and decreases 

of aggregate short positions. 

Because loans to end-borrowers are 

usually made to facilitate short sales,568

these loans relate very closely to those 

customers’ short positions. By 

aggregating the total amount of shares 

on loan in the ‘‘customer’’ category, 

market participants could likely 

estimate outstanding short interest with 

considerable accuracy, though with an 

approximately one-month delay.569

Additionally, since each loan likely 

relates to a unique market participant, 

the Rule 10c–1a data will provide an 

indication of the distribution of short 

sentiment—that is, whether short 

interest is concentrated on a few short 

sellers with large positions, or whether 

it is spread out over many short 

sellers.570 Examining the change in the 

size of a loan from the reported data can 

also indicate when individual market 

participants increased or decreased their 

short positions, albeit with an 

approximate one-month delay. 

Pursuant to Rule 10c–1a, persons will 

be required to identify the legal name of 

all the parties to a securities loan 

without any delay to the RNSA. 

Consequently, regulators can use the 

data to track the size of shares on loan, 

and thus approximate an individual 

entity’s short position with little delay, 

potentially even if that entity uses 

multiple broker-dealers to source shares. 

Because loan modifications, such as 

increases, decreases, or terminations of 

loans, must be reported, regulators can 

produce running estimates of changes in 

individual entity’s estimated short 

positions. 

d. CAT Data 

Regulators can also extract short sale 

information from CAT data, which 

provide order lifecycle information for 

stocks and options.571 The data contain 

an order mark that is a part of the 

‘‘material terms of the trade’’ that 

indicates whether an order is a short 

sale. This order mark allows regulators 

to identify traders who are short selling 

and to see the order entry and execution 

times of these short sales. However, 

CAT was not designed to track traders’ 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75157 

572See Staff Report on Equity and Options Market 

Structure Conditions in Early 2021, SEC (Oct. 14, 

2021), available at https://www.sec.gov/files/staffreport-equity-options-market-struction-conditionsearly-2021.pdf. 

573See supra Part VII.C.4.b for discussion of PRA 

costs for broker-dealers due to the CAT amendment. 

Not all 3,501 broker-dealers will bear the same costs 

due to the CAT amendment. 

574See DERA 417(a)(2) Study at 18, supra Part 

II.A.3 at 6. 

575With respect to each applicable section 13(f) 

security, the Form SH filing was required to 

identify the issuer and CUSIP number of the 

relevant security and reflect the manager’s start of 

day short position, the number and value of 

securities sold short during the day, the end of day 

short position, the largest intraday short position, 

and the time of the largest intraday short position. 

The reporting requirement was implemented via a 

series of emergency orders followed by an interim 

final temporary rule, Rule 10a–3T. Exchange Act 

Release No. 58591 (Sept.18, 2008), 73 FR 55175 

(Sept. 24, 2008); Exchange Act Release No. 58591A 

(Sept. 21, 2008), 73 FR 58987 (Sept. 25, 2008); 

Exchange Act Release No. 58724 (Oct. 2, 2008), 73 

FR 58987 (Oct. 8, 2008); Exchange Act Release No. 

58785 (Oct. 15, 2008), 73 FR 61678 (Oct. 17, 2008). 

576See Exchange Act Release No. 58591 (Sept.18, 

2008), 73 FR 55175 (Sept. 24, 2008). 

577See Exchange Act Release No. 58785, 73 FR 

61678. 

578 Id. 

579See Proposing Release, at 14963 for 

information on the methodology and caveats of 

using Form SH data. 

580See supra Part VIII.B.1 for discussion of 

Institutional Investment Managers. 

positions or changes in those positions, 

but rather collects information to 

analyze trading and order lifecycles. As 

such, using CAT data to estimate 

positions and changes in those positions 

can be challenging. 

Theoretically, one could use the order 

execution information in CAT data to 

estimate trader positions and track how 

those positions change over time. 

However, such estimates could be 

inaccurate due to several circumstances. 

First, CAT data do not include 

information on the long or short 

positions held in each account at the 

time that an Industry Member initially 

begins reporting to CAT. Thus, CAT 

does not provide an appropriate starting 

point for building short positions using 

investor-specific transaction 

information. Second, some investors 

may establish or cover short positions 

via other means that are not CATreportable events, for example: 

secondary offering transactions; option 

assignments; option exercises; 

conversions; or ETF creations and 

redemptions. Thus, there are activities 

that affect positions that are not 

contained in CAT in any capacity. 

While CAT is not designed to track 

positions, CAT data can be used in very 

limited and specific circumstances to 

offer rough position estimates. When 

focused on one or few accounts, 

estimating positions, though potentially 

inaccurate, can be manageable. 

However, using transaction information 

to track positions across a broad set of 

positions is inefficient. Even in 

situations in which the above 

limitations do not apply, the use of CAT 

data to estimate short positions and 

changes in those positions for all or a 

large set of accounts is inefficient and 

would require a considerable amount of 

processing power, which would take 

time and reduce the processing power 

available for other CAT queries. This 

hinders the Commission’s estimation of 

short positions in a timely fashion. 

Other than the inefficient means of 

estimating positions described above, 

CAT does not distinguish buy orders 

that establish a long position from those 

that cover, and therefore reduce, a short 

position. While Commission staff were 

able to identify some short covering 

activity during the volatile period in 

January 2021, due to the difficulties 

described above, the staff analyzing the 

volatility associated with meme stocks 

could not easily identify short covering 

activity using CAT data alone and was 

thus hindered in their reconstruction of 

key events.572

Finally, even though CAT data 

identify short selling by market makers, 

the data do not provide information as 

to whether a broker-dealer is claiming 

use of the exception for bona fide 

market making from Regulation SHO’s 

locate requirement. Rather, the 

Commission has to make individual 

document requests to obtain such 

information currently. The adopted 

amendment will make this information 

readily available to regulators in a 

uniform electronic format and 

consolidate it with the other material 

terms of orders required to be reported 

to CAT. 

There are 24 national securities 

exchanges and one national securities 

association (FINRA) that are CAT Plan 

Participants. There are also 3,501 

broker-dealers who have reporting 

obligations to CAT as Industry 

Members.573 These Industry Members 

often use third-party reporting agents 

such as service bureaus for CAT 

reporting. 

e. Exchange Act Form SH 

For a ten-month period in 2008 and 

2009,574 the Commission required 

certain Managers to file confidential 

weekly reports of their short positions 

in section 13(f) securities, other than 

options, on Exchange Act Form SH, 

through temporary Rule 10a–3T.575 De 

minimis short positions of less than 0.25 

percent of the class of shares with a fair 

market value of less than $10 million 

were not required to be reported.576

Additionally, only Managers that 

exercise investment discretion with 

respect to accounts holding section 13(f) 

securities having an aggregate fair 

market value of at least $100 million 

were required to report. The investment 

manager was required to report short 

positions to the Commission on Form 

SH on a nonpublic basis on the last 

business day of each calendar week 

immediately following any calendar 

week in which it effected short sales,577

a more frequent disclosure interval than 

the quarterly public reporting of long 

positions required on Exchange Act 

Form 13F.578

In addition to the limited and 

temporary time period during which 

disclosure of short positions was 

required to be reported on Exchange Act 

Form SH, even at the regulatory level, 

the reporting requirements and data had 

several drawbacks and limitations. One 

drawback was that only Managers who 

exercised investment discretion with 

respect to accounts holding section 13(f) 

securities having an aggregate fair 

market value of at least $100 million 

were required to file Form SH, which 

excluded short-only funds and other 

large short sellers who did not file Form 

13F. Additionally, the report was costly 

as Managers filing Form SH had a 

weekly reporting requirement. 

Additionally, data fields in Form SH 

including start of day short position, 

gross number of securities sold short 

during the day, and end of day short 

position were each subject to the de 

minimis reporting threshold, which 

resulted in unreported data points when 

only a subset of the fields exceeded the 

de minimis threshold. Furthermore, 

Form SH data were difficult to work 

with because they were not validated for 

errors such as duplicate entries, missing 

fields, or positions that were below the 

de minimis threshold and therefore did 

not need to be reported.579

5. Competition 

Many Managers operate in the 

investment management industry.580 In 

broad terms, investment management is 

a highly competitive industry. 

Investment managers compete for 

investors and investor funds. Among the 

bases on which Managers compete are 

returns, fees and costs, trading 

strategies, risk management, and the 

ability to gather information. It is costly 

for investment managers to do market 

research to gain an informational 

advantage. Investment managers who 

own a security have an advantage over 

those who do not in that a security 

owner can trade more cheaply on 


ddrumheller on DSK120RN23PROD with RULES2
75158 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

581This occurs because if an investor not owning 

the asset engages in fundamental research and 

discovers evidence that a stock may be overpriced, 

then it is costly for that investor to act on that 

information. This is not true for investors who own 

the asset as they can simply sell the shares that they 

own. See, e.g., Peter N. Dixon, Why Do Short Selling 

Bans Increase Adverse Selection and Decrease Price 

Efficiency?, 11 (1) The Rev. of Asset Pricing Studies 

122–168 (2021). 

582The securities lending market is large and 

complex. See Parts IX.B.1–IX.B.4 of Rule 10c–1a for 

a more detailed description of this market and 

players. 

583See Rule 613 Adopting Release. 

584 In preparing this economic analysis, the 

Commission accounted for the various types of 

Managers that could be subject to the reporting 

requirements. In general, the Commission believes 

that the economic effects of the rule are more 

influenced by the Managers’ investment strategy 

and motivation for short selling rather than by the 

type of Manager that is reporting. Any exceptions 

are noted in the analysis. See supra Part VIII.C.1. 

585Rule 10c–1a, which was adopted prior to Rule 

13f–2, includes multiple compliance dates, and 

certain disclosures required by Rule 13f–2 may be 

implemented before certain of Rule 10c–1a’s 

compliance dates. Due to this uncertainty, the 

Commission describes the effects of Rule 13f–2 and 

the CAT amendment as coming into existence prior 

to those associated with Rule 10c–1a but 

acknowledges that there may be a period in which 

this is not true. The beneficial combined effects will 

not materialize until the disclosure requirements of 

both rules are implemented. See infra note 615. 

586Some academics have critiqued the 

Commission Staff’s GameStop report, the Report on 

Equity and Options Market Structure Conditions in 

Early 2021, available at https://www.sec.gov/files/ 

staff-report-equity-options-market-structionconditions-early-2021.pdf, and some of its methods, 

which were driven by data availability. See Joshua 

Mitts, Robert Battalio, Jonathan Brogaard, Matthew 

Cain, Lawrence Glosten, and Brent Kochuba, A 

Report by the Ad Hoc Academic Committee on 

Equity and Options Market Structure Conditions in 

Early 2021 (working paper) (2022), available at 

https://papers.ssrn.com/sol3/papers.cfm?abstract_

id=4030179. 

negative information by simply selling 

whereas investment managers not 

owning the same security must establish 

some form of short exposure, such as 

selling a security short, to capitalize on 

any negative information that they have 

uncovered. Academic research suggests 

that when the cost of short selling 

increases, a security owner’s advantage 

in terms of being able to profitably trade 

on gathered information increases, 

leading investors not owning a security 

to engage in less fundamental 

research.581 The Commission is 

cognizant of such research and has 

taken steps to help ensure that the 

impact of published data will be 

minimized by delaying publication by 

approximately one month and 

anonymizing and aggregating reporting 

Managers’ short position data. 

Investment managers, like other 

investors that could be subject to Rule 

13f–2, also compete by using 

proprietary trading strategies. They 

typically seek to trade in ways that 

would not expose their strategies 

because, if their strategies became 

known to others, the strategies could 

lose value and such Managers could 

also suffer higher trading costs. More 

specifically, other traders could use 

copycat trading strategies to try to 

mimic the Managers’ strategy, 

potentially competing away the 

profitability of the strategy or other 

traders could anticipate when the 

Manager might trade, which could 

result in higher trading costs for the 

Manager. Some Managers also compete 

for returns by engaging in securities 

lending whereby assets are lent to other 

investors, often short sellers, for a fee. 

These fees in aggregate can be 

substantial.582

The Commission estimates there are 

3,501 broker-dealers. These brokerdealers also compete with each other for 

order flow. The broker-dealer industry 

is a competitive industry with 

reasonably low barriers to entry to many 

segments of the industry. Most trading 

activity is concentrated among a small 

number of large broker-dealers, with 

thousands of small broker-dealers 

competing for niche or regional 

segments of the market. To limit costs 

and make business more viable, the 

small broker-dealers often contract with 

bigger broker-dealers to handle certain 

functions, such as clearing and 

execution, or to update technology. 

Larger broker-dealers often enjoy 

economies of scale over smaller brokerdealers and compete with each other to 

service the smaller broker-dealers who 

are both their competitors and 

customers.583 Broker-dealers compete in 

multiple ways: reputation, convenience, 

and fees. Broker-dealers typically pass 

operating costs down to their customers 

in the form of fees. 

C. Economic Effects 584

1. Investor Protection and Market 

Manipulation 

The adopted Rule 13f–2 and CAT 

amendment will enhance the 

Commission’s ability to protect 

investors and investigate market 

manipulation by providing a clearer 

view into the short selling market and 

improving the Commission’s 

reconstruction of significant market 

events. This in turn may lead to 

improved identification of manipulative 

short selling strategies which may also 

serve as a deterrent to would-be 

manipulators and thus may help 

prevent manipulation. It will also 

improve the Commission’s observation 

of short sale activity that potentially 

poses a systemic risk. The Commission 

believes that the adoption of Rule 13f– 

2 and the CAT amendment will benefit 

investors by facilitating the 

Commission’s observation of short 

selling and will thus help protect 

investors and help ensure the 

sufficiency of information related to 

short selling in the market. 

The Commission believes that the 

Rule 13f–2, Form SHO, and the CAT 

Amendment will improve regulators’ 

oversight of markets and enhance the 

Commission’s and SROs’ reconstruction 

of significant market events by 

providing a clearer view into the role 

that short selling plays in market events 

of interest. Specifically, the Commission 

could have used Form SHO data 

combined with other data to reconstruct 

market events and better understand the 

link between trading activity of large 

short seller and contemporaneous price 

volatility during the recent volatility 

associated with meme stocks. For 

example, while short sellers as a whole 

were exiting their positions during the 

period of heightened volatility, large 

short sellers may have been engaging in 

trading behavior that was distinct from 

other short sellers. 

The recent adoption of Rule 10c–1a 

will further enhance the usefulness of 

adopted Form SHO.585 As another 

source of data covering the short selling 

market, the Commission may use Rule 

10c–1a data combined with Form SHO 

data in an attempt to match securities 

lending with actual short positions 

taken. While the timing of the data 

being received may be asynchronous, 

Form SHO and Rule 10c–1a data 

sources will have a natural relationship 

with each other. This combination of 

data can be useful for market 

reconstructions, but also useful in 

detecting activities such as naked short 

selling or other potential violations. 

Hypothetically, if Form SHO data had 

been available to the Commission at the 

time of the market events of January 

2021, the Commission could have used 

these data to examine the short selling 

behavior of individual large short 

sellers. Additionally, because short 

positions often take some time to create, 

the Commission could have attempted 

to identify individual short sellers with 

large short positions in the various 

meme stocks in January 2021 based on 

the most recent reports; the Commission 

could then have used CAT data to better 

understand how these short sellers 

traded during the heightened 

volatility.586 One commenter stated that 

the lack of transparency into short 

positions did not just hamper the SEC’s 

understanding of these events as they 

unfolded but, ‘‘. . . may also be 

interfering with the SEC’s and market 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75159 

587See Better Markets Letter at 7. 

588See supra Part VIII.B for discussion. 

589Form SHO is required to be reported 14 days 

after the end of the month. Thus, trades happening 

in the first two weeks of the month will not be 

reported for more than a month. 

590Two Regulation SHO rules include exceptions 

for bona fide market making. Rule 203(b)(2)(iii) 

exempts market makers selling short in connection 

with bona fide market making activities from the 

requirement that a short seller must either borrow 

or have reasonable grounds to believe he can 

borrow a security in time for delivery prior to 

effecting a short sale. See 17 CFR 242.203(b)(2)(iii). 

Rule 204(a)(3) provides that a failure to deliver 

positions attributable to bona fide market making 

activities by registered market makers, options 

market makers, or other market makers obligated to 

quote in the over-the-counter markets, must be 

closed out by no later than the beginning of regular 

trading hours on the third consecutive settlement 

day following the settlement date (T+4), rather than 

the settlement day following the settlement date 

(T+1). See 17 CFR 242.204(a)(3). 

591See, e.g., comment letters submitted with 

regards to Short Sale Reporting Study Required by 

Dodd-Frank Act section 417(a)(2): Naphtali M. 

Hamlet (May 6, 2011); Jan Sargent (May 6, 2011); 

Lee R. Donais, President and CEO, L.R. Donais 

Company (May 8, 2011); Joseph A. Scilla (May 9, 

2011); Jane M. Reichold (May 17, 2011); John 

Gensen (May 18, 2011); Victor Y. Wong (May 20, 

2011); Kevin Rentzsch (May 24, 2011); Lynn C. 

Jasper (May 27, 2011); Donald L. Eddy (May 28, 

2011); Al S. (June 10, 2011); Jeffrey D. Morgan, 

President and CEO, National Investor Relations 

Institute, at 3 (June 21, 2011) (‘‘NIRI’’); Professor 

James J. Angel, at 2 (June 24, 2011); and Dennis 

Nixon, CEO and Chairman, International 

Bancshares Corporation, at 1 (July 18, 2011). All 

letters are available at https://www.sec.gov/ 

comments/4-627/4-627.shtml. 

592 If successful, the scheme can drive down the 

price, allowing the manipulators to profit when 

they ‘‘buy to cover’’ their short position at the 

reduced price. Short sellers could also engage in 

price manipulations by systematically taking short 

positions in one firm while taking long positions in 

the competitor. See Bodie Zvi, Alex Kane, and Alan 

J. Marcus, Investments and Portfolio Management, 

McGraw Hill Education (2011). See also Rafael 

Matta, Sergio H. Rocha, and Paulo Vaz, Predatory 

Stock Price Manipulation, available at https://

papers.ssrn.com/sol3/papers.cfm?abstract_

id=3551282. 

593One commenter stated that biotechnology 

companies, 90% of which have market 

capitalizations that would qualify as small-cap or 

micro-cap stocks, face a disproportionately high 

share of short positions. The commenter believes 

that biotechnology firms are disproportionately 

targeted by short sellers for multiple reasons. First, 

because biotechnology companies cannot disclose 

interim data until validated, the time gap between 

milestone announcements makes these stocks 

targets for ‘‘short-and-distort’’ campaigns. Second, 

the commenter stated that short sellers of 

biotechnology firms will challenge patent claims in 

order to drive their stock prices lower, which makes 

short positions on these stocks more valuable. The 

commenter supports the Commission’s inclusion of 

the 2.5% threshold, which would be reached before 

the $10 million daily average threshold for the 

majority of biotechnology firms. See Bio Letter at 

5–8. 

594Academic research has found that the average 

short interest in stocks targeted by activist short 

sellers is about 10%, while it is only 4% for nontargeted firms. Consistent with high information 

asymmetries, targeted firms also appear to have 

wider bid-ask spreads and higher disagreement 

among analysts. See W. Zhao, Activist Short-Selling 

and Corporate Opacity (Working Paper) (2020), 

available at https://papers.ssrn.com/sol3/ 

papers.cfm?abstract_id=2852041. 

595See, e.g., Y.T.F. Wong and W. Zhao, PostApocalyptic: The Real Consequences of Activist 

Continued 

observers’ ability to say with confidence 

what happened in retrospect.’’ 587 The 

Commission agrees that more data, as is 

being generated by the adoption of this 

rule, would have aided the Commission 

in analysis of the events of January 

2021. 

As noted above in Part VIII.B, Form 

SHO data will provide the Commission 

with data that are additive rather than 

duplicative.588 After implementation of 

Rule 13f–2, the activity data provided in 

Form SHO will allow the Commission 

to observe how large short sellers 

respond to the heightened volatility, 

albeit with a time lag, due to the filing 

deadline. Specifically, the Commission 

will be able to observe more precisely 

which days reporting short sellers most 

actively increase or decrease their short 

positions and correlate this activity to 

market conditions on those days. 

Analysis of Form SHO data during 

periods of high volatility might help the 

Commission maintain fair and orderly 

markets by highlighting key economic 

channels and mechanisms through 

which short selling could both impact 

and be impacted by periods of volatility. 

This information can, in turn, allow the 

Commission to more specifically tailor 

responses to similar or related events in 

the future. While the data provided by 

the CAT amendment will be visible to 

the Commission relatively quickly, the 

Form SHO data will only be available 

following a lag of at least two weeks.589

Thus, while Form SHO data will be 

useful in market reconstruction, it will 

have limitations in its timeliness. 

The bona fide market making 

information from the CAT Amendment 

will facilitate regulatory analysis of the 

use of the bona fide market making 

exceptions to Regulation SHO.590 In 

particular, this information will provide 

regulators investigating potential 

Regulation SHO violations with clearer 

evidence regarding whether a market 

maker was relying on a bona fide market 

making exception. This might save a 

significant amount of time during an 

investigation. Having regular access to 

these data will provide the Commission 

with further insight into whether the 

exceptions for bona fide market making 

in Regulation SHO Rules 203 and 204 

are being used appropriately, which 

may assist in assessing compliance with 

Regulation SHO. 

The bona fide market making 

information might improve regulators’ 

ability to interpret certain information 

in market reconstructions. Market 

reconstructions can sometimes benefit 

from regulators knowing when certain 

activity is either directional or market 

neutral because the motives and 

profitability of such trading types are 

different. The bona fide market making 

information will help regulators 

separate short selling that represents 

market makers’ liquidity provision to 

facilitate investor demand from other 

short selling, including other market 

maker short selling. Since such short 

selling is more likely to be in response 

to customer demand, it is less likely to 

signify that the short seller anticipates a 

price decline, relative to cases in which 

the short seller is trading directionally. 

Additionally, the data provided by 

adopted Rule 13f–2 and the CAT 

amendment may improve the 

Commission’s ability and effectiveness 

in detecting certain types of fraud. Form 

SHO data will provide the Commission 

flags that may signal potential fraud 

during an examination. Additionally, 

the enhanced CAT data will provide the 

Commission with regular access to 

improved information with which to 

examine potential instances of fraud 

without needing to ask broker-dealers 

for information. 

Enhanced fraud detection by the 

Commission may also help deter fraud, 

resulting in improved price efficiency 

and market quality. Some market 

participants and academics have raised 

concerns that short selling may in some 

instances offer the potential for stock 

price manipulation, including ‘‘short 

and distort’’ campaigns.591 In ‘‘short and 

distort’’ strategies, which are illegal, the 

goal of manipulators is to first short a 

stock and then engage in a campaign to 

spread unverified bad news about the 

stock with the objective of panicking 

other investors into selling their stock in 

order to drive the price down.592 If a 

‘‘short and distort’’ campaign is 

suspected, then detecting this behavior 

using the position and activity data in 

Form SHO will be easier than using 

current data. 

Short and distort campaigns are more 

likely to occur in stocks with lower 

market capitalizations with less public 

information.593 Consequently, among 

these stocks, it may not take a very large 

short position in dollar terms to reach 

the daily average 2.5 percent of shares 

outstanding over the preceding calendar 

month threshold for smaller reporting 

issuers or the $500,000 or more at the 

end of a settlement day threshold for 

non-reporting company issuers.594 As a 

result, it is likely that an entity engaging 

in such a practice will be required to 

report Form SHO data.595 Consequently, 


ddrumheller on DSK120RN23PROD with RULES2
75160 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

Short-Selling. (Working Paper) (2017), available at 

https://papers.ssrn.com/sol3/papers.cfm?abstract_

id=2941015. Several commenters agreed that the 

2.5% threshold for Rule 13f–2 was important 

because it protects firms with lower market 

capitalizations. See, e.g., BIO Letter at 9. 

596 ‘‘Buy to cover’’ activity would be inferred from 

position changes reported on Form SHO. This 

method is only a proxy for ‘‘buy to cover’’ 

information. Specifically, the Commission would be 

assuming that changes in position came from ‘‘buy 

to cover’’ activity, though there are other 

mechanisms which could change a Manager’s net 

position that do not occur from ‘‘buy to cover’’ 

transactions. Further, Form SHO will not show 

intraday short sales and buying to cover if the 

amounts are equal, as the net position will not 

change. 

597See I. Goldstein and A. Guembel, 

Manipulation and the Allocational Role of Prices, 

75 (1) The Rev. of Econ. Studies 133–164 (2008). 

598See Markus K. Brunnermeier and Martin 

Oehmke, Predatory Short Selling, 18 (6) Rev. of Fin. 

2153–2195 (2014). Similarly, some have also stated 

that short sellers may have played a role in the 

stock market crash at the beginning of the Great 

Depression. See, e.g., Jonathan R. Macey, Mark 

Mitchell, and Jeffry Netter, Restrictions on Short 

Sales: An Analysis of the Uptick Rule and its Role 

in View of the October 1987 Stock Market Crash, 

74 Cornell L. Rev 799, 801–802 (1989) (collecting 

reports of such allegations). 

599See letters from Christine Lambrechts 

(hereafter ‘‘Lambrechts Letter’’), available at https:// 

www.sec.gov/comments/4-627/4627-14.htm; see 

also International Association of Small Broker 

Dealers and Advisor, available at https://

www.sec.gov/comments/4-627/4627-109.pdf. See 

NIRI Letter, available at https://www.sec.gov/ 

comments/4-627/4627-134.pdf. 

600For discussion of data aggregation, see supra 

Part II.C. See also MFA Letter, at 18; SIFMA Letter, 

at 22; AIMA Letter, at 5 comment letters of 

supporters. 

601This commenter stated that reducing or 

eliminating the reporting thresholds to Form SHO 

would provide benefits. See Better Markets Letter, 

at 13. Several retail investor commenters also said 

that the reporting thresholds to Form SHO should 

be reduced or eliminated. See supra note 25. 

602One commenter stated it was confusing that 

the Commission believes that the public release of 

Form SHO may give opportunities to orchestrate 

short squeezes, but at the same time, also help 

detect short squeezes. See Two Sigma Letter, at 10– 

12. While publicly released Form SHO data may, 

in some cases, increase the opportunity to 

orchestrate short squeezes, the Commission has 

reduced this risk by only releasing, aggregated, 

anonymized data. Moreover, this risk is further 

reduced by the Commission’s ability to utilize 

disaggregated, Manager-identified short sale data in 

order to increase its detection of short squeezes and 

other manipulative behavior. 

603Based on analysis of Form SH data. See 

Proposing Release, at 14963. Commenters 

questioned the use of Form SH data in this and 

other contexts. See infra Box 1: Use of Form SH 

Data for responses to comments on the use of these 

data. 

604 In some cases, identifying which equity 

securities reported to the public via Form SHO data 

had only one Manager reporting may not be 

difficult. For example, if the aggregated short 

positions reported in an equity security were less 

than $20 million, it could be estimated that one 

Manager had a short position of at least $10 million 

average over the month. However, this estimation 

could be incorrect if Managers’ end of month gross 

short position differs significantly from their 

average gross short position over the month. This 

estimation could be further honed by looking at 

daily data to see changes in daily short positions 

to better estimate the size of the position, and thus 

the number of Managers. 

605For example, one issuer, upon learning that 

short sellers had taken a large short position in the 

issuer, reportedly sent a letter to all shareholders 

urging them to request physical custody of their 

shares from their broker-dealers in an apparent 

attempt to disrupt securities lending which 

supports short selling. This strategy appeared to 

work initially as the share price increased by nearly 

50% in the subsequent three weeks. The issuer also 

hired private investigators to determine who was 

behind the short selling and filed suit against a 

well-known short seller. The issuer, however, 

entered bankruptcy less than a year later. The 

bankruptcy courts ruled that the issuer defrauded 

if ‘‘short and distort’’ type behavior is 

suspected, then the Commission will be 

more likely to identify Managers with 

large short positions and thus quickly 

focus their inquiries on entities that 

could potentially profit from 

manipulation. The Commission could 

then match estimated ‘‘buy to cover’’ 

trading on individual days to statements 

or other actions of the investor which 

may indicate that the investor was 

engaging in such behavior.596 In 

addition, the Commission could use 

CAT data to further investigate the 

trading activity of the alleged 

manipulator. CAT data would be used 

to corroborate Form SHO reporting to 

CAT reported transactions. Using the 

identified manager’s data in CAT, the 

Commission could see all CAT 

reportable activity, but will not be able 

to see other activity such as options 

exercises or participation in secondary 

offerings from an issuer. 

Enhanced oversight due to the 

adopted rule and amendment could also 

provide increased protection from other 

sources of harm caused by manipulative 

short sale activity. First, if firm manager 

decision-making is influenced by shifts 

in stock prices, as one theoretical study 

suggests,597 then short sellers could seek 

to drive down stock prices when 

profitable projects are announced, 

which may cause firm managers to 

reassess these projects. Doing so may 

lead to worse managerial decision 

making and lower stock prices. Second, 

another theoretical study argues that 

due to high levels of leverage and 

interconnectedness in the finance 

industry, even small declines in stock 

prices due to manipulative short sellers 

could ripple through the financial 

system with large effects.598 While 

manipulation is difficult to verify, 

should it be suspected, such activity 

might be more easily identified with 

Form SHO positions and activity data. 

The positions data will allow the 

Commission to more quickly identify 

individuals with large short positions 

and then use the activity to identify 

what data to gather, including CAT data 

to investigate their trading behavior to 

look for signs of manipulation. 

Improved detection capacity may also 

deter manipulative behavior due to 

increased fear of detection, potentially 

leading to an overall decline in 

fraudulent activity.599

Publicly releasing aggregated 

information about large short positions 

may, in some instances, increase the 

risk of trading behavior that is harmful 

to short sellers, including orchestrated 

short squeezes. More specifically, to the 

extent that Managers are still holding 

their short positions when the data 

becomes public, the Commission 

believes that the information disclosed 

pursuant to Rule 13f–2 and the 

disclosures Form SHO requires also 

might, in some cases, potentially 

facilitate manipulative strategies 

targeting short sellers, such as short 

squeezes. 

However, the Commission has sought 

to reduce this risk by releasing only 

aggregated and anonymized data. 

Several commenters agreed that only 

aggregated and anonymized data should 

be published by the Commission in 

order to reduce the likelihood of short 

squeezes and chilling short sale activity, 

the latter of which could harm stock 

price efficiency and market liquidity.600

In contrast, however, multiple 

commenters stated that individual 

Manager’s positions should be publicly 

disclosed in order to uncover hidden 

short positions, which one commenter 

stated pose risks to investors and the 

markets.601 The Commission has sought 

to balance the costs and benefits of Rule 

13f–2 and Form SHO by collecting 

Manager-specific data, which should 

provide the Commission with improved 

detection of manipulative and 

potentially destabilizing activity, while 

publicly releasing only aggregated, 

anonymized data, which should reduce 

the likelihood of short squeezes and 

copycat behavior but still increase the 

transparency of large short sale 

activity.602

The Commission recognizes that the 

position size thresholds that underlie 

publicly released information may lead 

to the risk of Managers being identified 

by the public. The Commission 

estimates that 39 percent of stocks 

reported on Form SHO would only have 

one Manager above the reporting 

Threshold A.603 By focusing on stocks 

in which market participants can 

ascertain that only one Manager 

exceeded the threshold,604 combined 

with a Manager’s posts on social media 

or information discovered by a private 

investigator, market participants may be 

able to identify the Manager holding the 

short position.605 As such, the limited 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75161 

investors. See G. Weiss, The Secret World of ShortSellers, Business Week, 62a (Aug. 5, 1996). See also 

Owen A. Lamont, Go Down Fighting: Short Sellers 

vs. Firms, 2 (1) The Rev. of Asset Pricing Studies 

1–30 (2012). 

606Though the count of Managers filing Form 

SHO in any particular equity security may 

sometimes be able to be estimated with some 

accuracy, the identities of Managers will not be 

disclosed by Form SHO data. 

607Analysis of Form SH data found that short 

positions were held at or above the $10 million or 

2.5% thresholds only for an average of 9.85 days 

after the end of each month. See Proposing Release, 

at 14963 for information on the methodology and 

caveats of using Form SH data. Commenters 

questioned the use of Form SH data in this and 

other contexts. See infra Box 1: Use of Form SH 

Data for responses to comments on the use of these 

data. 

608That is because the short position has already 

been closed and the organizers of the short squeeze 

are incorrectly assuming the Manager still has an 

open short position. Depending on the Manager’s 

desired length of time of the short position, the 

public version of Form SHO data may still 

accurately portray the aggregated short position in 

a given equity security. However, those basing their 

decisions on public Form SHO data will not know 

whether the Managers underlying the aggregated 

short positions in Form SHO data have closed out 

their positions within the two weeks publication 

delay. Other data sources, combined with Form 

SHO data, can be used in an attempt to discover if 

the position is closed out, but those are also on a 

delayed basis. 

609See infra note 622 for a discussion on the 

Commission’s estimates on how long Managers 

hold short positions. See also infra note 629 for 

more information on short sellers that do hold their 

positions for longer periods of time. Commenters 

questioned the use of Form SH data in this and 

other contexts. See infra Box 1: Use of Form SH 

Data for responses to comments on the use of these 

data. 

610 Due to imperfect information and market 

frictions, a short seller who ‘‘does not have access 

to additional capital when security prices diverge 

. . . may be forced to prematurely unwind the 

position and incur a loss[.]’’ See, e.g., Mark 

Mitchell, Todd Pulvino, and Erik Stafford, Limited 

Arbitrage in Equity Markets, 57 J. of Fin. 551–584 

(2002). See also, e.g., Andrei Shleifer and Robert W. 

Vishny, The Limits of Arbitrage, 52 J. of Fin. 35– 

55 (1997) and Denis Gromb and Dimitri Vayanos, 

Limits of Arbitrage, 2 Annu. Rev. Fin. Econ. 251– 

275 (2010) (citations therein). 

611See SBAI Letter at 4. 

612See SBAI Letter at 2. 

613See infra Part VIII.D.1 for additional 

discussion of the effect of adopted Rule 13f–2 and 

the CAT amendment on efficiency. 

614Thus, it will be a one-month delay after the 

last day of the month of data being reported. See 

supra Part II.B.3 for more information on the delay 

of public dissemination of Form SHO data. 

number of reporters potentially risks 

shining a spotlight on the few Managers 

with large short positions.606 However, 

due to the delay before publicly 

releasing the data, public Form SHO 

information will not be as up-to-date 

and thus may not as accurately reflect 

current short positions.607 Thus, efforts 

to orchestrate a short squeeze based on 

the public Form SHO data could result 

in losses to the initiators of the short 

squeeze if the short positions they target 

no longer exist.608 Based on analysis 

using Form SH data, the Commission 

expects that most, but not all, of the 

short positions leading to reporting on 

Form SHO will be closed by the time 

that the aggregated Form SHO data are 

released.609 An additional factor that 

may help mitigate the risk of a short 

squeeze due to the public release of 

Form SHO data is the fact that nonpublic Form SHO data, in coordination 

with CAT data, will improve the SEC’s 

ability to detect short squeeze activity, 

which may deter some market 

participants from seeking to orchestrate 

a short squeeze. 

Having detailed confidential 

information about which Managers 

currently hold large positions might also 

help the Commission observe potential 

systemic risk concerns regarding short 

selling. Large and concentrated short 

positions have the potential to increase 

systemic risk. As discussed previously, 

unlike long transactions, short selling 

places an investor at risk of losing 

significantly more than the investor’s 

initial investment, should the value of 

the underlying asset increase 

significantly. Even temporary spikes in 

asset value can lead to significant 

losses—by triggering margin calls or 

even position liquidations if capital 

requirements cannot be met.610 If the 

value of an underlying asset increases, 

a short seller may be required to post 

additional collateral to meet margin 

requirements. If the investor is unable to 

do so, then the investor’s broker-dealer 

may liquidate the investor’s position 

with existing collateral leading to steep 

losses for the short seller. Consequently, 

it may be more difficult for a short seller 

to ride out periods of turbulence than a 

long seller. 

One commenter stated they were 

unaware of cases of short selling causing 

systemic harm.611 However, the 

potential instability that the 

Commission wishes to detect includes 

spillovers from events in one asset, such 

as a particular equity security, to the 

market for another asset. 

Manager level short position data of 

individuals with large short positions 

might allow the Commission to better 

observe these positions, study, and more 

appropriately respond to any market 

events that arise. For example, if the 

Commission had Form SHO data during 

the meme stock events of January 2021 

then it would have had a clearer view 

as to which Managers held large short 

positions prior to the volatility event 

and thus which Managers could have 

been at greatest risk of suffering 

significant harm from a short squeeze. 

However, the ability of the Commission 

to respond to market events is likely 

impacted by the timeliness of the short 

sale data that it receives. One 

commenter stated that due to the delay 

in reporting of Form SHO, the data 

would not be useful to the Commission 

to respond to market events.612 While 

the delay will not aid the Commission 

in responding in real-time to market 

events, it does aid the Commission in 

developing responses to events over a 

longer time horizon. Regulatory changes 

rarely happen in real time and involve 

careful analysis prior to 

implementation. The Commission has 

chosen a reporting regime which 

balances the benefits of more frequent 

and timely data with the costs incurred 

by Managers having to report more 

quickly, including higher explicit 

reporting costs as well as heightened 

risks of short squeezes and copycat 

trading. 

All the effects, positive and negative, 

associated with the data collected by 

Rule 13f–2 discussed in this section will 

be limited by data accuracy. Upon 

filing, Form SHO will be checked for 

technical errors but not for the accuracy 

of the position and activity data in the 

Form. If Managers make mistakes in 

their calculations, such mistakes will 

reduce the utility of the data. However, 

the amendment process will require 

Managers to amend filings when they 

discover errors, thus promoting the 

accuracy of the information. 

2. Effects on Stock Price Efficiency 

The Commission believes that Rule 

13f–2 and Form SHO may have 

uncertain effects on stock price 

efficiency.613 The uncertain effects on 

price efficiency stems from increased 

transparency of short sales generally 

increasing efficiency, whereas increased 

transparency might also discourage 

potential short sellers from gathering 

information—which harms price 

efficiency. This section discusses both 

the concept of price efficiency and the 

positive and negative impacts that 

adopted Rule13f–2 and the CAT 

amendment may have on price 

efficiency. 

a. Comparisons to Other Public Short 

Selling Data 

The publicly released aggregated data 

from Form SHO will provide 

information to market participants about 

the aggregate activities of large short 

sellers—with a planned lag of 

approximately fourteen days from the 

end of the filing deadline, which is 

fourteen days after the last day of the 

month.614 Existing short selling data, 

such as the FINRA short interest data, 

is timelier than the data that will be 


ddrumheller on DSK120RN23PROD with RULES2
75162 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

615We expect that the reporting and publication 

of Rule 13f–2 information will occur before the 

reporting and publication of Rule 10c–1 

information. See supra note 531. Reporting and 

disclosure under Rule 13f–2 will provide more 

information over current short selling data until 

reporting and disclosure under Rule 10c–1a are 

fully implemented. This could temporarily magnify 

the benefits and costs of many of the effects 

discussed in this section and elsewhere in the 

Economic Analysis. 

616The Commission will anonymize these data 

before they are publicly disseminated. 

617For example, a Manager could accumulate a 

large short position in a particular security using 

securities loans from multiple prime brokers. Each 

of these loans will be reported as a distinct Rule 

10c–1a securities loan, and observers may not be 

able to ascertain whether they are part of a single 

Manager’s short position. As a result, a large 

securities loan in Rule 10c–1a data may not 

represent a single large position reportable under 

Rule 13f–2. 

618The Commission will have enhanced data 

regarding Managers and trading activity of stocks in 

which thresholds are triggered. See supra Part 

VIII.C.1 for discussion. 

619This is in contrast to other data sources, which 

only provide data on securities such as the short 

interest in a particular security (i.e., FINRA short 

interest) or the volume of securities lent (i.e., Rule 

10c–1a data). 

620See, e.g., Eugene Fama, Efficient Capital 

Markets II, 46(5) J. Fin. 1575–1617 (1991). 

621See, e.g., A. Senchack and L. Starks, ShortSale Restrictions and Market Reaction to ShortInterest Announcements, 28 J. of Fin. and 

Quantitative Analysis 177–194 (1993). 

622The Commission estimates that the median 

number of days that the short position is held above 

the threshold after the end of the month is 0, while 

the average number of days that a short position is 

held above the threshold is 9.68. This suggests that 

the majority of positions will be closed while some 

are held longer than the delay in reporting. 

filed pursuant to Rule 13f–2 and Form 

SHO. Forthcoming information from 

Rule 10c–1a data, which could be used 

to estimate short interest, is also 

expected to be timelier than Rule 13f– 

2 and Form SHO data.615 Nevertheless, 

Rule 13f–2 and Form SHO data will 

provide information on short sale 

behavior that is not available from other 

short sale data sources. For example, 

while FINRA short interest data 

includes short interest for all short sales 

known to clearing broker-dealers, it 

does not provide the Commission or the 

public with daily information on short 

sellers’ activities. In contrast, Form SHO 

data will provide daily information on 

gross short positions of Managers that 

exceed Reporting Thresholds.616

Moreover, while Rule 10c–1a data will 

disseminate to the public anonymized 

transactions-by-transaction securities 

lending data by all market participants, 

it does not allow for an accounting of 

the timing of aggregate short sales 

conducted by Managers, nor does it 

reveal aggregate short positions of 

Managers with large short positions, as 

will the data from publicly available 

Form SHO.617 Thus with the adoption 

of Rule 13f–2 and Form SHO, market 

participants, who will only see 

anonymized data, will have increased 

awareness into the activity of Managers 

with large short sale positions.618 These 

benefits are afforded by the adoption of 

Rule 13f–2 and the required reporting of 

Form SHO. 

There is overlap between the 

information about stock fundamentals 

contained in FINRA short interest data, 

forthcoming Rule 10c–1a data, and the 

data that will be aggregated from Form 

SHO filings. However, the information 

in Form SHO filings provides data on 

Managers, including their aggregated 

daily net changes in positions.619 Thus, 

Form SHO will increase the information 

available to investors about past bearish 

sentiment in the market on a specific 

time frame. For example, Form SHO 

data could be combined with FINRA 

short interest data to calculate the 

proportion of short interest comprised 

of Managers with substantial positions. 

Furthermore, the accompanying activity 

information of Form SHO will provide 

market participants with an enhanced 

view of short interest and securities 

lending as well as increased insight on 

how the short sale activity measured by 

these data series change over time. 

Further, the use of the last day of the 

month as the reference month for the 

Form SHO reports will allow for a direct 

comparison of the Form SHO data to the 

FINRA short interest data. For example, 

market participants might search for 

correlations between significant 

increases or decreases in short positions 

found in Form SHO data with corporate 

events or announcements to gather a 

more precise view of how the market 

views corporate actions or events and 

which events contributed to the FINRA 

final short interest tally at the end of the 

month. While Rule 10c–1a data could 

also be used with FINRA short interest 

data for such analysis, Form SHO data 

will more clearly reveal how Managers 

with large gross short positions view 

these actions or events. Thus, market 

participants and regulators will be able 

to use Form SHO data along with 

FINRA short interest data to assess the 

degree to which short interest is 

concentrated among Managers with 

large positions. It will also allow 

regulators to better assess which 

securities face the greatest risk of short 

squeezes and other manipulative 

strategies. 

Form SHO data could also be 

combined with forthcoming Rule 10c– 

1a data in order to assess the degree to 

which securities lending is widely 

dispersed among market participants or 

concentrated among Managers who filed 

Form SHO. 

b. Potential Improvements to Price 

Efficiency 

Rule 13f–2 and Form SHO may also 

improve price efficiency if they mitigate 

fraud as discussed in Part VIII.C.1. 

Fraud is inherently non-efficient trading 

and harms price efficiency because a 

fraudster’s motive is to create a 

deviation of a firm’s value from 

fundamentals and to profit from this 

deviation. Thus, to the extent that 

fraudulent trading, such as short and 

distort campaigns, are limited by 

regulator’s access to the data provided 

by Form SHO, Rule 13f–2 will result in 

improved price efficiency. 

More generally, the impact of Form 

SHO on price efficiency will be 

commensurate with the degree to which 

aggregated Form SHO data are newer or 

more timely than other publicly 

available short selling information and 

useful for valuing stocks. Price 

efficiency (also known as market 

efficiency) refers to how accurately 

prices reflect available information 

relevant to the value of the asset.620 This 

information may allow market 

participants to more effectively make 

trading decisions and manage risk— 

increasing price efficiency. For example, 

if aggregate Manager short positions 

provide better info on bearish 

sentiment, then prices could react to 

updated Form SHO information on 

bearish sentiment.621 Although the 

majority of Managers’ short positions 

may be closed by the time the 

aggregated data from Form SHO will be 

made public due to the lag in reporting 

and public dissemination, a portion of 

the short positions may still be open.622

Information on the aggregate size and 

activity of positions that remain open 

could be combined with FINRA short 

interest and forthcoming Rule 10c–1a 

data to estimate the proportion of short 

positions held by large short sellers. If 

this proportion is not yet reflected in 

prices, prices will adjust upon 

publication. 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75163 

623Adopted Rule 13f–2 will have direct impacts 

on establishing large short positions which may 

trigger reporting obligations. Additionally, there 

may be lesser effects which dissuade market 

participants from short selling in fear of triggering 

reporting of Form SHO. 

624See supra note 597. See Edward Miller, Risk, 

Uncertainty, and Divergence of Opinion, 32 J. of 

Fin. (1977). See Robert F. Stambaugh, Jianfeng Yu, 

and Yu Yuan, The Short of It: Investor Sentiment 

and Anomalies, 104 J. of Fin. Econ. 288–302 (2012). 

625Several commenters made statements and 

cited research on how short selling improves price 

efficiency. See, e.g, NASDAQ Letter at 1, AIMA 

Letter at 5, which state that short selling promotes 

efficient price formation, enhances liquidity, and 

facilitates risk management. Furthermore, one 

comment letter, ‘‘. . . urge(d) the Commission to 

consider the widely-cited academic law and finance 

literature as part of its analysis of the Proposed 

Short Reporting Rules,’’ and cited multiple studies 

that provide evidence that short selling contributes 

to price efficiency. See also ‘‘Law and Finance 

Professors letter’’ at 2. Cited studies include 

Jonathan M. Karpoff and Xiaoxia Lou, Short Sellers 

and Financial Misconduct, 65 J. of Fin. 1879–1913 

(2010) and Ekkehart Boehmer, Charles Jones, and 

Xiaoyan Zhang, Which Shorts Are Informed? 63 J. 

of Fin. 491–527 (2008), and Lauren Cohen, Karl 

Diether, and Christopher Malloy, Supply and 

Demand Shifts in the Shorting Market, 62 J. of Fin. 

62, 2061–2096 (2007). Other cited studies find 

evidence that constraints on short selling reduce 

market efficiency, including Joseph E. Engelberg, 

Adam V. Reed, and Matthew C. Ringgenberg, Short 

Selling Risk, 73 J. of Fin. 755–786 (2018), Ekkehart 

Boehmer, Charles Jones, and Xiaoyan Zhang, 2013, 

Shackling the Short Sellers: The 2008 Shorting Ban, 

Review of Financial Studies 26, 1363–1400, Pedro 

Saffi and Kari Sigurdsson, Price Efficiency and 

Short Selling, Review of Financial Studies 24, 821– 

852 (2011). One cited paper favors reduced 

regulation of short selling in order to avoid 

undermining the market quality improvements 

provided by short selling. See Peter Molk and Frank 

Partnoy, The Long-Term Effects of Negative 

Activism, Univ. of Illinois L. Rev., 1–70 (2022). 

Another cited paper favors less regulation of short 

selling that enhances price efficiency but increased 

regulation of short selling that is aimed at disabling 

the fundamental value of targeted firms. See 

Barbara Bliss, Peter Molk, and Frank Partnoy, 

Negative Activism, 97 Wash. Univ. L. Rev. 1333– 

1395 (2020)). The comment letter’s suggestion to 

delay public release of Form SHO data for one year 

and receive additional input on which Form SHO 

thresholds to apply stem from a concern that Rule 

13f–2 could undermine the market quality benefits 

of short selling, of which the above cited studies 

find evidence. However, the Commission is also 

cognizant of the of the benefits provided by short 

selling, as noted in supra Part VIII.B.2. 

Furthermore, the Commission discusses in detail 

below the potential costs to price efficiency 

stemming from Rule 13f–2 and Form SHO. See infra 

Part VIII.C.2.c.ii. 

626See infra Part VIII.D.2 for a discussion of how 

these direct costs may affect investors in funds that 

employ short selling. 

627See supra note 624 and accompanying text. 

628Several commenters agreed. See, e.g., SBAI 

Letter at 2–3, Two Sigma Letter at 1–2, SIFMA 

Letter at 2. 

629See Albert S. Kyle, Continuous Auctions and 

Insider Trading, Econometrica: J. of the 

Econometric Society 1315–1335 (1985). See 

Kirilenko, Andrei, Albert S. Kyle, Mehrdad Samadi, 

and Tugkan Tuzun, The Flash Crash: 

High-Frequency Trading in an Electronic Market, 72 

(3) The J. of Fin. 967–998 (2017) (for a discussion 

of this type of trading); Amir E. Khandani and 

Andrew W. Lo., What Happened to the Quants in 

August 2007? Evidence from Factors and 

Transactions Data, 14 (1) J. of Fin. Markets, 1–46 

(2011) (for a discussion of what happens when 

investors build large positions without properly 

smoothing their trading). Well-known short seller 

Gabe Plotkin testified that his firm had built and 

maintained a short position in GameStop for over 

5 years prior to the significant volatility 

experienced in January 2021. See Game Stopped? 

Who Wins and Loses When Short Sellers, Social 

Media, and Retail Investors Collide (Hearing), U.S. 

House of Representatives Committee Repository 

(‘‘Game Stopped Hearing’’), https://docs.house.gov/ 

Committee/Calendar/ 

ByEvent.aspx?EventID=111207; See also Juliet 

Chung and Melvin Capital Says It Was Short 

GameStop Since 2014, Wall Street Journal (Feb 17, 

2021). In the Form SH data, 17.9% of positions 

were held above the proposed Threshold A for at 

least a month. Commenters questioned the use of 

Form SH data in this and other contexts. See infra 

Box 1: Use of Form SH Data for responses to 

comments on the use of these data. 

630See supra Part VIII.C.1 for a discussion of how 

market participants may attempt to uncover 

individual identities. 

Even if many positions are closed by 

the time the information is 

disseminated, Tables 1 and 2 will still 

promote price efficiency if the prices do 

not yet reflect the historical short 

position and activity information. Table 

2, for example, will provide information 

on the variability of large short positions 

in a security and how large short 

positions changed around corporate 

events. Such information will improve 

the precision of signals from Table 1 

information and corporate events. 

c. Potential Harms to Price Efficiency 

Rule 13f–2 may harm price efficiency 

by increasing the cost of short selling.623

Academic studies, both theoretical and 

empirical, have shown that when short 

selling becomes more costly, stock 

prices are less reflective of fundamental 

information both because costly short 

selling makes trading on information 

more difficult, and because costly short 

selling dissuades investors from 

collecting information in the first 

place.624 Short sellers fill the role of 

incorporating negative information by 

making short sales that reflect the short 

sellers’ beliefs about the true value of 

the company.625

i. Costs That Impact Price Efficiency 

Rule 13f–2 increases the costs of short 

selling in at least four ways: (1) 

Compliance costs, (2) potentially 

revealing short sellers’ information that 

may have been acquired through 

fundamental research, (3) potentially 

revealing short sellers’ trading 

strategies, and (4) increasing the threat 

of retaliation against Managers by other 

market participants. 

(a) Compliance Cost Effects 

The compliance costs associated with 

reporting large short positions will 

result in an increase in the cost of short 

selling.626 As many Managers have 

underlying investors, these costs will 

likely be passed on to end consumers in 

the form of lower returns due to limiting 

the strategies that Managers could 

profitably employ and reducing the 

profitability of strategies still employed. 

On net, an increase in the cost of short 

selling will reduce short selling, 

harming price efficiency.627

(b) Potentially Revealing Information of 

Short Sellers 

Publicly releasing aggregated Form 

SHO data has the potential to reveal 

some of the information that short 

sellers may have acquired through 

fundamental research.628 Revealing this 

information to the market may cause 

prices to adjust to the information that 

the short seller uncovered before the 

short seller is able to acquire their full 

desired position—decreasing the profits 

to acquiring this information and 

providing less incentive to produce 

fundamental research. Thus, the 

publication of Form SHO data 

represents an additional cost to short 

selling in the form of potentially lower 

profitability for trading on negative 

information. Relative to the proposed 

rule, the Commission has modified the 

final rule’s requirements for publication 

of Form SHO data (from the proposed 

rule) to decrease the risks of revealing 

this information by requiring much less 

granular information in Table 2 of Form 

SHO. In addition, adopted Rule 13f–2 

will mitigate revealing information by 

delaying publication at least 14 days 

from the last day of a month and only 

publishing aggregated data. 

To avoid price impacts, a short seller 

seeking to build a sizeable position in a 

firm generally does so by building up 

small positions over time until the 

desired position is accumulated.629

Because short positions can take a long 

time to accumulate, even with a lag, the 

information motivating the trades being 

reported may not be stale. While 

aggregation limits the precision with 

which markets can estimate an 

individual short seller’s motivation, it 

does not eliminate it.630 Additionally, 

the threshold may protect short sellers 

with smaller short positions from 

having the information in their trades 

revealed. In contrast, Rule 13f–2 may 

highlight large positions, potentially 

increasing the likelihood that some of 

the information contained in the trades 

of large short sellers will be acted on by 

other market participants before the 

short seller could acquire their optimal 

position. Thus, the Commission expects 

that publication of aggregated Form 


ddrumheller on DSK120RN23PROD with RULES2
75164 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

631Consistent with this expectation, research on 

similar regulations in Europe has documented a 

similar effect there. See Market Impact of Short Sale 

Position Disclosures, Copenhagen Economics: 

Office of Global Research and Markets at the MFA, 

available at https:// 

www.copenhageneconomics.com/publications/ 

publication/market-impact-of-short-sale-positiondisclosures. 

632See Kyle (1985) at supra note 630. 

633See e.g., Albert S. Kyle and Anna A. 

Obizhaeva, Large Bets and Stock Market Crashes 

(Mar. 22, 2019), available at https://ssrn.com/ 

abstract=2023776 or https://dx.doi.org/10.2139/ 

ssrn.2023776. 

634 If the identity of the short seller is exposed, 

then this may also incentivize retaliation against 

them. See infra Part VIII.C.2.i.(d). 

635This could partially be achieved through the 

use of Rule 10c–1a data, depending on the timing 

of the securities loan, among other factors. 

However, such risk is mitigated by the fact that 

securities lending transaction sizes in Rule 10c–1a 

data are not publicly disseminated for 20 business 

days and counterparties identities are not publicly 

disseminated. 

636See, e.g., SBAI letter at 2, Two Sigma letter at 

1, David Kwon letter at 3. Furthermore, supporting 

commenters’ views, there is empirical evidence that 

copycat trading in response to media reports may 

harm price efficiency. See Jiang, George and Strong, 

Cuyler, Unusual Option Activity: Is it Smart to 

Follow ‘Smart Money’? (Aug. 29, 2022). available at 

https://ssrn.com/abstract=3618427. 

637See 2011 MFA Letter; Owen A. Lamont, Go 

Down Fighting: Short Sellers vs. Firms, 2(1) The 

Rev. of Asset Pricing Studies 1–30 (2012); Lorien 

Stice-Lawrence, Yu Ting Wong, Yu Ting Forester 

Wong, and Wuyang Zhao, Short Squeezes After 

Short-Selling Attacks (Nov. 2021), available at 

https://ssrn.com/abstract=3849581 or https://

dx.doi.org/10.2139/ssrn.3849581. 

638The motivation behind such retaliation may be 

strengthened by the belief that the short seller’s aim 

is to profit from reducing the value of the stock 

rather than uncovering mismanagement or other 

negative information about the firm to shareholders. 

See generally Barbara Bliss, B., Peter Molk, and 

Frank Partnoy (2020), Negative Activism, Wash. U. 

Law Review 97:1333–1395 (2020), which 

distinguishes between ‘‘informational negative 

activism,’’ which serves to uncover, ‘‘. . . the truth 

about companies whose shares the activists believe 

are overvalued,’’ and ‘‘operational negative 

activism,’’ which, ‘‘. . . involves dismantling or 

disabling sources of value at companies.’’ 

639See 2011 letter from Security Traders 

Association of New York on the Short Sale 

Reporting Study Required by Dodd-Frank Act 

section 417(a)(2), available at https://www.sec.gov/ 

comments/4-627/4627-155.pdf. 

640See MFA Letter at 9. 

641See infra note 645. 

642See Owen A. Lamont, Go Down Fighting: 

Short Sellers vs. Firms, 2 (1) The Rev. of Asset 

Pricing Studies 1–30 (2012). 

643 Id. 

644See Game Stopped? Who Wins and Loses 

When Short Sellers, Social Media, and Retail 

Investors Collide: Hearing Before the H. Comm. on 

Fin. Serv., 117th Cong. (2021) (statement of Gabriel 

Plotkin, Founder and CEO, Melvin Capital 

Management), available at https://

www.congress.gov/117/meeting/house/111207/ 

witnesses/HHRG-117-BA00-Wstate-PlotkinG20210218.pdf (stating that after company’s short 

positions were made known, Reddit users made 

SHO data will still represent a cost to 

short selling.631

Relatedly, Managers who wish to 

build large short positions may choose 

to execute their transactions at a pace 

that is faster than what they would have 

done otherwise to attempt to profit from 

their research before information is 

disclosed and copycat investors are able 

to trade based on the reported data. 

Executing transactions at a faster speed 

than would be optimal imposes 

increased transaction costs on Managers 

than they would have incurred 

otherwise.632 Additionally, trading 

faster than is optimal may harm price 

efficiency by leading prices to over-react 

to the aggressive trading.633

(c) Potentially Revealing Trading 

Strategies of Short Sellers 

If Form SHO data provides 

information about the specific trading 

strategies or identities of certain short 

sellers, those short sellers could be 

harmed by actions such as others 

profiting from predicting their trading or 

copycat trading.634 This harm could 

result in less short selling, reducing the 

price efficiency benefits of short selling. 

While Rule 13f–2 was designed to 

minimize the possibility of identifying 

Managers or their proprietary 

information, there are conditions that 

may arise that would be conducive to 

revealing proprietary trading strategies. 

For example, in cases where market 

participants may be able to discern that 

there is only one Form SHO filer,635

then market participants might attempt 

to use the activity data to extract 

information about the specific trading 

strategies that short sellers use to 

implement their trades. Market 

participants might then try to identify 

similar patterns in the real time market 

trading and quote data and alter their 

trading strategies to attempt to profit 

from any predictability in the short 

seller’s trading strategy. This behavior 

would further limit the benefit to short 

selling as it may allow other market 

participants to game the short seller’s 

trading behavior—increasing the cost of 

implementing short selling trading 

strategies. The Commission received 

several comment letters that addressed 

the risk of copycat trading due to public 

disclosure of Form SHO data.636 While 

the Commission acknowledges this risk, 

it believes that the design of the 

published activity data will significantly 

limit this risk. In particular, the netting 

of short selling activity across short 

sellers will mask much of the trading 

behavior of individual short sellers 

while still providing information about 

changes in bearish sentiment in the 

market. By netting trading activity in the 

aggregations across Form SHO filers, 

market participants viewing the 

publicly reported Form SHO data will 

still get a view of changes in bearish 

sentiment while keeping Manager 

specific trading strategies hidden. 

(d) Retaliation Against Short Sellers 

The public disclosure requirements 

might also increase short selling costs 

by exposing Managers to the risk of 

retaliation by other market participants, 

but the risk may be low.637 An issuer’s 

directors or shareholders may have the 

incentive to retaliate if they believe 

short sellers are inappropriately 

reducing the value of the stock.638

Although aggregating the data before 

releasing it to the public on a delay will 

provide some protection to Managers 

from having their identities uncovered, 

in certain cases motivated market 

participants may still be able to identify 

individual investors. For instance, in 

the case that the aggregated short 

position reported to the public is just 

above the threshold, market participants 

might reasonably assume that only one 

Manager has a short position large 

enough to report, which may facilitate 

identifying who that manager is. The 

Commission believes that even if the 

probability of identifying individual 

short sellers is low, the threat of this 

additional exposure to retaliation may 

disincentivize short selling. 

In the event that Managers can be 

identified from Form SHO disclosures, 

issuers might take retaliatory action 

against individual short sellers through 

lawsuits and by forwarding information 

to regulators in attempts to precipitate 

regulatory investigations, through 

claims in the media, or by applying 

pressure on the shorting firm through 

business relationships that may exist 

outside of trading.639 One commenter 

provided further examples of retaliatory 

behavior that short sellers may face the 

threat of, including short squeezes, 

nuisance lawsuits, intimidation, and 

physical violence.640 There is also 

evidence that when short sellers’ 

positions become public, market 

participants strive to orchestrate short 

squeezes and are successful a significant 

fraction of the time.641 Short sellers 

often face lawsuits when they take their 

information public or their identities 

otherwise become known—regardless of 

whether the information the short 

sellers brought forth was legitimate.642

Some issuers have even been known to 

hire private investigators in an attempt 

to uncover the identities of individuals 

short selling their stock.643 Some short 

sellers have also expressed that they 

have experienced threats to their 

personal safety after their short 

positions were revealed.644


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75165 

posts and others sent personal text messages that 

were laced with anti-Semitic slurs and threats of 

physical harm to him and others). 

645As noted in Part VIII.C.1, the Commission will 

also be better able to detect short squeezes. 

646Several commenters also stated there could be 

a possible reduction in fundamental research. See, 

e.g., MFA Letter at 10. 

647See, e.g., supra note 629. 

648See, e.g., supra note 625. In contrast, some 

argue that short selling itself increases the value of 

assets as it provides demand for securities lending 

and allows owners to collect securities lending fees. 

From this perspective, restricting short selling may 

decrease stock prices by restricting the demand for 

securities loans. See Darrell Duffie, Nicolae 

Garleanu, and Lasse Heje Pedersen, Securities 

Lending, Shorting, and Pricing, 66 (2–3) J. of Fin. 

Econ. 307–339 (2002). Consistent with statements 

in the Proposing Release, the Commission 

continues to believe that this effect is the not 

predominate effect of short selling on asset prices, 

because the average fee earned from securities 

lending is usually very small relative to the average 

long term stock returns. Thus, it appears that other 

economic effects tend to dominate the relationship 

between short selling and stock prices and that on 

net short selling restrictions lead to stock 

overvaluation. Proposing Release at 14996 n. 281. 

See also letters from OTC Markets, Provable 

Markets, SIFMA, and Chester Spatt responding to 

FINRA’s regulatory notice 21–19 (arguing that short 

selling is vital to price efficiency), available at 

https://www.finra.org/rules-guidance/notices/21- 

19#. In contrast, others have argued markets adjust 

to short selling constraints as to not overvalue 

stocks. See Douglas Diamond and Robert E. 

Verrecchia, Constraints on Short-Selling and Asset 

Price Adjustment to Private Information, 18 J. of 

Fin. Econ. 277–311 (1987). 

649See infra Part VIII.C.3. See also David Easley, 

Maureen O’Hara, and Pulle Subrahmanya Srinivas, 

Option Volume and Stock Prices: Evidence on 

Where Informed Traders Trade, 52 J. of Fin. 431– 

465 (1998). 

650See HSBC Letter at 15. 

651Market makers typically use short selling to 

maintain two sided quotes in the absence of 

inventory and other high frequency traders. While 

market makers trade in large volumes, they tend to 

end trading sessions fairly flat on inventory in 

larger stocks. Therefore, while it is possible that 

market makers may end a single trading day 

holding a gross short position of $10 million, it is 

highly unlikely that this will occur frequently 

enough for them to end the month with an average 

daily position of $10 million. 

In addition, publicly disclosing that 

Managers, in aggregate, have amassed 

large aggregate short positions may 

expose the Managers to increased risk of 

being the target of predatory strategies 

such as short squeezes. The risk of short 

squeeze increases if market participants 

are able to identify the individuals with 

large short positions, as discussed in 

Part VIII.C.1.645 In this case, they may 

be able to better estimate the capital 

constraints of the short seller to identify 

the likelihood of a squeeze being 

successful. 

ii. Impact of the Costs 

Because reporting information on 

Form SHO increases the costs of short 

selling, the adopted rules could have 

several negative effects on price 

efficiency. In particular, negative price 

efficiency effects could derive from a 

reduction in fundamental research,646

strategic trading to avoid exceeding the 

thresholds, and reduced liquidity in 

options markets. Reduced short selling 

could also take place from the effect of 

negative price efficiency. Rule 13f–2 

and Form SHO have been designed to 

reduce the likelihood of these risks 

occurring to the extent possible while 

still providing market participants and 

regulators with enhanced transparency 

of short sale behavior. To the extent that 

fundamental research decreases, price 

efficiency might be harmed as prices 

will not necessarily reflect all available 

relevant information, only that portion 

that had been discovered by investors 

continuing to perform fundamental 

research. 

It is possible that short sellers may 

strategically select average short 

position just below the threshold in 

order to avoid reporting. The size of a 

short position is often related to the 

expected magnitude of the short seller’s 

negative information, with revelations 

of larger negative information being 

associated with larger short positions.647

Consequently, to the extent that 

Managers may choose to select 

otherwise sub-optimal short positions to 

avoid reaching the reporting threshold, 

Rule 13f–2 and Form SHO might result 

in a sub-optimal allocation of capital 

and may harm price efficiency. To this 

end, some have argued that stock prices 

can be viewed as a weighted average of 

investor sentiment. If short sellers limit 

their positions to avoid disclosure 

requirements, then stock prices may 

skew towards being overvalued.648

Additionally, Rule 13f–2 might 

dissuade options market makers from 

holding large short positions and 

providing liquidity in options markets 

and, thus, might harm price efficiency 

in equity markets. Research has found 

that options play an important 

informational role in stock price 

discovery, therefore reductions in 

liquidity in the options market can 

reduce the price efficiency in the equity 

market.649

d. Limitations on Price Efficiency 

Effects 

As with the discussion in Part 

VIII.C.1, many of the economic effects 

articulated in this section relating to the 

reporting of Form SHO might be limited 

to the extent that the data reported in 

Form SHO contains factual errors. The 

EDGAR system will check the data for 

technical errors but not the accuracy of 

the data entry by filers. Thus, the data 

reported in Form SHO might contain 

errors. To the extent that these errors 

exist and meaningfully affect the 

usability of the data, the value of the 

data and the economic benefits and 

costs associated with collecting the data 

would be limited. Additionally, the 

benefits and costs are lessened by the 

delay in the publication of the data. 

Furthermore, the data will only be 

available for those securities with 

Managers who have short positions over 

the threshold, which may not be 

representative of all short positions, and 

the number of reporting Managers may 

change from month to month. 

3. Effect on Market Liquidity 

The effect of the adopted Rule 13f–2 

and CAT amendment on liquidity is 

uncertain. Part VIII.C.2.c discusses the 

possibility that Rule 13f–2 and Form 

SHO may harm price efficiency by 

dissuading investors from pursuing 

fundamental research. Alternatively, 

Rule 13f–2 and Form SHO may help 

price efficiency by increasing 

transparency with respect to the actions 

of large short sellers. To the extent that 

the adopted rule and amendment 

improve price efficiency, this might also 

indirectly improve liquidity because 

market makers would be subject to less 

mispricing risk. Mispricing risk leads to 

lower liquidity because market makers 

must be compensated in the form of 

wider bid ask spreads for the potential 

that there is information relevant to the 

firm that has not yet been discovered 

and may affect prices. Thus, to the 

extent that the Rule 13f–2 enhances 

price efficiency, it may also enhance 

liquidity by mitigating mispricing risk. 

Conversely, if the Rule harms price 

efficiency, it may also harm liquidity. 

Equity market makers generally do 

not carry large gross short positions 

overnight. However, adopted Rule 13f– 

2 and Form SHO may make market 

makers more concerned that a 

particularly volatile trading day may 

cross the Reporting Thresholds 

requiring the filing of Form SHO. One 

commenter described the concern for 

unintentionally crossing the threshold 

while market making.650 While the 

Commission believes the adopted 

Reporting Thresholds will generally be 

very difficult for market makers to 

trigger,651 market makers could still 

choose to reduce market making 

activities during periods of volatility 

due to concerns over having to report 

Form SHO. To the extent market makers 

believe high volatility may necessitate a 

large short position, the adopted rule 

may reduce market liquidity. 


ddrumheller on DSK120RN23PROD with RULES2
75166 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

652See, e.g., James B Kau, James S. Linck, and 

Paul H. Rubin, Do Managers Listen to the 

Market?,14 (4) J. of Corporate Fin. 347–362 (2008). 

653See, e.g., A. Dyck, A. Morse, and L Zingales, 

Who Blows the Whistle on Corporate Fraud?, 65(6) 

The J. of Fin. 2213–2253 (2010) (using a large 

sample of fraud cases between 1996 and 2004, the 

authors find that short sellers uncovered the fraud 

in nearly 15% of cases.). See also Cassell BryanLow and Suzanne McGee, Enron Short Seller 

Detected Red Flags in Regulatory Filings, The Wall 

Street J. (Nov. 5, 2001) (discussing an Enron short 

seller that detected red flags reviewing, among other 

things, the company’s SEC filings) (retrieved from 

Factiva database). Cf. Nessim Mezrahi et al., More 

Securities Class Actions May Rely on Short-Seller 

Data, Law360 (Jan. 10, 2022, 7:07 p.m.) available at 

https://www.law360.com/articles/1453499/ moresecurities-class-actions-may-rely-on-short-sellerdata (authors’ ‘‘analysis of 131 Rule 10b–5 

securities class actions indicates that plaintiffs 

continue to rely on short-seller research to 

substantiate fraud-on-the-market claims’’). 

654See, e.g., Massimo Massa, Bohui Zhang and 

Hong Zhang, The Invisible Hand of Short Selling: 

Does Short Selling Discipline Earnings 

Management? 28 (6) The Rev. of Fin. Studies 1701– 

1736 (2015). 

655See supra Part VIII.C.2 for a discussion of the 

potential for the final rule to reduce the incentives 

for short sellers to conduct fundamental research. 

656See, e.g., Paul Povel, Rajdeep Singh, and 

Andrew Winton, Booms, Busts, and Fraud, 20 (4) 

The Rev. of Fin. Studies 1219–1254 (2007) (linking 

variations in monitoring intensity to the incidence 

rate of financial fraud.). 

657See supra note 563. 

658Commenters on the Short Sale Reporting 

Study Required by Dodd-Frank Act section 

417(a)(2) argue that increased public short selling 

disclosure may result in reduced short selling, 

thereby lowering revenues to institutions that 

maintain long positions in equities for extended 

periods (such as pension funds). See, e.g., 2011 

Letter from Alternative Investment Management 

Association, available at https://www.sec.gov/ 

comments/4-627/4627-138.pdf. 

659See supra Table 1, Table 2, and Table 3 in Part 

VII. These costs assume 1,000 Managers would file 

Form SHO annually and 35 Managers would file 

amendments each month. The initial costs are 

calculated by adding the Form SHO Initial 

Technology Projects cost, the CAT: Central 

Repository—Short Sale Data cost, CAT: Reporting of 

Bona Fide Market Making Exception—Insourcers 

cost, and the CAT: Reporting of Bona Fide Market 

Making Exception—Outsourcers cost. ($118,950,000 

+ $113,800 + $870,000 + $42,000 = $119,975,800). 

The annual costs are calculated by adding the Form 

SHO Filings cost, the Use of Structured XML-Based 

Data Language cost, the Amended Form SHO 

Filings cost, and the amending Use of Structured 

XML-Based Data Language cost. ($60,326,400 + 

$9,264,000 + $2,111,424 + $324,240 = $72,026,064). 

See also infra Part VIII.C.6.a and Part VIII.C.6.c for 

further explanations of these costs. 

660See infra note 679. 

661See MFA Letter, at 19. 

Additionally, in the event that an 

options market maker might have short 

equity position close to the Reporting 

Thresholds, Rule 13f–2 might dissuade 

these option market makers from 

increasing their short position, which 

may harm their willingness to provide 

liquidity in options markets. 

Alternatively, Rule 13f–2 might not 

cause option market makers that exceed 

the Reporting Thresholds to reduce their 

positions in order to avoid filing Form 

SHO, in which case the additional 

associated spending on filing Form SHO 

(and other compliance costs) might 

result in wider spreads if the 

compliance costs are large enough. 

4. Effect on Corporate Decision Making 

The Commission believes that Rule 

13f–2 and Form SHO might have mixed 

effects on corporate decision making. 

On one hand, research suggests that 

corporate managers learn from market 

reactions to announcements.652

Consequently, Rule 13f–2 and Form 

SHO may provide corporate managers 

with additional feedback on their 

decisions, albeit with a delay. Projects 

often take some time to design and 

implement after announcement, and 

consequently, even with the lag in the 

reporting time of Form SHO data, a 

corporate manager might review the 

data around significant announcements 

to better understand how some 

Managers viewed a particular project or 

announcement. For example, if large 

short positions were built shortly after 

a corporate project announcement, then 

this may help signal to a corporate 

manager that the market viewed that 

project announcement negatively, and 

this information could enhance the 

corporate manager’s decision-making on 

the project. 

In another aspect, short sellers, and 

particularly large short sellers with the 

resources to perform fundamental 

research, serve as valuable external 

monitors of management. If a corporate 

manager knows that short sellers are 

monitoring their actions and financial 

statements and are willing to expose 

wrongdoing, then they are less likely to 

engage in fraud or do other things that 

may hurt the value of the company. 

Historically, short sellers have, at times, 

through doing research, uncovered 

fraudulent behavior.653 Academic 

research has also shown that even the 

threat of short selling serves to 

discipline managers.654 As discussed in 

Parts VI.C.1 and VI.C.2, Rule 13f–2 may 

discourage Managers from performing 

fundamental research. If less 

fundamental research is performed by 

short sellers,655 then their role as 

monitors of the firm diminishes. Less 

monitoring might lead to higher 

incidences of fraud as managers feel that 

the likelihood of being caught 

declines.656 Thus, to the extent that 

Rule 13f–2 and Form SHO discourage 

fundamental research it may lead to 

both an increase in the total amount of 

corporate fraud in the economy as well 

as decrease the fraction of fraudulent 

actors that are discovered by investors. 

5. Effect on the Securities Lending 

Market 

As discussed in Parts VIII.C.1 and 

VIII.C.2, the adopted rule and related 

Form SHO will increase the cost of short 

selling, particularly large short 

positions—potentially leading to less 

overall short selling. As discussed in 

Part VIII.C.2, short sellers must borrow 

shares for their short position. When 

short sellers borrow shares, they pay a 

borrowing fee to the owner of the share. 

These fees can represent a significant 

source of revenue for pension funds, 

mutual funds, and others who engage in 

securities lending.657 Consequently, to 

the extent that the adoptions discourage 

short selling, they may also lower 

overall portfolio returns, including for 

institutional investors that engage in 

securities lending.658

6. Compliance Costs 

The Commission believes that there 

will be direct costs associated with 

adopted Rule 13f–2, Form SHO, and the 

CAT amendment. These costs include 

Managers reporting position and activity 

data, broker-dealers updating CAT 

reporting processes, and the 

Commission processing and releasing 

the Manager reports through EDGAR. 

Rule 13f–2, related Form SHO, and the 

amendment to CAT in aggregate, will 

result in an estimated maximum of 

$119,975,800 in initial costs and 

$72,026,064 in annual costs.659

The Commission received several 

comments from industry groups 

concerned about the cost of 

implementing Rule 13f–2, Form SHO, 

and the CAT amendment. One 

commenter stated that Managers 

currently do not have systems in place 

to comply with Rule 13f–2, Form SHO, 

and the CAT amendment. Multiple 

commenters stated that there would be 

high costs associated with tracking 

positions for the purpose of seeing if 

they had crossed the Reporting 

Thresholds.660 Another commenter 

stated that the Commission’s estimated 

costs in the proposing release, in 

general, were ‘‘materially 

understated’’.661 However, the 

Commission has attempted to use the 

applicable resources available to it to 

estimate the costs of implementing 

adopted Rule 13f–2, Form SHO, and the 

CAT amendment. The Commission did 

not receive any information from 

commenters that might otherwise have 

been used to refine or adjust its 

estimates of the implementation costs of 

adopted Rule 13f–2, Form SHO, and the 

CAT amendment. Thus, the 

Commission believes its estimates to be 

reasonable given the information it has 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75167 

662See supra Part VII.4. 

663See infra Part VIII.C.6.c. 

664 In the Proposing Release, the Commission 

estimated 346 Managers would be required (on the 

low end of the estimate). The Commission changed 

the parameters for this estimate to match the 

scenario of a $10 million daily average over the 

month or 2.5% daily average over the month of 

shares outstanding thresholds that are being 

adopted as Threshold A. 665See Proposing Release, at Table I. See also 

Proposing Release, at 14963 for more information 

on the methodology and caveats of using Form SH 

data. 

666See Disclosure of Short Sales and Short 

Positions by Institutional Investment Managers, 73 

FR 61679. Form SH filers filed weekly reports. As 

a result, each reporting manager would file fewer 

reports under Rule 13f–2, because Form SHO would 

be filed monthly. See also 73 FR 61686 (estimating 

1,000 weekly Form SH filings by reporting 

Managers). 

667See supra PRA Table 2 and note 450. The 

lower estimate was calculated using 252 Managers. 

20 hours per filing × 252 filings by Managers each 

month × 12 months × $251.36 = $15,202,252. The 

Continued 

available. Furthermore, the Commission 

has adjusted estimates in response to 

policy choices that differ from the 

Proposing Release, some of which will 

lower compliance costs, including the 

exclusion of the ‘‘buy to cover’’ 

proposals (proposed Rule 205 and the 

related CAT amendment) and a change 

to one of the reporting thresholds that 

will likely result in fewer Managers 

having to report Form SHO. As 

discussed in Part II.B, these policy 

changes, to the extent possible, address 

or are in response to statements from 

commenters regarding costs stemming 

from the Proposing Release. 

a. Form SHO Compliance Costs 

The Commission believes that 

Managers will incur an initial 

technology-related burden to update 

their current systems to capture the 

required information and automate and 

facilitate the completion and filing of 

Form SHO.662 While Managers likely 

have other existing reporting obligations 

that are similar to Form SHO filing 

obligations, Managers will need to 

update their systems to ensure timely 

and accurate filing of the specific 

information required under Form 

SHO.663 The estimated aggregate cost of 

Form SHO initial technology projects 

across all Managers ranges from 

$29,975,400 to $118,950,000. The 

Commission estimates that between 

252 664 and 1,000 Managers will be 

required to file Form SHO. The lower 

estimate is based on the number of Form 

SH filers above Threshold A. The actual 

number of reporting Managers will 

likely be higher than our low estimate, 

because Managers that exercise 

investment discretion with respect to 

accounts holding section 13(f) securities 

having an aggregate fair market value of 

less than $100 million were not required 

to file Form SH.665 However, the actual 

number of reporting Managers will 

likely be lower than the Commission’s 

high estimate, since this estimate is also 

based on an initial analysis of Form SH 

filings, which were filed weekly and 

therefore more likely to trigger reporting 

thresholds, as compared to adopted 

Form SHO, which will involve monthly 

assessment and therefore require a 

longer-held large short position to 

trigger a reporting threshold.666 The 

Commission discusses the use of Form 

SH Data, including commenter concerns 

about the use of the data in this and 

other contexts, in Box 1: Use of Form 

SH Data. 

Box 1: Use of Form SH Data: 

The Commission’s estimation of the minimum number of Managers likely to report Form SHO draws on an analysis of data collected 

under Form SH, the only existing data source of individual Manager-level short sale positions. In addition to estimating the minimum 

number of reporting Managers, the Economic Analysis also uses Form SH data for comparisons of alternative thresholds and to estimate the share and number of potential reported securities with only one reporting Manager, the potential share of gross short sale dollar volume covered by reporting Managers, and statistics on potential holding periods after hitting a threshold. 

The Commission received several comment letters questioning the applicability of Form SH data to the current time period.a One commenter stated that the period surrounding the filing of Form SH was an abnormal period for financial markets, and also stated that many 

prominent short sellers have left the industry.b While there are various limitations to be considered when using Form SH data,c Form 

SH data are the most relevant and applicable source of data available for the purposes of estimating the costs of the design and analysis of Rule 13f–2. There are no other data sources, public or regulatory, which specifically track Managers’ short position activities in 

the U.S. While the Commission agrees that having more current data would be useful for the purposes of Rule 13f–2’s design and analysis, no commenters provided such data, and the Commission believes Form SH data are sufficiently informative to analyze the predicted impact of the amendments.d

Further, in response to these comments, the Commission analyzed FINRA short interest data over the period of 2008 to present with the 

goal of seeing if short interest was comparable between the current period and the period surrounding Form SH filings.e Specifically, we 

compared the trend of average short interest to the trend of the number of equities counted from each FINRA short interest files covered 2009 to 2023. The analysis revealed that the average short interest per equity symbol has increased over time by approximately 

46 percent, while the number of symbols has increased at a much slower rate of 17 percent. Thus, we observe that the average short 

interest per equity symbol has increased from 2009 to present. However, the Commission cannot assess whether the size of Manager 

positions has changed over time.f Without this piece of knowledge, it is indeterminate whether the average amount of short interest generated by a manager has changed over time. If there are currently more Managers relative to 2008, it is possible that the average short 

position per manager is smaller than during the period Form SH was used. Conversely, if there are fewer Managers, it is likely the average short position per manager has increased relative to 2008. 

aSee, e.g., Law and Finance Professors Letter, at 3; AIMA Letter at 11–12; Two Sigma Letter at 5–6. b See Law and Finance Professors Letter, at 3. cSee supra Part VIII.B.4.e and note 670 for a discussion of limitations in the use of Form SH data. See also Part VII.B.1 for a discussion of 

other ways Form SH data differ from Form SHO data. dSee supra Part II.A.3 for additional discussion of comments regarding the Reporting Thresholds and note 177 for further discussion of the

time period of the data. eFINRA Short Interest data are available at https://www.finra.org/finra-data/browse-catalog/equity-short-interest/data. See also Part VIII.B.4 a 

for further information about FINRA Short Interest Data. fSee supra Part VII.B.1 for a discussion of estimates of the number of affected Managers using Form SH, which most closely mirrors the criteria of Rule 13f–2 and Form SHO and how the number may have changed over time. 

The Commission estimates that the 

annual cost to Managers for filing Form 

SHO ranges from $15,202,252 to 

$60,326,400.667 The Commission 

estimates that Managers will 

collectively spend an additional 

$2,334,528 to $9,264,000 per year to 

structure Form SHO directly in Form 

SHO-specific XML.668 The Commission 

estimates that the Managers that will file 

amended Form SHOs will collectively 

spend $542,938 to $2,111,424 per year 

to file amended Form SHOs.669 Further, 


ddrumheller on DSK120RN23PROD with RULES2
75168 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

Commission estimates that 252 Managers would 

have been required to file Form SH had Form SH 

been subject to the same $10 million and 2.5% 

threshold. 

668See infra Part VIII.C.6.c and infra note 686. 

The lower estimate was calculated as follows: 2 

hours per filing × $386 per hour for a programmer 

× 252 filings by Managers each month × 12 months 

= $2,334,528. 

669See supra PRA Table 1 and accompanying text 

discussing amended Form SHO estimates. We 

maintain the assumption of 3.5% of Managers 

amending monthly in all of our estimated costs for 

amending Form SHO. Using the lower estimate of 

252 Managers, this would result in 9 Managers 

filing amendments monthly. 20 hours per filing × 

9 filings by Managers each month × 12 months × 

$251.36 per hour = $542,938. 

670Using the lower estimate of 9 Managers filing 

amendments monthly would result in $83,376 to 

structure amended Form SHO filings in Form SHOspecific XML. 2 hours per filing × 9 filings by 

Managers each month × 12 months × $386 per hour 

= $83,376. 

671See supra PRA Table 2. These costs are 

calculated by adding the costs for Form SHO 

Filings, Use of Structured XML-Based Data 

Language, Amended Form SHO Filings, and the 

amending Use of Structured XML-Based Data 

Language together. For the lower estimate, we 

calculate using 252 Managers filing each month 

annually and 9 Managers filing amendments 

monthly. ($15,202,252 + $2,334,528 + $542,938 + 

$83,376 = $18,163,094). 

672Most Managers will be familiar with EDGAR 

filing requirements through other reporting 

obligations, such as Form 13F. See supra notes 193 

and 452. See also infra Part VIII.C.6.c. 

673See supra note 451 and infra note 711. 

674See Form SHO, General Instructions at Rules 

to Prevent Duplicative Reporting. 

675See Form SHO, General Instructions at 

INSTRUCTIONS FOR CALCULATING REPORTING 

THRESHOLD. See also PRA Table 2 in Part VII for 

an estimate of these burden hour. 

676As stated in the proposing release, based on 

the number of registered investment companies 

reporting short positions and the number of hedge 

funds engaged in a strategy including short selling, 

we continue to anticipate that only a small fraction 

of Managers is likely to have monitoring 

responsibilities pursuant to the rule and, given the 

Reporting Thresholds and the modification of 

Threshold A, an even smaller fraction is likely to 

have reporting obligations. Proposing Release at 

14998 n. 298. 

677Under Proposed Form SHO, the threshold was 

triggered if a gross short position exceeded $10 

million on a single day. Adopted Form SHO 

requires a daily average gross short position of $10 

million over the month. 

678See supra Part VIII.B.1 for a discussion on 

why certain types of Managers are more likely to 

have reporting requirements. For example, market 

makers and algorithmic technical traders are not 

likely to meet the thresholds because they generally 

close their positions by the end of the day. 

679However, Managers that trigger a threshold(s) 

but do not currently report to EDGAR may face 

additional compliance costs associated with Rule 

13f–2. 

680The lower number of estimated reporting 

Managers in Form SHO compared to Form SH is 

due to the fact that the Reporting Thresholds are 

higher for Form SHO than Form SH in Threshold 

A (average daily gross position of $10 million vs. 

a single day threshold of $10 million, and 2.5% of 

shares outstanding vs. 0.25% of shares 

outstanding). This estimate differs from the 

Proposing Release due to modification of the part 

of the threshold from $10 million daily to $10 

the Commission estimates that 

Managers filing amended Form SHO 

will collectively spend an additional 

$83,376 to $324,240 per year to 

structure Form SHO directly in Form 

SHO-specific XML.670 The Commission 

thus estimates that the aggregate cost of 

structuring and filing Form SHO across 

all Managers ranges from $18,163,094 to 

$72,026,064.671 Costs might be 

underestimated to the extent that wages 

are higher than those used in the 

estimation. The initial costs are likely 

higher than the lower bound estimates 

as Managers who may not file Form 

SHO on a monthly basis will likely still 

incur the initial costs. Furthermore, 

because Manager short positions are 

fluid, some Managers will not be 

required to file a report every month 

when they do not cross the reporting 

threshold. As a result of this fluidity, 

ongoing costs could be lower than our 

estimates. Moreover, to the extent that 

the number of reportable short positions 

varies across Managers, the costs to 

track and report those positions will 

also vary by Manager. Initial costs might 

also be higher for some Managers who 

do not currently have systems built to 

report to EDGAR.672 By contrast, 

because we expect Managers will have 

a financial incentive to automate the 

reporting process by leveraging Form 

SHO-specific XML reporting, the 

aggregate costs associated with Form 

SHO-specific reporting may be 

meaningfully lower going forward.673

For some Managers, there may be 

additional considerations, which may 

increase costs. For example, rules for 

filing Form SHO require Managers to 

prevent duplicative reporting.674 The 

burden to ensure that duplicative 

reporting doesn’t occur will vary by 

Manager and will depend on whether 

two or more Managers exercise 

investment discretion over the same 

reportable securities position. Also, 

Managers managing multiple accounts 

with short positions requiring 

aggregation may have additional costs 

associated with the aggregation when 

modifying systems to track the 

Reporting Thresholds and report 

positions on Form SHO. 

The Commission believes the need to 

amend Form SHO may vary by 

familiarity with filing Form SHO. These 

costs may be more common for 

Managers who do not hold short 

positions often and are likely to 

decrease with time as Managers become 

more experienced with filing Form 

SHO. As part of updating systems to 

comply with the reporting requirements 

of Rule 13f–2, Managers must calculate 

the market value of their position using 

the official closing price as of the close 

of regular trading hours for the trade 

settlement date in question at the end of 

the month, which may not be the fair 

market value at the time in which the 

trade occurred.675 However, the 

Commission believes that in most cases 

this will be a small burden on Managers 

as the data needed for the calculation 

will be publicly available and that 

Managers may already track the end of 

day fair market value of short positions. 

Even in cases that the reportable equity 

security is not traded on an exchange, 

the Commission believes that Managers 

may be able to calculate the value of 

their short positions by using publicly 

available closing prices from the OTC 

Reporting Facility. In circumstances 

where closing prices of non-reporting 

company issuers are not available, the 

Commission believes the tracking such 

information will still not impose a large 

burden as a Manager can use the price 

at which they last purchased or sold any 

share of that security, which will be 

readily available to the Manager. 

b. Costs of Tracking Threshold Status 

There will be costs associated with 

tracking short positions in relation to 

the threshold.676 Particularly, after the 

last day of each calendar month, 

Managers must calculate their average 

short positions over the month to be 

aware if their average daily gross short 

position exceeds $10 million 677 or 2.5 

percent of shares outstanding; or in the 

case of equity securities of nonreporting company issuers, if Managers 

meet or exceed a gross short position of 

$500,000 at the close of regular trading 

hours on any settlement date. However, 

the Commission believes that the 

Reporting Thresholds will generally 

limit the burden on Managers, in 

aggregate, as fewer Managers will be 

required to report than if the 

Commission did not adopt an amended 

reporting threshold. For example, the 

Commission believes that certain types 

of Managers that carry short positions 

will not meet a Reporting Threshold.678

Additionally, certain types of Managers 

may be less likely to meet the threshold, 

resulting in lower overall costs for these 

Managers.679 Using Form SH data, the 

Commission estimates that an average of 

442 Managers were required to file Form 

SH each month under the threshold in 

place during temporary Rule 10a–3T. 

However, only 252 eligible Managers 

would have been required to file had 

Threshold A of adopted Form SHO been 

in place instead of the threshold in 

temporary Rule 10a–3T.680


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75169 

million average daily over the month. Commenters 

questioned the use of Form SH data in this and 

other contexts. See supra Box 1: Use of Form SH 

Data for responses to comments on the use of these 

data. 

681See, e.g., MFA Letter, at 13; AIMA Letter, at 

12–14; ICI Letter, at 5; Ropes & Gray Letter, at 2 and 

5–7; SBAI Letter, at 4; SIFMA Letter, at 4, 7–8, and 

13–19; T. Rowe Price Letter, at 3–4, Two Sigma 

Letter, at 6–7 and 10. 

682See ICI Letter, at 11. 

683As discussed in supra Part II.A.3, Managers 

with gross short sale positions that exceed a daily 

average during the previous month of $10 million 

or a daily average of 2.5% of a reporting firm’s 

shares outstanding will have to file Form SHO. 

With regard to short sale positions of non-reporting 

firms, Managers will have to file Form SHO if their 

short sale position exceeded $500,000 on any single 

day during the previous month. 

684See supra Part II.A.3.b for discussion of 

comments received related to tracking nonreporting company short positions. 

685See EDGAR Filer Manual (Volume II) version 

67 (September 2023), at 9–1 (‘‘EDGAR Filer Manual 

Volume II’’) (describing process for submitting 

Form-specific XML filings directly to EDGAR); see 

also Form 13F XML Technical Specification, 

available at https://www.sec.gov/edgar/filerinformation/current-edgar-technical-specifications. 

686See supra PRA Table 2 (estimating the ongoing 

burden for the Form SHO-specific XML 

requirement at two hours per Manager per filing 

and two hours per amended filing). These estimates 

conservatively assume that Managers will structure 

their filings in Form SHO-specific XML, incurring 

$772 (2 hours × $386 per hour for a programmer = 

$772) per filing or amended filing, rather than use 

a fillable form. Assuming 1,000 Managers filing 12 

Form SHO filings per year would equal 12,000 

filings per year, resulting in 24,000 total annual 

industry burden hours (12 filings x 1,000 Managers 

× 2 hours = 24,000) and $9,264,000 in industry costs 

for filings per year (24,000 hours * $386 per hour 

= $9,264,000) attributable to the Form SHO-specific 

XML requirement. In addition, based on an estimate 

of 420 amended filings per year, the total industry 

cost for the Form SHO-specific XML would be 

$324,240 for amended filings (420 amended filings 

× 2 hours per amended filing × $386 per hour = 

$324,240). As such, the total annual industry cost 

attributable to the Form SHO-specific XML 

requirement (including amended filings) is 

$9,588,240 ($9,264,000 for filings + $324,240 for 

amended filings = $9,588,240). Using a lower 

estimate of 252 Managers would result in 

$2,417,904 in total annual industry costs to 

structure initial and amended filings in Form SHOspecific XML. See supra note 517. 

687See 17 CFR 240.13f–1(a). 

688For example, registered brokers or dealers that 

are subject to the reporting requirements set forth 

in 17 CFR 240.17h–2T must file Form 17–H either 

electronically or in paper. Those that choose to file 

electronically must file Form 17–H partially in 

EDGAR Form-specific XML. Insurance companies 

may offer variable contracts that are registered 

under the Investment Company Act of 1940, and 

would thus be required to file annual reports on 

Form N–CEN in EDGAR Form-specific XML as well 

as, in some cases, monthly portfolio information on 

Form N–PORT in EDGAR Form-specific XML. 

Corporations may make exempt offerings and be 

required to file Form 1–A, Form C, or Form D in 

EDGAR Form-specific XML either in part or in full, 

depending on the nature of the offering. 

689See 17 CFR 232.101(a)(1)(iv); 17 CFR 232.301; 

EDGAR Filer Manual Volume II at 5–1 (requiring 

EDGAR filers generally to use ASCII or HTML for 

their filed documents, subject to certain 

exceptions). 

690See supra note 475. 

The Commission received several 

comment letters that described what 

they believed were the high cost of 

monitoring with respect to the 

thresholds to file Form SHO under Rule 

13f–2.681 One commenter stated that the 

cost of daily monitoring would be high, 

although no specific estimated cost is 

provided.682 While the costs would 

likely be higher if firms choose to 

monitor daily, Rule 13f–2 does not 

require daily monitoring, either for 

reporting or non-reporting stocks. 

For Managers engaged in shorting 

selling, the rule necessitates that 

Managers calculate their average daily 

gross short position in equity securities 

for which they have conducted short 

sales during that calendar month in 

order to know if they are required to file 

Form SHO within 14 days of the end of 

that month.683 Managers may choose to 

do this calculation on a rolling basis, or 

to do the calculation after the month has 

ended. While some Managers may 

choose to incur the higher costs of daily 

tracking and calculation for purposes of 

compliance with Rule 13f–2, the final 

rule’s reporting threshold is not based 

on a Manager’s gross short position on 

a single trading date, reducing the need 

for daily tracking. 

The Commission understands that the 

cost of tracking short positions might be 

higher for certain types of equity 

securities. For example, tracking the 

short position in an ETF as a percent of 

shares outstanding will be more difficult 

as the number of shares outstanding 

changes frequently. Additionally, 

Managers who hold short positions in 

non-reporting company issuers may 

have difficulty calculating the value of 

their position, however Managers may 

use the last price at which the Manager 

traded even though the price may be 

stale.684

c. Cost of Reporting Form SHO to 

EDGAR 

Requiring Form SHO to be filed on 

EDGAR in Form SHO-specific XML will 

not impose significant incremental costs 

on Managers. The Commission expects 

most Managers who will be required to 

file Form SHO will likely have 

experience filing EDGAR forms that use 

similar EDGAR Form-specific XML data 

languages, such as Form 13F. In that 

regard, the process for filing Form SHO, 

as well as the XML-based data language 

used for Form SHO, will be similar to 

the filing process and data language 

used for Form 13F.685 We expect that 

Managers with such experience that 

choose to file Form SHO directly in 

Form SHO-specific XML will incur 

some compliance costs associated with 

doing so.686

In addition, Managers will be given 

the alternate option of filing Form SHO 

using a fillable web form that will 

render into Form SHO-specific XML in 

EDGAR, rather than filing directly in 

Form SHO-specific XML using the 

technical specifications published on 

the Commission’s website. We expect 

Managers who do not have experience 

filing Form 13F or other EDGAR Formspecific XML filings will likely choose 

this option. In that regard, Managers are 

only required to file Form 13F if they 

exercise investment discretion with 

respect to accounts holding section 13(f) 

securities having an aggregate fair 

market value on the last trading day of 

any month of any calendar year of at 

least $100 million.687 Of Managers that 

do not have experience filing Form 13F, 

only a subset are subject to other 

EDGAR Form-specific XML filing 

requirements.688 For any Managers that 

choose to file Form SHO using a fillable 

web form, whether or not they have 

prior experience with filing forms in 

EDGAR Form-specific XML, the Form 

SHO-specific XML requirement (i.e., the 

requirement to place the collected 

information in a fillable web form 

provided by EDGAR, rather than in an 

HTML or ASCII document to be filed on 

EDGAR as is required for most other 

EDGAR forms) will not impose any 

additional compliance costs.689

d. Costs Associated With Reporting 

Bona Fide Market Making Locate 

Exception to CAT 

The 25 Plan Participants will face 

costs associated with the CAT 

amendment, as they will be required to 

engage the Plan Processor to modify the 

Central Repository to accept and process 

new short sale data elements on order 

receipt and origination reports. 

Additionally, the Commission estimates 

an external cost of $4,522 per 

participant or $113,800 total to 

compensate the Plan Processor for staff 

time required to make the initial 

necessary programming and systems 

changes.690 However, these initial costs 

might be higher if the Commission 

underestimated the time and wages 

necessary for programming and systems 

changes for the plan processor to accept 

and process new data elements. 

Furthermore, the Commission believes 

that CAT amendment will not impose 

additional ongoing cost to Participants 

beyond those costs already accounted 

for in existing Paperwork Reduction Act 


ddrumheller on DSK120RN23PROD with RULES2
75170 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

691See supra Part VII.C.4 for more information on 

costs for CAT Plan Participants. 692 Id. 

693The Commission believes these costs will be 

comparable to those estimated in the Proposing 

Release in connection to the burden of marking an 

order. The Commission estimates that recording 

(marking) this information will take between 0.42 

and 0.5 seconds per trade, with an annual time 

burden per Manager equal to 592–7,104 hours. See 

Table 3 from Proposing Release at 14975, available 

at https://www.sec.gov/files/rules/proposed/2022/ 

34-94313.pdf. 

694See supra Part IV.B for description of Industry 

Members’ use of BFMM. 

695See CAT NMS Plan Approval Order, 81 FR 

84860. 

696See supra Part VII.C.4. 

697One commenter stated that support from thirdparty data service providers could make Form SHO 

reporting less burdensome. See S3 Letter, at 5. 

698See supra Part VII.C.4. 

699See Temporary Rule 10a–3T Comment letters 

(including Seward & Kissel LLP Letter), available at 

https://www.sec.gov/comments/s7-31-08/s73108- 

43.pdf; MFA Letter, available at https://

www.sec.gov/comments/s7-31-08/s73108-41.pdf; 

IAA Letter, available at https://www.sec.gov/ 

comments/s7-31-08/s73108-38.pdf; ICI Letter, 

available at https://www.sec.gov/comments/s7-31- 

08/s73108-47.pdf; SIFMA Letter, available at 

https://www.sec.gov/comments/s7-31-08/s73108- 

52.pdf. See also supra Part III.D.2. (for more 

information on Threshold A using Form SH data). 

700See Proposing Release at Economic Analysis 

Table I: Various Threshold Levels for Monthly 

Average Positions and Monthly Maximum Dollar 

Value. However, the Commission recognizes that 

temporary Rule 10a–3T was in effect in 2008–2009 

and the market may be different, particularly the 

average short position may be larger. Only 

Managers that exercise investment discretion with 

respect to accounts holding section 13(f) securities 

having an aggregate fair market value of at least 

$100 million were required to file Form SH. 

Additionally, the data lacked data validation 

according to the needs of the end user when filed, 

making the data hard to work with. 

701This example assumes the equity is from a 

reporting company. Thresholds for non-reporting 

companies are triggered following a single day in 

which the short sale position exceeds $500,000. See 

supra Part II.A.3 

702See supra note 697 for the comment letters in 

note, as well Coalition of Private Investment 

Companies letter, available at https://www.sec.gov/ 

comments/s7-31-08/s73108-46.pdf. 

703Rule 10a–3T required institutional investment 

managers to report beginning and end of day short 

position, number of securities sold short each day 

if the particular data item exceeded the threshold. 

See P 3 final Rule 10a–3T, 73 FR 61678 (Oct. 17, 

2008), available at https://www.sec.gov/rules/final/ 

2008/34-58785fr.pdf. However, in analysis of Form 

SH data intraday short selling volume could not be 

examined for Form SH because the data field for 

‘‘Number of Securities Sold Short’’ was populated 

in only 7% of observations after filters were 

applied. See Proposing Release note 80 at 14963 for 

more information on short volume in Form SH data. 

estimates that apply for Rule 613 and 

the CAT NMS Plan approval order.691

The Commission believes that the 

CAT amendment involving the bona 

fide market making exception from the 

locate requirement will impose a onetime cost to Industry Members.692 These 

costs will involve creating an additional 

field in the order origination report. 

Some broker-dealers will incur ongoing 

costs related to the recording of the use 

of the BFMM locate exception.693 To the 

extent that broker-dealers are not 

already recording the use of the 

exception, broker-dealers may have 

costs to inputting the use of the 

exception into their current systems.694

The Commission recognizes that costs 

will vary broadly across Industry 

Members, particularly depending on 

whether the Industry Member 

outsources the provision of an order 

handling system and regulatory data 

reporting to a service provider. In the 

CAT NMS Plan Approval Order,695 the 

Commission identified 126 Industry 

Members that do not outsource these 

activities. For these Industry Members, 

implementation is likely to require 

changes both to their order handling 

systems as well as their regulatory data 

reporting systems that produce their 

CAT reporting data. Additionally, 58 

insourcing Industry Members will incur 

an aggregate initial cost of $870,000 or 

$15,000 individually to update systems 

to facilitate reporting the new bona fide 

market making exception elements to 

CAT.696 However, this cost might be 

lower if the Commission is 

overestimating the number of insourcing 

industry members, in particular, the 

additional cost might drive some 

insourcing industry members to begin to 

outsource. The Commission believes 

that ongoing costs associated with 

reporting the newly required 

information to CAT will already be 

covered by ongoing cost estimates 

included in its cost estimates for the 

CAT NMS Plan. The Commission 

further believes that similar 

implementation and ongoing costs will 

be borne by each of the service 

providers that provide order handling 

systems and regulatory data reporting 

services to Industry Members that 

outsource these systems. 

For Industry Members that outsource, 

the Commission believes that 

implementation costs will be far lower 

because the service bureaus that provide 

them with order handling systems and 

regulatory data reporting services will 

adapt those systems on their customers’ 

behalf.697 Additionally, 42 outsourcing 

industry members will incur an 

aggregate one-time cost of $42,000 or 

$1,000 individually to update systems 

to facilitate reporting the new bona fide 

market making exception elements to 

CAT.698 However, these costs might be 

higher if some current insourcing 

industry members begin to outsource as 

a result of the increased costs, which 

will lead to an overall reduced cost for 

the rule as outsourcing is less costly 

than insourcing. The Commission 

believes that the costs of service bureaus 

adapting those systems will be passed to 

their Industry Member customers. 

e. Comparison to Rule 10a–3T Costs 

The Commission is cognizant of the 

burdens Managers experienced of filing 

Form SH in compliance with temporary 

Rule 10a–3T and has designed Rule 13f– 

2 and Form SHO to attempt to reduce 

those burdens. First, commenters on the 

temporary Rule 10a–3T stated that the 

0.25 percent threshold was too low.699

The two-pronged threshold in Rule 13f– 

2 is higher than the threshold in Rule 

10a–3T, reducing the number of 

Managers likely to have a reporting 

obligation. For example, the 

Commission estimates that only 28 

percent of positions reported under Rule 

10a–3T will be required to report given 

the higher threshold in Rule 13f–2 and 

Form SHO, while still collecting 78 

percent of the dollar value.700

Additionally the threshold might be less 

burdensome to assess than the one in 

Rule 10a–3T because it requires the 

Manager to assess whether it is above 

the threshold on a monthly basis rather 

than on each individual day.701 Second, 

many commenters believed that weekly 

reporting was overly burdensome.702

The short selling information required 

by Rule 13f–2 and Form SHO will be 

reported less frequently (monthly rather 

than weekly) and will involve reporting 

end of month positions rather than daily 

positions. Third, Managers will have 

more time to compile and file the Form 

SHO reports than they had to compile 

Form SH. 

Notwithstanding these cost-reducing 

differences, the Commission does 

recognize that other differences might 

offset some or all of these cost 

reductions. In particular, Rule 13f–2 and 

Form SHO will require that the 

information on activity include daily 

records if the Manager exceeds a 

position threshold that month rather 

than include daily records if the 

Manager exceeds an activity threshold 

that week.703 Also, unlike the Form SH 

required under Rule 10a–3T, the Form 

SHO that will be required by Rule 13f– 

2 will feature an XML schema that will 

incorporate technical validations of 

certain data fields on the Form, and will 

flag technical errors and require the filer 

to correct the technical errors before 

successful submission on EDGAR. 

However, because the field validations 

implemented by Rule 13f–2 and Form 

SHO will be limited to technical errors 

(e.g., letters instead of numbers in a 

field requiring only numbers) that will 

be straightforward to resolve, such 

resubmission costs will not be 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75171 

704NAPFM Letter 3. 

705See supra note 499. As stated above, 

commenters also specifically suggested the 

Commission consider potential overlapping 

compliance costs between the final rule and certain 

proposing releases. See supra note 505. These 

proposals have not been adopted and thus have not 

been considered as part of the baseline here. To the 

extent those proposals are adopted in the future, the 

baseline in those subsequent rulemakings will 

reflect the regulatory landscape that is current at 

that time. 

706See supra notes 500–504 (summarizing 

compliance dates). 

707For example, broker-dealers who need to 

report on Form SHO under Rule 13f–2 will also 

need to comply with Settlement Cycle Adopting 

Release but may not need to comply with the 

requirements of any of the other recently adopted 

rules. 

708The final rule mitigates costs relative to the 

proposal in three ways. First, the reporting 

threshold for the U.S. dollar value-based prong for 

reporting company issuer securities is being 

adopted as a monthly average, rather than the daily 

end-of-day calculation that was proposed. See 

supra Part II.A.3.b. Second, Form SHO is being 

adopted without the proposed requirement to report 

hedging classifications in Information Table 1, and 

includes a streamlined Information Table 2, which 

reduces the form’s complexity and the granularity 

of the information reported. See supra Parts 

II.A.4.d.iii, II.A.4.d.iv. Third, proposed Rule 205 

and related CAT reporting requirements are not 

adopted. See supra Part III.B. 

709For example, compliance periods for the May 

2023 SEC Form PF Amending Release and the 

Settlement Cycle conclude by mid-2024 while 

reporting under the final rule will be required by 

the end of 2024 at the earliest. Similarly, certain 

compliance deadlines for Rule 10c–1a extend into 

early 2026. See supra notes 500–504. 

710See supra Part II.A.4.b. Field validations are 

restrictions placed on each data element which 

would not allow a filer to file a form if there are 

certain technical errors in critical fields. If a Form 

SHO were to include, for example, letters instead 

of numbers in a field requiring only numbers, it 

would be flagged as a technical error, at which 

point the filer would either be unable to file the 

Form (if completed using the fillable web form 

provided by EDGAR) or the filing would be rejected 

(if directly filed in EDGAR in Form SHO-specific 

XML). To complete the filing, the filer would need 

to correct the error and re-file. 

711See Comment Letter from Aaron Franz, 

available at https://www.sec.gov/comments/s7-18- 

21/s71821-20120685-272855.pdf (‘‘This form and 

forum are ideal for reporting purposes. Further, 

since the Form SHO is proposed to be published in 

XML format it should be easy for Managers to 

automate the process of filling and filing the Form 

SHO.’’). 

712 ‘‘[XML] would also allow for easy parsing and 

review of the data. The costs shouldn’t vary very 

much between managers as the SHO form should 

be uniform for all managers, which means they will 

all use similar implementations to conform to its 

usage.’’ Anonymous Comment Letter (Apr. 4, 2022), 

available at https://www.sec.gov/comments/s7-08- 

22/s70822-20122297-278355.htm. 

significant. Finally, the rule might 

impose costs on Managers who were not 

required to report Form SH because 

Rule 10a–3T and Form SH did not apply 

to Managers that exercise investment 

discretion with respect to accounts 

holding section 13(f) securities with an 

aggregate fair market value of less than 

$100 million. 

f. Other Compliance Costs 

One commenter stated that the 

Commission should consider that ‘‘the 

sheer number and complexity of the 

Proposals, when considered in their 

totality, if adopted, would impose 

staggering aggregate costs, as well as 

unprecedented operational and other 

practical challenges.’’ 704 But, consistent 

with its long-standing practice, the 

Commission’s economic analysis in 

each adopting release considers the 

incremental benefits and costs for the 

specific rule—that is the benefits and 

costs stemming from that rule compared 

to the baseline. In doing so, the 

Commission acknowledges that in some 

cases resource limitations can lead to 

higher compliance costs when the 

compliance period of the rule being 

considered overlaps with the 

compliance period of other rules. In 

determining compliance periods, the 

Commission considers the benefits of 

the rules as well as the costs of delayed 

compliance periods and potential 

overlapping compliance periods. 

In this regard, some commenters 

mentioned the proposals which 

culminated in the recent adoptions of 

Rule 10c–1a, Beneficial Ownership 

Reporting, Private Fund Advisers, 

Settlement Cycle Adopting Release, and 

May 2023 SEC Form PF Amending 

Release.705 The Commission 

acknowledges that there are compliance 

dates for certain requirements of these 

rules that overlap in time with the final 

rule, which may impose costs on 

resource constrained entities affected by 

multiple rules.706

However, we do not think these 

increased costs from overlapping 

compliance periods will be significant 

for several reasons. First, the number of 

Managers who will also be subject to 

one or more of these recently adopted 

rules could be limited; we estimate that 

252 to 1000 Managers may be required 

under the final rules to report on new 

Form SHO, and of those, depending on 

their activities, only a portion may also 

be required to comply with one or more 

of the recently adopted rules raised by 

commenters (and even fewer may need 

to comply with more than one of those 

other rules).707 In addition, commenters’ 

concerns about the costs of overlapping 

compliance periods were raised in 

response to the proposal and as 

discussed above, we have taken steps to 

reduce costs of the final rule.708 Finally, 

although the compliance periods for 

these rules overlap in part, the 

compliance dates adopted by the 

Commission are generally spread out 

over more than a two-year period from 

2023 to 2026.709

7. Effect of Certain Electronic Filing and 

Dissemination Requirements 

Rule 13f–2 and Form SHO will 

require the short position and activity 

disclosures to be filed on the 

Commission’s EDGAR system using a 

structured, machine-readable data 

language. In particular, the rule and 

Form will require Form SHO to be filed 

on EDGAR in a custom XML-based data 

language specific to that Form (‘‘custom 

XML,’’ here ‘‘Form SHO-specific 

XML’’). The XML schema for Form 

SHO-specific XML will incorporate 

validations of certain data fields on the 

Form to help ensure consistent 

formatting and completeness.710 While 

the field validations will act as an 

automated form completeness check 

when a Manager files a Form SHO, the 

field validations will not be designed to 

verify the accuracy of the information 

filed in Form SHO filings. EDGAR will 

subsequently aggregate the reported 

information at the equity security level 

and release the aggregated data to the 

public on EDGAR. These requirements 

will incrementally augment the various 

effects of the short position and activity 

disclosures discussed herein by 

enhancing the accessibility, usability, 

and quality of the Form SHO 

disclosures (for use by the Commission) 

and the aggregate security-level 

disclosures (for use by the public). By 

requiring a structured machine-readable 

data language and a centralized filing 

location (EDGAR) for the disclosures on 

Form SHO, the Commission will be able 

to access and download large volumes 

of Form SHO disclosures in an efficient 

manner. To the extent that the 

efficiencies derived from the centralized 

filing of the Form SHO disclosures 

facilitate more rapid Commission 

response to potential market 

manipulation, investors could indirectly 

benefit from the fact that such practices 

are detected, and possibly addressed, 

earlier than might otherwise be the case. 

One commenter agreed with the 

Commission’s proposal to require 

Managers to provide Form SHO in 

EDGAR in a Form SHO-specific XML.711

Another commenter stated that ‘‘XML is 

a widely used language and therefore 

implementation and maintenance 

would keep costs low and efficiency 

high.’’ 712

Similarly, the provision of the 

aggregated security-level information at 

a centralized, publicly accessible 

location in a structured, machinereadable data language, will enable 

investors and other public data users to 

download the aggregated information 


ddrumheller on DSK120RN23PROD with RULES2
75172 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

713See supra Part VIII.C.6. 

714See MFA Letter, at 8 and Two Sigma Letter, 

at 5. 

715See Annual Report on SEC website 

Modernization Pursuant to Section 3(d) of the 21st 

Century Integrated Digital Experience Act (Dec. 

2022), available at https://www.sec.gov/files/21stcentury-idea-act-report-2022-12.pdf. 

716MFA Letter, at 9. 

717 Item A.1.d and Item A.2.c of Form N–PORT. 

See also Item B.1.d of Form N–CEN (requiring funds 

to disclose their LEIs on annual reports); 17 CFR 

242.903(a) (requiring security-based swap 

participants to report LEIs to swap data 

repositories). Additionally, other U.S. and foreign 

regulators require firms to identify themselves with 

LEIs. For example, Commodity Futures Trading 

Commission (CFTC) regulations require 

counterparties to swaps, including interest-rate 

swaps, to report their LEIs. See 17 CFR 45.6 (CFTC 

LEI requirement for parties to swap transactions). 

718A U.S. entity can currently obtain and renew 

an LEI from one of eleven LEI operating units. See 

Get an LEI: Find LEI Issuing Organizations, Glob. 

Legal Entity Identifiner Found., available at https:// 

www/gleif.org/en/about-lei/get-an-lei-find-leiissuing-organizations (2003). One LEI operating 

unit currently discloses an initial fee of $60 and a 

renewal fee of $40. See Frequently Asked 

Questions, Fees, Payments & Taxes, Bloomberg LEI, 

available at https://lei.bloomberg.com/docs/ 

faq#what-fees-are-involved (2023). 

719Special Instruction 11.b.iii of Form 13F. Based 

on Commission staff analysis of Form 13F filings in 

EDGAR, at least 500 unique filers have included 

FIGIs on their Form 13F filings since the 

amendments to Form 13F became effective on 

January 3, 2023. As of the second quarter of 2022, 

1 billion FIGIs had been assigned to financial 

instruments. Financial Instrument Global Identifier 

Newsletter Q2 2022, OpenFIGI (June 30, 2022), 

available at https://www.openfigi.com/about/news/ 

2022/6/30/financial-instrument-global-identifiernewsletter-q-2-2022. 

720Allocation Rules for the Fin. Instrument Glob. 

Identifier (FIGI) Standard (Object Mgmt. Grp. & Am. 

Nat’l Comm. X9, amended 2022) section 1.2.1, 

available at https://www.openfigi.com/assets/local/ 

figi-allocation-rules.pdf (‘‘FIGI Allocation Rules’’); 

Symbology, OpenFIGI, available at https://

www.openfigi.com/about/symbology. FIGI is an 

open-source, non-proprietary data standard for the 

identification of financial instruments across asset 

classes. FIGI Allocation Rules sections 1.1.1, 1.2.1, 

1.4.1. The Share Class level FIGI is assigned to 

equities and funds, and enables users to link 

multiple FIGIs for the same instrument to obtain an 

aggregated view for that instrument across all 

countries globally. Id. section 1.4.3. 

721FIGI allows users to link various identifiers for 

the same security to each other, which includes 

mapping the FIGI of a security to its corresponding 

CUSIP number. See Financial Instrument Global 

Identifier, OMG Standards Dev. Org. (2023), 

available at https://www.omg.org/figi/. 

722See supra note 527, R. Battalio, and P. Schultz 

(2011), Grundy, Lim, and Verwijmeren (2012). One 

commenter agreed that this is a likely outcome. See 

Better Markets Letter at 9–10. 

723See supra note 527, Jiang, Shimizu, and Strong 

(2019). 

directly, and the data might then be 

analyzed using various tools and 

applications. Placing the security-level 

information someplace other than a 

centralized location in a structured, 

machine-readable language would mean 

that data users seeking to analyze the 

information using tools and applications 

would need to search for, extract, and 

structure the security-level short 

position and activity information or pay 

a third-party vendor to do so. 

Requiring the short position and 

activity disclosures to be filed in Form 

SHO-specific XML will facilitate more 

thorough review and analysis of the 

reported short sale disclosures by the 

Commission, which will increase the 

efficiency and effectiveness with which 

the Commission could identify 

manipulative short selling strategies— 

which may also serve as a deterrent to 

would be manipulators and thus may 

help prevent manipulation. 

The requirement for short sale 

disclosures to be filed on EDGAR in 

Form SHO-specific XML will result in 

additional incremental compliance costs 

on filing Managers. These direct 

compliance costs are detailed in a 

subsequent section.713 Moreover, to the 

extent these incremental compliance 

costs further chill the incidence of 

short-selling, the EDGAR and Form 

SHO-specific XML requirements will 

increase the likelihood of the indirect 

costs that are discussed elsewhere in 

Parts VII.C.2, VII.C.3, VII.C.4, and 

VII.C.6. 

Some commenters expressed concerns 

with regard to the risks of cyber 

criminals accessing non-public Form 

SHO data.714 Although the SEC is not 

exempt from cyberattacks, the 

Commission is pursuing several actions 

to protect SEC data and strengthen the 

EDGAR system as described above. The 

Commission recently deployed security 

and modernization enhancements 

focusing on technology upgrades to the 

EDGAR system.715 The Commission 

recognizes that the Rule collects 

sensitive information and that, while 

the likelihood of a data breach is low, 

the costs of a data breach could be 

substantial. These costs include but are 

not limited to the following: trading 

losses that could occur due to the 

revelation of private trading strategies or 

economic positions which may enable 

identifying and trading 

opportunistically around such 

strategies, such as facilitating a short 

squeeze; business disruptions that could 

occur if the data breach results in 

temporary system down time; data 

breach response costs as market 

participants must devote resources to 

determining how to respond to the data 

breach; and reputational harm to 

individual Managers and the brokerdealers that employ them. While the 

potential costs of a breach, to the extent 

that one occurs, could be severe, 

RNSAs, ATSs, and SROs, are currently 

subject to existing requirements 

designed to improve the resiliency and 

oversight of securities market 

technology infrastructure, such as 

Regulation Systems Compliance and 

Integrity (‘‘Regulation SCI’’) (17 CFR 

242.1000 through 242.1007). Adherence 

to such regulations can reduce the 

probability of a data breach and mitigate 

the costs associated with a breach, 

should it occur. 

As stated previously, one commenter 

stated that the LEI and the FIGI of 

issuers is ‘‘not commonly provided’’ in 

other holding reports and would 

therefore cause Managers to incur 

additional costs.716 While LEIs are 

widely used in the global financial 

markets (for example, the Commission 

currently requires funds to identify 

themselves with LEIs in portfolio 

holding reports on Form N–PORT),717

we agree that there are costs associated 

with obtaining and maintaining LEIs. 

Currently, U.S. entities may obtain an 

LEI for a one-time fee of $60 and an 

annual renewal fee of $40.718

FIGIs also are widely used in the 

financial markets, and the Commission 

recently added FIGI as an optional 

securities identifier on Form 13F.719

Further, FIGIs, which are automatically 

assigned and are retrievable and 

redistributable without licensing 

restrictions and at no cost,720 are not 

expected to result in compliance costs 

for reporting persons. Lastly, firms can 

use identifier mapping tables, and thus 

likely would not need new technology 

systems to accept LEIs and FIGIs.721

However, the Commission recognizes 

that Managers who do not currently use 

those identifiers and who do not already 

have identifier mapping capabilities in 

their data systems would incur one-time 

costs to build such functionality. 

8. Potential Increased Use of Derivatives 

The Commission recognizes the risk 

that the benefits of Form SHO data 

could be diminished to the extent that 

Managers avail themselves of 

economically similar arrangements. For 

example, Managers might consider 

trading derivatives in place of engaging 

in short selling, particularly for stocks 

with liquid options.722 Benefits might 

similarly be diminished if a robust 

single-stock futures market develops 

over time.723 Indeed, Rule 13f–2 and its 

accompanying Form SHO might be a 

catalyst for growth in derivatives 

markets if short sellers were to look for 

avenues to take the economic equivalent 

of short positions that did not require 

similar disclosures. 

The Reporting Thresholds in Rule 

13f–2 are based on a Manager’s gross 

short position in the equity security 

itself, and do not consider derivative 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75173 

724While combining short positions with 

derivatives may allow a Manager not to trigger the 

Reporting Thresholds, using options may trigger a 

report to FINRA’s LOPR. See supra note 78. 

725See Law and Finance Professors Letter, at 3. 

726See supra note 527. 

727See Eugene F. Fama, Efficient Capital Markets 

a Review of Theory and Empirical Work, The Fama 

Portfolio 76–121 (2021). 

728See supra note 624. 

729See supra Part VIII.C.2 for discussion of short 

selling motivation. 

730See supra Part VIII.C.2 for discussion of price 

efficiency effects. 

731See supra Part VIII.B.3 for a further discussion 

of the inefficiencies of existing data with regards to 

oversight and enforcement of rules relating to bona 

fide market making. In examinations and 

enforcement matters, the Commission has used 

broker-dealer trade blotters in combination with 

other regulatory data to consider whether 

conditions were met for the use of BFMM locate 

exemptions. 

732See Dixon (2022), supra note 581. 

733See Rule 613 Adopting Release for the 

Commission discussion of CAT costs to brokerdealers. 

734See supra Part VIII.C.6 for a discussion of 

compliance costs. 

735See supra Part VIII.C.6. 

736See id. 

737But see supra Part VII.B.2 and infra Part IX 

(the Commission anticipates that the type of 

Manager that will trigger a reporting threshold 

likely already has sophisticated information 

technology and the ability to automate reporting; 

and that the reporting thresholds will not apply to 

a significant number of small Managers). 

738See supra note 706 and accompanying text. 

739See supra Part VIII.C.6.f. 

positions. Consequently, a Manager 

seeking to build a large short position 

without incurring a reporting obligation 

might hold a short position just below 

a Reporting Threshold and use 

derivatives to take positions that 

effectively rise above that threshold.724

One commenter stated that this may be 

viewed as regulatory arbitrage.725

Using derivatives to establish an 

economically equivalent short position 

that does not include a reporting 

obligation may be costly. Options tend 

to be more expensive than equity 

transactions, particularly for less liquid 

securities. Additionally, some equities 

do not have listed options. 

Consequently, the Managers’ desire to 

avoid the costs associated with 

reporting Form SHO information 

articulated in Parts VIII.C.1 and VII.C.2 

is balanced against the increased cost of 

using derivatives such as options to 

execute a short position. Thus, for some 

stocks, i.e., those with illiquid or nonexistent options, the likelihood that 

Managers will seek to employ 

alternative arrangements through 

options may be minimal. However, 

academic research has shown that 

investors have used options as an 

alternative means to obtain short-like 

economic exposure when short selling 

is restricted, thus there is a significant 

risk that there will be some attempt to 

employ alternative arrangements using 

derivatives, particularly in stocks with 

liquid options markets.726

D. Efficiency, Competition and Capital 

Formation 

1. Efficiency 

Markets function best and are most 

efficient when all relevant information 

regarding a security is known and is 

incorporated into prices.727 This 

includes negative information. When 

negative information is not tradable, 

stocks tend to be overpriced, leading to 

an inefficient allocation of capital across 

the economy.728 More efficient prices 

lead to better economic outcomes for the 

macro economy as capital flows into 

high value projects and out of low value 

projects. Short sellers have incentive to 

uncover negative information and to 

trade in order to profit from that 

information.729 As discussed in Part 

VIII.D.2, more transparency in short 

selling will improve the amount of 

information that investors have to value 

a stock—increasing price efficiency. 

However, it might also disincentivize 

fundamental research which may harm 

price efficiency by limiting the amount 

of total information has been 

discovered, and thus, limiting the 

amount of information incorporated into 

stock prices. Overall, the impact of the 

adopted rule and CAT amendment on 

price efficiency is uncertain.730

Additionally, the CAT amendment 

will improve the efficiency of the 

Commission’s oversight and 

enforcement of regulations relating to 

the bona fide market making exception 

by providing more efficient access to 

data on how individual market makers 

are using the exception. Currently, the 

Commission must request information 

about the use of the market maker 

exception from specific brokerdealers.731

2. Competition 

Investors compete with one another to 

gather information that they use to enact 

trading strategies. Academic research 

indicates that when short selling is 

costly, investors owning the asset have 

an advantage in gathering information 

due to the reduced cost of acting on 

whatever information that they 

gather.732 The final rule may increase 

this advantage since it will increase the 

cost of short selling for Managers above 

the Reporting Thresholds, as discussed 

in Parts VIII.C.1 and VIII.C.2. Relatedly, 

fund performance is a key determinate 

of drawing investor flows. The 

Commission believes that Rule 13f–2 

and Form SHO might harm competition 

for fund flows between Managers who 

do and do not use short selling 

strategies. For instance, Managers that 

are skilled at uncovering negative 

information may face additional costs 

when transacting on this information, 

potentially leading to lower returns. 

The Commission believes that the 

CAT amendment will not alter 

significantly the competitive landscape 

for broker-dealer services. Because small 

broker-dealers are likely to use a service 

bureau to report their CAT data,733 the 

Commission believes that 

implementation costs will be borne by 

service bureaus and are likely to be 

recovered across many service bureauclient broker-dealers. Individual small 

broker-dealers may face expenses in 

configuring service bureau software 

packages, but these expenses are likely 

to be one-time and modest because the 

bulk of implementation activities will 

have been performed by the service 

bureau.734 Because larger broker-dealers 

that self-report CAT Data enjoy 

economies of scale, they should be able 

to absorb the costs associated with 

compliance more easily, and they may 

choose to contract with a service bureau 

if implementation is unusually 

burdensome due to the operation of 

multiple legacy order-handling systems. 

In addition, as stated above, some 

commenters requested the Commission 

consider interactions between the 

economic effects of the proposed rule 

and other recent Commission rules, as 

well as practical realities such as 

implementation timelines.735 As 

discussed above, the Commission 

acknowledges that overlapping 

compliance periods may in some cases 

increase costs.736 This may be 

particularly true for smaller entities 

with more limited compliance 

resources.737 This effect can negatively 

impact some competitors because these 

entities may be less able to absorb or 

pass on these additional costs, making 

it more difficult for them to remain in 

business or compete. However, the final 

rule mitigates overall costs relative to 

the proposal,738 and we do not believe 

these increased compliance costs will be 

significant for most Managers.739 We 

therefore do not expect the risk of 

negative competitive effects from 

increased compliance costs due to 

simultaneous compliance periods to be 

significant. 

3. Capital Formation 

One of the primary roles of the 

securities markets is to allocate capital 


ddrumheller on DSK120RN23PROD with RULES2
75174 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

740See supra note 624, Miller (1977). 

741See I. Goldstein and A. Guembel, 

Manipulation and the Allocational Role of Prices, 

75 (1) The Rev. of Econ. Studies 133–164 (2008). 

742See, e.g., Stephen J. Brown, Bruce D. Grundy, 

Craig M. Lewis and Patrick Verwijmeren, 

Convertibles and Hedge Funds as Distributors of 

Equity Exposure, 25 (10) Rev. Fin. Stud 3077–3112 

(Oct. 2012). 

743See letters from NASDAQ, OTC Markets, and 

CFA Institute in response to FINRA’s short interest 

proposal) available at https://www.finra.org/rulesguidance/notices/21-19#comments. 

744See SBAI Letter, at 3. 745See Proposing Release, at 15003. 746 In this alternative, however, CAT would not 

contain the information on option expirations or 

assignments. 

(money) across the economy. If 

investors believe that a company is 

undervalued then, all else being equal, 

they will buy that stock; if many 

investors buy the stock, the price for 

that stock will increase—lowering the 

cost of equity financing and making 

funding projects easier for the firm. On 

the other hand, if investors believe that 

a company is overvalued then, all else 

being equal, they will sell or short sell 

the stock to invest in other more 

profitable ventures. If enough investors 

sell or short the stock, then the stock 

price will decline. A lower stock price 

implies more expensive equity 

financing and thus a higher weighted 

average cost of capital. When stocks are 

overpriced, they are inherently allocated 

too much capital, which deprives more 

productive ventures from receiving 

optimal capital and hinders economic 

progress. Consequently, short sellers 

contribute to capital formation by 

enhancing price efficiency which helps 

to ensures an optimal allocation of 

capital across firms. Thus, to the extent 

that the adopted rule and CAT 

amendment discourage short selling, as 

discussed in Parts VIII.C.1 and VIII.C.2, 

it may lead to the overpricing of some 

stocks and the underpricing of others.740

This mispricing distorts optimal capital 

formation as it implies that some firms 

may have a cost of capital that is 

relatively too high or too low with 

respect to that firm’s fundamentals and 

risk profile. 

Additionally, academic research 

suggests that managers learn from stock 

price changes, using them as a way to 

tap into the ‘wisdom of crowds’ 

phenomena to improve decisions.741 For 

instance, if a firm announces a capital 

investment or other project, and the 

stock price moves up or down, then 

managers may use this information as a 

signal about the market’s perception of 

the value of that project. Thus, stock 

price reactions may be an input into 

manager decisions in terms of when and 

how to invest capital. To the extent that 

the rule discourages short selling, it may 

make it more difficult for managers to 

extract signals from stock prices about 

the value of capital investments— 

particularly low value projects as the 

rule may attenuate the market’s ability 

to respond to negative information. 

The costs associated with Managers 

monitoring their short positions for 

compliance with reporting Form SHO 

along with the negative economic effects 

detailed in Parts VIII.C.1, VIII.C.2, and 

VIII.C.7 may harm capital formation, 

specifically capital formation using 

convertible debt, if it increases the cost 

of short selling. Investors may be less 

inclined to purchase convertible debt if 

the cost of hedging that purchase by 

short selling the security becomes more 

expensive—through both the direct and 

indirect costs associated with Form 

SHO.742 Thus, to the extent that the 

costs associated with Form SHO 

increase the cost of short selling they 

may also increase the cost of hedging 

convertible debt and may make that 

form of financing more expensive. This 

effectively increases the weighted cost 

of capital for firms that use convertible 

debt and may hinder their ability to 

fund operations, including new 

investments. 

In contrast, adopted Rule 13f–2, Form 

SHO, and the CAT amendment may 

have a positive influence on capital 

formation if they disincentivize short 

selling that takes place in connection 

with securities fraud. For example, in 

one type of fraud, investors holding 

convertible debt would engage in a 

manipulation including short sales of a 

stock in an attempt to drive down the 

price artificially in order to convert their 

debt to equity and cover their short 

positions at a lower price. To the extent 

that the rule facilitates better oversight 

and prosecution of this sort of fraud, it 

may facilitate capital formation by 

lowering the risk that convertible debt 

holders will engage in this sort of fraud. 

More generally, to the extent that 

enhanced oversight of short sale activity 

deters manipulative activity such as 

short squeezes and associated price 

bubbles stemming from short squeezes, 

price efficiency may be enhanced, 

which in turn, could further promote 

capital formation. 

Rule 13f–2 may also affect capital 

formation through investor confidence. 

Some commenters on FINRA’s short 

interest proposal suggested that short 

selling, and in particular a lack of short 

selling disclosure, leads some investors 

to have less confidence in financial 

markets.743 One commenter, however, 

stated that, ‘‘Rule 13f–2 will not 

promote greater risk management among 

market participants, and hence, not 

bolster confidence in the markets by 

providing greater transparency,’’ 

because investors already use aggregate 

short interest data from FINRA, the 

exchanges, and data vendors for risk 

management purposes.744 As discussed 

throughout this release, the 

Commission, however, believes that the 

data from Form SHO and the 

amendment to CAT will provide 

information that is additive to these and 

other data sources and will therefore 

improve short selling transparency and 

strengthen investor confidence, which 

might increase investment activity and, 

in turn, promote capital formation. 

E. Reasonable Alternatives 

1. Alternative Approaches 

a. Releasing Aggregated CAT Data 

As an alternative to collecting, 

aggregating, and publishing Form SHO, 

the Commission considered amending 

the CAT NMS Plan to collect additional 

information so that the Commission or 

the Plan Processor could aggregate and 

publish CAT Data. This alternative 

would effectively eliminate the 

thresholds for reporting.745

CAT data currently contains a short 

sale mark and, as part of the 

implementation of the Customer 

Account Information System (CAIS), 

will also provide the identities of those 

transacting. Consequently, the 

Commission or the Plan Processor could 

aggregate information on the number of 

short sales that Managers engage in from 

CAT, assuming that the Commission or 

the Plan Processor could determine that 

a transaction is by or on behalf of a 

Manager, and disseminate aggregated 

information to the public at monthly 

intervals—or more frequently. The 

Commission or Plan Processor could 

publish daily statistics on the number of 

short sales engaged in by Managers each 

day in the prior month as reported in 

CAT. Additionally, the reports could 

include information on options 

transactions that lead to short exposure, 

such as purchasing a put option, or 

writing a call option.746 Furthermore, a 

longer time series (for example, a rolling 

year) to estimate a Manager’s position 

could be aggregated using CAT data. 

These could be aggregated to create a 

market-wide short position estimate. 

However, this estimate would be 

inaccurate because the alternative does 

not consider collecting in CAT 

information on changes in positions that 

come from activity other than secondary 

market transactions, such as secondary 

offering purchases, conversions, 

creations and redemptions, and option 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75175 

747FINRA’s process of gathering and validating 

short interest data takes approximately two weeks. 

See supra note 561. 

748This assumes the Managers that could be 

identified in CAT could include all those that 

would be responsible for reporting under Proposed 

Rule 13f–2 and Proposed Form SHO. 

749Adopted Rule 13f–2 requires reporting based 

on the settlement date, which is normally two 

business days after the transaction day. 750See SBAI Letter, at 2. 751See Proposing Release, at 15004. 

exercises and assignments. This 

inaccuracy could also result in the 

market-wide short position estimate 

being less accurate than current short 

interest data.747

The alternative would result in lower 

benefits than those from Rule 13f–2 and 

the disclosures Form SHO requires. The 

data published under this alternative 

would have significant overlap with the 

data that would be published under 

Rule 13f–2 and Form SHO. However, 

again assuming that the Commission or 

the Plan Processor could determine that 

a transaction is by or on behalf of a 

Manager, the data in this alternative 

could be more comprehensive in terms 

of the breadth of Managers whose short 

selling information could be aggregated 

and published,748 because the 

Commission could publish aggregated 

data on short selling transactions from 

all Managers instead of just those that 

meet the threshold. However, the 

published data would be less accurate 

in terms of estimating positions and 

changes in positions as they would not 

include certain activity, such as options 

assignments, that are not collected in 

CAT but that may affect a short position. 

As a result of these differences, this 

alternative would result in less clarity 

about bearish sentiment among 

Managers. Thus, in terms of price 

efficiency, this approach would not 

have many of the same benefits as 

adopted Rule 13f–2 and Form SHO. 

The alternative would also reduce the 

benefits of comparing the published 

data to short interest because the 

alternative would focus on transaction 

dates rather than settlement dates and 

the alternative would not be restricted 

to large positions.749 Short interest 

measures short positions as of two 

settlement dates per month. A 

comparison of the data in the alternative 

to the short interest data would require 

either publishing the position data as of 

the transaction dates that correspond to 

the short interest settlement dates or 

users would have to use the activity 

data to offset the dates themselves. 

Further, the inclusion of more than just 

Managers with large short positions 

means that the information conveyed by 

the alternative relative to short interest 

data would be less additive than the 

data provided that will be provided by 

adopted Rule 13f–2 and Form SHO. 

This alternative would mitigate some 

of the concerns associated with 

Managers being exposed to increased 

risk of short squeezes or other 

retaliation as discussed in Parts VIII.C.1 

and VIII.C.2. This reduced risk stems 

from the fact that it would be more 

difficult to determine whether the short 

selling activity reported was due to 

many Managers short selling small 

amounts, or just a few Managers short 

selling large amounts. It would also be 

more difficult to identify individual 

short sellers based on the data. A lower 

risk of retaliation or short squeezes may 

also mitigate some of the negative 

effects of Rule 13f–2 and Form SHO 

with regard to less overall short selling 

or fundamental research that are 

described in Part VIII.C.2, depending on 

the delay in publication under the 

alternative. 

Additionally, this approach would 

have lower compliance costs for 

Managers than the current proposal, as 

it would not require Managers to file 

Proposed Form SHO. One commenter 

agreed that releasing CAT data with 

short sale information would be less 

costly for Managers than Proposed Form 

SHO.750 While it would result in the 

same costs for Industry Member 

reporting as those associated with the 

CAT amendment, it would increase 

costs associated with the Plan Processor 

improving processing power for the 

aggregation of CAT data if such 

computations could not be performed 

with existing resources (without 

reducing other functionality). Any costs 

incurred by the Plan Processor would be 

passed along to Plan Participants and 

Industry Members. 

There are several drawbacks to this 

alternative relative to the existing 

proposal. First, it would take some time 

before CAT data could be used to 

develop an estimate of the size of short 

positions. Thus, the data would not 

immediately provide the Commission or 

market participants with information 

about the size of individual large short 

positions. Consequently, to the extent 

that knowing the total size of short 

positions held by Managers with large 

positions conveys fundamental 

information to the market, then this 

fundamental information would not be 

immediately available if the 

Commission were to adopt a version of 

this alternative. Additionally, the data 

provided by this alternative would 

exclude transactions outside of the 

purview of CAT that may affect short 

positions. Thus, the data provided 

under this alternative would always be 

estimates of total short positions, which 

could be inaccurate for some Managers. 

Another drawback to this alternative is 

that releasing CAT data to the public 

could increase security risks. CAT 

contains highly sensitive information 

and creating a process that would 

release portions of the data, even if 

aggregated, could present risks. 

A larger expansion of CAT could 

achieve at least the same data value as 

in Rule 13f–2 and Form SHO.751 For 

example, CAT could expand to require 

the reporting of all the information that 

will be collected in adopted Form SHO. 

Specifically, the Commission could 

expand CAT to include data on account 

positions, including short selling 

positions associated with those 

positions. In addition, CAT could be 

expanded to capture information on 

changes in those positions. Under this 

approach, regulators would have access 

to the same data as if Managers filed 

Form SHO but for all short sellers, not 

only the subset of Managers reporting 

on Form SHO. This approach would 

also result in additional information 

available to regulators not collected in 

Form SHO that could improve investor 

protections. In addition, this alternative 

would reduce costs for Managers who 

are not Industry Members because they 

would not be required to report new 

information. However, costs would 

increase for Industry Members, who 

would have to report a significant 

amount of new information on CAT 

report types that do not exist today and 

for Participants who would have to 

work out technical specifications and 

implement changes for new types of 

CAT reports. Further, more Industry 

Members would report this information 

to CAT than Managers who, under the 

final rule, would be required to report 

information on Form SHO. It would be 

a major undertaking for both the Plan 

Processor and industry participants to 

build out and adapt systems to collect, 

process, and publish this information. 

This implementation would likely be 

very complex and take a significant 

amount of time to compile. Overall, the 

cost of this alternative is likely to 

exceed the costs of adopted Rule 13f–2 

and Form SHO. 

Further, if the Commission were to 

expand CAT to collect additional 

information beyond what would be 

captured by the amendment to CAT, 

such as position information, then these 

additional expansions would impose 

significant direct costs to CAT-reporting 

firms. 


ddrumheller on DSK120RN23PROD with RULES2
75176 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

752See Proposing Release, at 15004. 

753See, e.g., AIMA Letter, at 8; ICI Letter, at 51; 

Ropes & Gray Letter, at 4; Two Sigma Letter, at 9. 

754See Proposing Release, at 15004. 

755Analysis of Form SH data indicates that these 

data, which would be a subset of the data collected 

in this alternative, amounted to a high percentage 

of short interest. Commenters questioned the use of 

Form SH data in this and other contexts. See supra 

Box 1: Use of Form SH Data for responses to 

comments on the use of these data. 

756See Proposing Release, at 15004. 

757The latter could result in the additional 

complication of double reporting or prime brokers 

having to coordinate on who reports a position. 

Likely, the least costly solution could involve 

Managers being responsible for informing their 

prime brokers of their threshold status. 

758See Proposing Release, at 15005. 759See European Parliament and Council 

Regulation 236/2012, 2012 O.J. (L 86) 1, available 

at https://eur-lex.europa.eu/LexUriServ/

LexUriServ.do?uri=OJ:L:2012:086:0001:0024:

en:PDF. The SSR was adopted on Mar. 14, 2012 and 

its provisions had applicability dates of Mar. 25 and 

Nov. 1, 2012. 760 Id. at Article 5(2). 761The threshold was temporarily lowered in 

Mar. 2020 in response to the COVID–19 pandemic. 

See ESMA Decision of 16 Mar. 2020, ESMA 70– 

155–9546, available at https://www.esma.

europa.eu/sites/default/files/library/esma70-155- 

9546_esma_decision_-_article_28_ssr_reporting_

threshold.pdf. In September 2021, the change was 

adopted on a permanent basis. See European Union, 

Commission Delegated Regulation 2022/27, art. 1, 

2022 O.J. (L 6) 9, available at https://eurlex.europa.eu/legal-content/EN/TXT/HTML/

?uri=CELEX:32022R0027. 

a. FINRA Reporting 

As discussed in Part VIII.C.4.i, FINRA 

already collects and, together with the 

listing exchanges, disseminates 

aggregate short interest that it collects 

from member broker-dealers. 

Consequently, the Commission could 

codify FINRA’s existing process to 

ensure that it continues in perpetuity.752

This alternative would have no 

additional costs to market participants 

but would substitute a Commission 

mandate for the publication of the short 

interest data. Several commenters 

expressed support for the use of FINRA 

to satisfy DFA requirements in lieu of 

Rule 13f–2 and Form SHO.753 The 

commenters’ support is motivated by 

familiarity with current FINRA short 

reporting requirements and costs that 

would not be incurred to comply with 

Rule 13f–2 and Form SHO. 

Similarly, the Commission could 

require FINRA to publish a version of its 

short interest information that 

specifically identifies the aggregate 

short interest of Managers—separate 

from other short interest.754 To 

accomplish this, reporting brokerdealers would separately include in 

their reports to FINRA the short 

positions that originate from Managers. 

FINRA would then compile both total 

short interest, as it currently does, as 

well as a Manager specific short interest. 

Because broker-dealers already have 

experience reporting short interest data 

to FINRA and would thus not need to 

build out new systems to report the 

data, this alternative might have been 

less expensive than the existing 

proposal as it would have only required 

a modification of an existing process. 

Since this alternative would not have 

provided the Commission with the 

positions of any identified Managers or 

any Manager-specific activity data, the 

benefits and risks associated with these 

data articulated throughout Part VIII.D 

would decline. In addition, it would not 

have distinguished Managers with large 

positions from other Managers. 

Therefore, neither market participants 

nor regulators would know what share 

of short interest was concentrated 

among Managers with large positions. 

As discussed above in Part VIII.C.1, 

Managers often accumulate large short 

sale positions based on fundamental 

market research or other factors that 

differ from investors with smaller 

positions, the latter of which are more 

likely shorting for hedging or smallerscale speculative purposes. Therefore, 

this alternative would have provided 

less transparency into the short sale 

market relative to the Rule 13f–2 and 

Form SHO because it would not have 

revealed the degree to which short 

interest was concentrated among 

Managers with large positions. 

The Commission also expects that 

data on Manager short interest in 

addition to total short interest would 

have likely not provided much 

incremental value over the existing 

short interest data due to the likely 

significant overlap of the short positions 

of Managers and total short interest, and 

the absence of activity information to 

better understand changes in short 

interest.755 Thus, while the alternative 

that requires FINRA to produce separate 

short interest data for Managers would 

have reduced costs to market 

participants relative to the existing 

proposal, it also might not have 

provided the market or regulators a 

significant incremental benefit relative 

to existing short selling data. 

b. Broker-Dealer Reporting to EDGAR on 

Behalf of Managers 

The Commission could adopt a 

modified rule that allows broker-dealers 

to file Form SHO reports with the 

Commission on behalf of Managers.756

This alternative might reduce costs as it 

could concentrate reporting with brokerdealers that have significant experience 

collecting and providing such 

information—increasing operational 

efficiency. On the other hand, Managers 

may use multiple prime brokers and 

thus the reporting prime broker may not 

have easy access to information about 

all such Manager’s positions and 

activity in a security. Consequently, the 

reporting prime broker may not know 

whether the sum of the manager’s 

positions exceeds either of the 

thresholds and thus whether reporting 

is necessary. Thus, the reporting broker 

would need to gather additional 

information from the Manager about 

activity associated with other prime 

broker(s).757 In the absence of such 

information gathering, the reporting 

broker may mistakenly not report Form 

SHO for a Manager whose position with 

that particular reporting broker is under 

the threshold, but over the threshold 

when positions across brokers are 

combined. Requiring additional data 

collection of a Manager’s short positions 

by the reporting broker might increase 

complexity and costs as Managers and 

broker-dealers would need to develop 

systems by which a Manager provides 

information to its reporting broker about 

its activity with other prime brokers. 

Alternatively, the Commission could 

permit broker-dealers to report on behalf 

of Managers only if the broker-dealer 

could report full information. Thus, 

Managers using multiple prime brokers 

would have the option of providing 

comprehensive information to their 

reporting prime broker, or they could 

report Proposed Form SHO data 

themselves. 

c. Harmonization With European 

Disclosure Requirements 

The Commission could also craft Rule 

13f–2 and Form SHO to be consistent 

with European disclosure 

requirements.758 In 2012, the European 

Parliament and the Council of the 

European Union adopted regulations on 

short selling (the ‘‘SSR’’) that 

standardized the reporting threshold for 

all EU member states.759 Under the SSR, 

a natural or legal person holding a short 

position is required to report to the 

relevant regulator when its short 

position (‘‘net short position’’), 

computed by taking into account 

relevant derivative positions such as 

options, if any, reaches the initial 

threshold of 0.2 percent of the issued 

share capital of the company, and in 0.1 

percent up and down increments 

thereafter.760 The threshold for 

reporting to a regulator recently was 

lowered to 0.1 percent.761 If the net 

short position reaches 0.5 percent of the 

share capital of the company, then the 

relevant market regulator reports the net 

short position to the public with the 

identity of the short seller revealed. 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75177 

762 Id. at Article 9(2). 

763 Id. at Article 9(4). 

764For Managers operating in both the EU and the 

US, these costs may be lower. 

765 Due to uncertainties regarding the EU short 

selling data regarding the identities of short sellers 

and the ability to map those IDs to US Managers, 

the Commission cannot identify the number of US 

Managers that currently comply with EU 

regulations. 

766See supra note 263. 

767For analyses of how the SSR lead to increased 

copycat trading, lower price efficiency, and 

increased volatility, see Stephan Jank, Christoph 

Roling, and Esad Smajlbegovic, Flying Under the 

Radar: The Effects of Short-Sale Disclosure Rules on 

Investor Behavior and Stock Prices, 139 (1) J. of Fin. 

Econ. 209–233 (2021); Charles M. Jones, Adam V. 

Reed, and William Waller, Revealing Shorts an 

Examination of Large Short Position Disclosures, 29 

(12) The Rev. of Fin. Studies 3278–3320 (2016). 

768See Better Markets Letter, at 13. 

769See Charles M. Jones, Adam V. Reed, and 

William Waller, Revealing Shorts an Examination of 

Large Short. Position Disclosures, 29 Rev. of Fin. 

Studies 3278, 3282 (2016). 

770See Stephan Jank, Christoph Roling, and Esad 

Smajlbegovic, Flying Under the Radar: The Effects 

of Short-Sale Disclosure Rules on Investor Behavior 

and Stock Prices, 139 (1) J. of Fin. Econ. 209–233 

(2021); Mazzacurati, Julien, The Public Disclosure 

of Net Short Positions, European Securities and 

Markets Authority (ESMA), Trends, Risks, 

Vulnerabilities (TRV) Report No. 1, 2018. 

771This comparison, however, would be different 

than that of comparing Form SHO data to short 

interest data. 

772See HSBC Letter 2, at 3. 

New filings are required to be made 

whenever the net short position 

increases or decreases by 0.1 percent of 

the share capital of the company. In the 

EU, trading entities must submit their 

data to the relevant regulator by 3:30 

p.m. on the following trading day.762

Trading entities accomplish public 

disclosure via a central website operated 

or supervised by the relevant competent 

authority.763

Consequently, the Commission could 

structure the rule to require Manager 

short selling reports that are consistent 

with the European regulations in terms 

of the thresholds for reporting, the 

computation of the threshold, the items 

reported, the timing for when short sale 

information is made public, and the 

timing for when new reports have to be 

issued. This alternative would provide 

directional information about short 

positions because only net short 

positions are required to be reported; 

would likely impose lower compliance 

costs to Managers; 764 would likely raise 

the risk of abusive practices towards 

short sellers; would likely increase 

Managers’ ability to evade the threshold; 

and would lower the detail of the data 

the Commission receives relative to the 

data from adopted Form SHO. 

One advantage of this alternative 

would be likely lower compliance costs 

for Managers that engage in short selling 

in both the EU and US.765 By only 

needing one set of compliance systems 

in place to satisfy both rules, Managers 

might enjoy lower costs to comply in 

both systems. Additionally, Managers 

might face lower costs to track and 

report net short positions. Moreover, in 

connection with Regulation SHO 

compliance, some Managers already 

track net positions on an aggregation 

unit basis.766 Thus, the computation of 

net positions for such Managers might 

be less costly than that of gross short 

positions as required by Rule 13f–2. 

However, for other Managers who are 

not currently aggregating positions on a 

net basis, costs of tracking may be 

higher under this alternative than under 

Rule 13f–2. 

This alternative also could have some 

negative consequences. The EU data are 

timelier than data available under 

adopted Rule 13f–2, since the forms are 

posted publicly immediately after 

receipt by the regulator, which 

potentially facilitates greater price 

discovery. However, this comes at the 

cost of increasing the possibility of 

revealing short sellers’ proprietary 

information and its associated risks, 

including short squeezes and copycat 

trading. Additionally, the EU structure, 

whereby individual short sellers’ names 

are made public, might raise the risk of 

retaliation towards short individual 

sellers, as well as the ability for market 

participants to engage in copycat 

strategies that decrease the profitability 

of gathering information. As a result of 

these costs to short sellers, investors 

may not be able to gather as much 

fundamental information as under the 

final rule.767 One commenter,768

however, stated that a recent study has 

found that the EU’s regulation finds no 

evidence that the disclosure 

requirements have resulted in increased 

coordination or have resulted in short 

sellers being targeted for short 

squeezes.769

Another potential consequence of this 

alternative would be adjusting position 

sizes to evade the Reporting Threshold. 

Multiple studies found evidence that 

short sales in the EU are clustered below 

the threshold, suggesting that investors 

are trying to conceal their positions to 

protect their underlying investment 

strategies.770 Thus, short sellers may 

adjust their positions to either increase 

their long exposure or reduce their short 

exposure, leading to loss of price 

efficiency. The Commission believes 

that since there are benefits to short sale 

activity, including increased price 

efficiency, then there would likely be 

increased costs to disclosing manager 

identities, since this would reduce short 

sale activity. 

By reporting net short positions, 

rather than gross short position, the 

Commission and the public would not 

receive information about large, but 

hedged, short positions. For instance, 

the alternative would allow 771 a 

comparison of total short interest with 

reported large hedged short positions, 

which might provide additional 

information to the market about the 

activities of large, though perhaps noninformation based, traders. While 

hedged short positions are less likely to 

be manipulative in nature, or to pose 

systemic risk, large short positions are 

still potential sources of systemic risk. 

One commenter stated that using 

thresholds based on net short positions 

would allow market makers that carry 

large gross short positions for market 

making purposes rather than directional 

trading strategies to avoid having to 

submit Form SHO and incur its 

associated costs. According to the 

commenter, since net positions of 

market makers tend to be close to zero, 

including market maker gross positions 

in the public release of Rule 13f–2 data 

could be misleading to market 

participants (assuming that those market 

participants did not understand what 

data Rule 13f–2 will and will not 

provide).772 The Commission believes, 

however, that market makers will rarely 

if ever be required to report their short 

positions because the dollar-value 

threshold of Rule 13f–2 was increased 

from the proposal’s $10 million on a 

single trading day to a $10 million daily 

average over the course of a month. It 

is the Commission’s understanding that 

markets makers are highly unlikely to 

hold a gross short position averaging 

$10 million over the course of trading 

month. 

A reporting requirement for only net 

short positions would reduce the value 

of Rule 13f–2 data for use in 

reconstructing market events. For 

instance, during the recent meme stock 

phenomenon, for certain stocks it 

became difficult to hedge options 

transactions using the underlying 

security due to the significant price 

changes in the spot market. 

Consequently, positions that were 

previously judged to have been hedged, 

and thus low risk, may no longer have 

been hedged. In addition, large short 

positions with hedges that have been 

significantly weakened or broken due to 

unforeseen extreme market events, may 

have become systemically important. In 

such cases, it would be useful for the 

Commission to have information on 

large short positions, regardless of 

perceived net short position, in order to 


ddrumheller on DSK120RN23PROD with RULES2
75178 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

773See Proposing Release, at 15005. 774See supra Part VIII.F.1.iv. 

775 Issuers have been known to hire private 

investigators to try and uncover the identities of 

short sellers when they learn that their stock is 

being targeted by short sellers. See supra note 622. 

Additionally, researchers have used algorithms to 

unmask the identities of individuals from masked 

data released to the public by the SEC. See Huaizhi 

Chen, Lauren Cohen, Umit Gurun, Dong Lou, and 

Christopher Malloy, IQ from IP: Simplifying Search 

in Portfolio Choice, 138 (1) J. of Fin. Econ. 118–137 

(2020). While the Commission could design this 

alternative to avoid the specific vulnerabilities 

exploited by Chen et al (2020) it is possible that 

motivated researchers and market participants 

could find some other unforeseen way to link the 

public data to individual short sellers. 

776See Proposing Release, at 14963 for more 

information on methodologies and caveats for using 

Form SH data. See also supra Box 1: Use of Form 

SH Data for responses to comments on the use of 

these data. 

aid in the reconstruction of market 

events. This is a loss of value compared 

to adopted Rule 13f–2 and Form SHO, 

which are triggered by large gross short 

positions. 

Further, the EU regulations provide 

activity data if positions change by 0.1 

percent or more. Thus, market 

participants could only learn about 

measured positions changes, rather than 

position changes of all sizes. As an 

example, there may be times where the 

public may be interested in seeing the 

reaction to a corporate announcement, 

but this may be limited if Managers do 

not adjust short positions above the 0.1 

percent threshold to trigger reporting. 

2. Data Modifications 

a. Release Proposed Form SHO Data in 

Alternative Formats 

The Commission could release the 

information included in Form SHO in a 

different manner. This alternative could 

take one of several forms.773 For 

example, the Commission could release 

each Form SHO report to the public 

exactly as it is filed, identifying the 

Managers. The Commission could also 

release the Forms as filed, but with the 

identities of the filers removed. The 

Commission could also release the 

aggregated data as in the current 

proposal, but it could publish the data 

in different ways in the aggregated Form 

SHO report, such as publishing the 

number of entities underlying the 

aggregated data or publishing increases 

in short positions separate from 

decreases. 

In the first alternative, the 

Commission could release Form SHO as 

filed, allowing all market participants to 

see the identities of short sellers— 

similar to the EU regulation discussed 

above. This would increase the 

information that market participants 

have to evaluate sentiment on particular 

equities in the market. In particular, for 

some market participants, this 

information would also allow market 

participants to better manage risk by 

allowing them to manage their exposure 

to Managers with large short positions. 

There are also potential costs to this 

alternative. One potential result from 

this alternative is that if a short seller is 

viewed as sophisticated and informed, 

then releasing identifying information 

would likely spur copy-cat trading 

strategies. This outcome has been 

documented with respect to the EU 

regulation and suggests that revealing 

the identities of the short sellers may 

diminish the value of becoming 

informed.774 In addition, the detailed 

information on daily short activity 

could reveal not just market sentiment, 

but trading strategies of individual 

Managers. Additionally, releasing the 

names of large short sellers would 

further increase the likelihood that the 

short seller would be the victim of a 

short squeeze or other retaliatory actions 

as described in Part VIII.C.1. 

Similarly, the Commission could 

publicly release individual Form SHO 

filings with identification information 

removed from the released data. This 

alternative would provide market 

participants a clearer view into the 

activities of large short sellers, 

potentially improving their ability to 

learn from the actions of large short 

sellers relative to the current proposal. 

For instance, the data would allow 

market participants to know whether 

short sentiment was broadly held—as 

would be indicated by many filings—or 

concentrated—as would be indicated by 

few filings. This information could 

potentially improve the market 

assessment of bearish sentiment relative 

to Rule 13f–2, improving price 

efficiency. 

However, the indirect costs of this 

alternative would be greater than for 

Rule 13f–2 and Form SHO. Releasing all 

the information from Proposed Form 

SHO could reveal trading strategies that 

would be costly even if the identities of 

the short sellers remained anonymous. 

For example, releasing this information, 

even without naming the short sellers, 

might increase the risk of copycat 

trading which reduces the profits of 

acquiring information. It might also 

provide information about how 

vulnerable short sellers may be to a 

short squeeze as it could give a signal 

about whether a short seller has a large 

and potentially vulnerable short 

position. In this case, the negative 

effects of the rule on the value of 

collecting information and of short 

selling in general would be greater than 

under the final rule, leading to less price 

efficiency and potentially more 

volatility. Additionally, even though the 

data could be released anonymously, it 

is not clear that in all cases the 

identities of the individual short sellers 

would remain anonymous.775 If market 

participants were able to uncover the 

identities of individual short sellers, 

then the risk of retaliation or short 

squeezes would increase relative to Rule 

13f–2 and Form SHO. 

Alternatively, the Commission could 

release the data as specified in the 

current proposal but also include the 

number of entities whose Form SHO 

reports were collected. This information 

would provide the market with 

additional detail about whether short 

sentiment was broadly held by multiple 

Managers, or narrowly held by just one 

or a few. This information could be 

useful as market participants assess 

bearish sentiment in the market and 

adjust their actions accordingly. 

However, adding this information might 

also increase the risk of short squeezes 

or other retaliatory actions in the case 

where there are very few reporters of 

Form SHO. In the Form SH data 

collected under temporary Rule 10a–3T, 

32 percent of stocks had only one 

Manager reporting a position per 

month.776 Such a situation could signal 

to market participants that one, or a few, 

short sellers have large short positions 

that could potentially be vulnerable to 

a short squeeze. 

Similarly, the Commission could 

collect Form SHO data but publicly 

release the daily aggregate increases 

separately from the daily aggregate 

decreases in short positions as opposed 

to daily net changes to short positions 

as adopted in Form SHO. This approach 

would provide the public more detailed 

information and understanding on what 

drives changes to short positions. 

However, separating daily aggregate 

increase from decreases in short 

positions could increase the risk of 

revealing trading strategies, which could 

disincentivize short selling and harm 

market quality. 

b. Collect Data on Derivatives Positions 

Investors can use derivatives to take 

an economically short position in a 

security. For example, an investor with 

a bearish view of a stock can purchase 

a put option in that stock. Consequently, 

for a more complete view of the total 

economic short position that a Manager 

has taken, the Commission could 

require Managers who report adopted 

Form SHO to also disclose their 

derivatives positions on underlying 

equity securities such as options and 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75179 

777See Proposing Release, at 15006. 

778One commenter argued including derivatives 

for Rule 13f–2 would give a more complete picture 

of Managers’ positions. See NASDAQ Letter, at 3. 

779See MFA Letter, at 12. 

780Such as a Manager exercising a call option to 

buy equity, and thus decreasing the Manager’s gross 

short position, if any. 

781See Proposing Release, at 15007. 

782Furthermore, in response to a solicitation of 

comments on Temporary Rule 10a–3T, commenters 

suggested thresholds generally ranging from 1% to 

5%. See Proposing Release, at 14963 n.79 for links 

to specific comment letters. 

783Commenters questioned the use of Form SH 

data in this and other contexts. See supra Box 1: 

Use of Form SH Data for responses to comments on 

the use of these data. 

784See Better Markets Letter, at 12. 

785See supra Part VIII.F.1.iv for discussion of this 

behavior in Europe. 

786See supra Part VIII.C.1 and Part VIII.E.1 with 

accompanying text for more information on risks of 

identifying individual short sellers. 

787According to Form SH data, 39% of securities 

would have only one Manager reporting at or above 

the threshold of $10 million average daily and 2.5% 

average daily of shares outstanding. If the percent 

threshold was reduced to 1% average daily of 

shares outstanding along with the $10 million 

average daily threshold the number of securities 

with only one Manager reporting would increase to 

41%. 

total-return swaps as an alternative to 

Form SHO as adopted, which does not 

directly collect information on 

derivatives.777 This alternative refers 

only to options and other derivative 

securities for which their transactions 

do not fit the definition of a short sale 

under Rule 200(a) of Reg SHO. 

Requiring this data would provide a 

more complete view of the economic 

short position that a Manager engaging 

in a large short sale has taken.778

Consequently, the information would 

aid market participants in gauging 

bearish sentiment in a security relative 

to Rule 13f–2 and Form SHO, as 

adopted. This information may also 

help the Commission to better evaluate 

potentially risky short positions and 

respond more quickly in the case of a 

market event. The Commission could 

also better reconstruct market events, 

such as the recent meme stock events in 

January 2021, with options positions 

data. 

Requiring options data to be reported 

on Form SHO would increase the 

compliance costs to Managers of 

reporting on Proposed Form SHO. One 

commenter stated that the inclusion of 

derivatives, warrants, convertible debt, 

and ETFs would be costly.779 Adopted 

Rule 13f–2 will compel Managers to 

track their gross short positions in 

individual equities in a month. Tracking 

of ETFs for the purposes of adopted 

Rule 13f–2 is the same as tracking any 

equity security with the exception of 

tracking shares outstanding, which 

might be marginally more costly. 

Additionally, securities that may be 

used to change a gross short position, 

such as options or convertible debt, are 

unaffected by Rule 13f–2 unless they are 

used in a manner that changes gross 

short position in an equity security.780

The alternative discussed here would 

require explicit tracking and reporting 

of such securities. 

While Managers generally track their 

options exposure carefully, it is 

frequently different trading desks that 

execute options trades and equity 

transactions. Thus, it is possible that 

Managers use separate systems to track 

their options and equity positions. For 

these Managers, collecting options and 

equity transactions to report the data 

required for Proposed Form SHO would 

require building a process to pull data 

from two separate systems—increasing 

the cost of complying with the rule. 

Requiring derivative position 

information might also be duplicative of 

other derivatives reporting 

requirements. 

3. Threshold Modifications 

As an alternative to the adopted Form 

SHO Thresholds, the Commission could 

require reporting Form SHO at either 

higher or lower thresholds—or no 

threshold.781 Commenters to the 

Proposal Release expressed a range of 

opinions on the thresholds, some of 

whom supported increasing the 

thresholds and others decreasing the 

thresholds relative to Proposed Form 

SHO.782 When selecting thresholds, the 

fundamental economic tradeoff is the 

value of the data versus the cost of 

collecting the data. Alternative 

thresholds that are lower than 

Threshold A or Threshold B specified in 

Rule 13f–2 or an alternative that would 

not contain a threshold would produce 

more data as more entities would be 

required to report. 

Commission analysis of Form SH data 

collected under temporary Rule 10a–3T 

indicates that the gross short position 

thresholds in adopted Form SHO for 

Threshold A, equal to daily averages of 

$10 million or 2.5 percent of shares 

outstanding, would have collected more 

than three-quarters (78.5 percent) of the 

dollar value of short positions.783

Therefore, an alternative that lowers the 

threshold might lead to only a minor 

increase in coverage relative to the 

adopted thresholds in Form SHO. 

Nevertheless, the Commission 

recognizes that even a relatively small 

increase in coverage could increase 

benefits. For example, such an 

alternative would provide market 

participants with a clearer view of 

Manager bearish sentiment compared to 

adopted rule and form, as more 

Managers would be required to report 

the data, making the data more 

comprehensive. 

A lower threshold would also 

enhance Commission oversight of short 

selling and allow the Commission to 

more easily reconstruct significant 

market events involving short selling— 

again because the data would be more 

comprehensive. One commenter stated 

that reducing or eliminating the 

reporting thresholds to Form SHO 

would provide additional benefits, since 

unknown, hidden short positions pose 

risks to investors and the markets. 

Reducing or eliminating reporting 

thresholds would reveal the identity of 

all holders of short sale positions, 

thereby reducing these risks.784

However, a lower or no threshold 

would increase the cost of reporting 

Form SHO data in terms of compliance 

costs associated with Managers 

compiling and filing the required data 

thorough EDGAR and in the indirect 

costs associated with revealing short 

sellers’ information. Evidence of this 

increase in aggregate reporting costs can 

be seen through an analysis of Form SH 

data. For example, if the reporting 

thresholds of adopted Form SHO were 

reduced from average daily gross 

position of 10 million or 2.5 percent of 

shares outstanding to $5 million or 1 

percent of shares outstanding, the 

number of reporting Managers would 

rise from 252 to 314. Furthermore, the 

increase in the share of gross short sale 

dollar volume covered by reporting 

Managers would rise from 78.5 percent 

to 88.6 percent. In addition, Managers 

would likely be required to file reports 

for more securities, which would further 

increase compliance costs. Indirect costs 

include increased risk of copycat short 

selling strategies, which can lead to 

herding and increased volatility, and 

short sellers engaging in strategic 

behavior to build short positions just 

underneath the threshold, which would 

lead to lower price efficiency.785

In some cases, a lower threshold 

would decrease the indirect costs 

associated with adopted rule because it 

would be harder to identify individual 

short positions from aggregate reporting 

if there are many entities reporting.786

This effect may not be universally true, 

however. In particular, at thresholds just 

below Threshold A, the number of 

securities in which only one entity 

reported Form SH increases.787 This 

result implies that there are a number of 

securities for which only one short 

seller held a short position at a level 

lower than the current cutoff. In these 


ddrumheller on DSK120RN23PROD with RULES2
75180 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

788See Proposing Release, at 14963 for more 

information on methodologies and caveats for using 

Form SH data. 

789See supra note 120 and associated discussion. 

790See Proposing Release, at Table II (analysis 

within table). 

791See Proposing Release, at 15008 for discussion 

of this alternative with the $10 million threshold as 

proposed, not as adopted. 

792See MFA Letter, at 13 793See Proposing Release, at 15008. 794See ICI Letter, at 9. 795Short positions in stocks with market 

capitalizations below $400 million will trigger the 

2.5% threshold before they trigger the $10 million 

threshold. 

cases, lowering the threshold might 

increase the risk of identifying 

individual short sellers. 

In contrast, alternatives that would 

raise the reporting threshold would 

lower many of the costs associated with 

providing Form SHO data, since fewer 

entities would be required to report. It 

would also limit somewhat the value of 

the data—again as the reported data 

would reflect a smaller portion of 

overall short positions. One means of 

increasing the threshold would be to 

require that both thresholds in 

Threshold A (i.e., both daily averages of 

$10 million and 2.5 percent of shares 

outstanding) be reached before a 

Manager is required to file, instead of 

either threshold. Another alternative 

would be to increase one or both of 

thresholds in Threshold A but continue 

to require only one of them be reached 

before a Manager is required to file 

Form SHO. This decline in aggregate 

reporting costs can be seen with an 

analysis of Form SH data, which show 

that increasing the Form SHO daily 

average thresholds from 2.5 percent and 

$10 million to 5 percent and $25 million 

would reduce the number of reporting 

Managers from 252 to 165. In addition, 

it would reduce the percentage of short 

sale dollar volume covered by reporting 

Managers from 78.5 percent to 58.4 

percent. 

Higher thresholds, however, might 

also come with increased risk of 

identification and retaliation towards 

short sellers because at some point the 

likelihood that more than one investor 

holds a very large short position 

diminishes. For example, according to 

analysis of Form SH data, if the Form 

SHO thresholds rose from an average 

daily position of $10 million or 2.5 

percent of share outstanding to $25 

million or 5 percent of shares 

outstanding, the share of reported 

securities with only one Manager would 

rise from 39.3 percent to 48.4 

percent.788

Another alternative would be to raise 

the percent threshold from 2.5 percent 

to 5 percent, as suggested by one 

commenter,789 without altering the $10 

million threshold. Commission analysis 

of Form SH data indicates that this 

would only reduce the number of 

reporting Managers from 252 to 247. 

However, further analysis reveals that 

there could be a substantial loss of 

transparency into stocks with less than 

a $400 million market capitalization. 

Since stocks with market caps 

exceeding $400 million will always 

trigger the $10 million threshold before 

the 2.5 percent trigger (2.5 percent of 

$400 million = $10 million), raising the 

2.5 percent to 5 percent will not impact 

the number of large positions reported 

in stocks with market caps exceeding 

$400 million. However, stocks with 

market caps under $400 million will 

always trigger the 2.5 percent threshold 

before the $10 million threshold. Thus, 

raising the 2.5 percent threshold to 5 

percent without altering the $10 million 

threshold would result in fewer smaller 

stock positions being reported. 

Furthermore, analysis of Form SH data 

indicates that for stocks that are 

specifically sensitive to the 2.5 percent 

threshold (i.e., stocks in which all 

reportable short sale positions are under 

$10 million and therefore only trigger 

the 2.5 percent threshold), raising the 

threshold to 5 percent would reduce the 

number of reportable stocks from 131 to 

30, a decline of about 77 percent. Thus, 

Form SH data analysis indicates that 

while raising the threshold from 2.5 

percent to 5 percent might only result in 

a small reduction in the number of 

reporting Managers, it could 

nevertheless lead to a significant loss of 

transparency in small stocks (stocks 

with market capitalizations under $400 

million). 

For securities subject to Threshold B, 

the economic impact of either raising or 

lowering the dollar threshold would be 

similar. Raising the threshold would 

lower compliance costs but also the 

quality of the data, while lowering the 

threshold would do the opposite. For 

example, if the Commission raised 

Threshold B from $500,000 to $10 

million, then under the assumption of 

one manager short selling each 

Threshold B security, the total number 

of short positions captured for 

Threshold B securities would decrease 

from 23.72 percent to 8.76 percent.790

Similarly, under the same assumptions, 

lowering the threshold to $50,000 

would increase the number of short 

positions captured to 48.08 percent. 

As another alternative to the proposed 

Threshold A, the Commission could 

establish a threshold based on one 

rather than both of the thresholds in 

Rule 13f–2, i.e., either the average daily 

dollar short position or the percent of 

shares outstanding.791 The advantage of 

this alternative is that it might reduce 

compliance costs by simplifying 

reporting requirements. One commenter 

stated that the two-prong threshold for 

reporting companies was, ‘‘overly and 

unnecessarily complex.’’ 792 In addition, 

the commenter said that using a 

percentage-based threshold was more 

costly to Managers, in part because it 

can be burdensome to obtain data on 

shares outstanding, which serves as the 

denominator in the calculation of the 

percentage-based threshold.793 Another 

commenter, however, stated that, 

relative to percentage-based threshold, 

‘‘compliance with a dollar value 

threshold typically requires significant 

manual processes and more difficult 

system buildouts.’’ 794 The Commission 

acknowledges that a dollar-value 

threshold might be somewhat less 

complicated for some Managers, but 

nevertheless believes that data tracking 

the number of shares outstanding are 

generally readily available, and that it is 

straightforward to calculate an average 

daily gross short position as a 

percentage of outstanding shares. 

The Commission also acknowledges 

that using a single threshold for 

Threshold A would lower compliance 

costs, primarily because fewer entities 

would be required to report. However, 

choosing which of the two thresholds to 

drop would impact which positions are 

more likely to trigger the remaining 

threshold. For example, an alternative 

that retained only the $10 million daily 

average threshold would decrease the 

likelihood of small cap positions being 

reported, since these firms reach the 2.5 

percent threshold before the $10 million 

threshold.795 Smaller market 

capitalization stocks tend to be easier to 

manipulate and less stable. Thus, an 

alternative that excludes the 2.5 percent 

threshold would result in less visibility 

into the actions of short sellers among 

smaller market capitalization stocks and 

may undermine the ability of Rule 13f– 

2 to reduce manipulative behavior 

among these stocks, as articulated in 

Part VIII.C.1. 

Commission analysis of Form SH data 

suggest that an alternative that includes 

only the 2.5 percent threshold would 

result in a substantial reduction in the 

number of reporting Managers relative 

to the two-prong threshold in adopted 

Rule 13f–2. More specifically, switching 

from the adopted Form SHO thresholds 

of $10 million daily average or 2.5 

percent of shares outstanding to a single 

prong threshold of 2.5 percent would 

cause the number of reporting Managers 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75181 

796See ICI Letter at 9. 

797See, e.g., Carole Comerton-Forde & Ta ̄lis J. 

Putnin ̧sˇ, Stock Price Manipulation: Prevalence and 

Determinants, 18:1 Rev. of Fin. 23–66 (2014), 

available at https://doi.org/10.1093/rof/rfs040 (for 

evidence on small and less liquid stocks higher 

exposure to manipulative behavior by investors). 

See also discussion in supra Part VIII.C.1. 

798See Proposing Release, at 15008 (discussing 

this alternative with the $10 million threshold as 

proposed, not as adopted). 

799See supra Part VIII.C.8. 

800See supra Part VIII.C.1 for further discussion 

on strategic trading around the threshold and how 

the rule is designed to reduce it. 

801See Proposing Release, at 15009. 

802 In particular, because such an analysis would 

not involve estimating a position for the Manager, 

the limitations of CAT are less important. 803See Proposing Release, at 15009 (discussing 

this alternative with the $10 million threshold as 

proposed, not as adopted). 

under Form SH to fall from 252 to 115. 

Furthermore, it would drastically 

reduce the share of covered short sale 

volume of reporting Managers from 78.5 

percent to 16 percent. One commenter 

stated that excluding the dollar-based 

threshold and solely using a threshold 

of 5 percent or more, ‘‘. . . would allow 

the Commission to achieve its objectives 

without imposing unnecessary 

complexity on advisers and other 

reporting Managers.’’ 796 Form SH data, 

however, indicate that this would 

reduce the number of reporting 

Managers from 252 to 55 and the share 

of covered short sale volume from 78.5 

percent to 9 percent. 

More generally, the alternative of 

requiring a threshold based only on 

short positions as a percent of shares 

outstanding would largely eliminate 

reporting in larger securities. Note that 

for stocks with market capitalization 

above $400 million, short sellers reach 

the $10 million threshold before the 2.5 

percent threshold. Furthermore, for 

large cap stocks, generally defined as 

having a market capitalization 

exceeding $10 billion, short position 

would have to be more than $250 

million in order to trigger the 2.5 

percent threshold. Consequently, an 

alternative in which the Commission 

required reporting based only on the 

percent of shares outstanding would 

result in fewer Form SHO reports for 

stocks with larger market 

capitalizations. Less visibility into the 

actions of short sellers in larger market 

capitalization stocks would provide less 

information about bearish sentiment in 

the economy. This is because larger 

market capitalization stocks, which are 

more well-established than small cap 

stocks, are more likely to be shorted due 

to general pessimism about the 

macroeconomy and less likely to be 

targeted as part of manipulative strategy 

in comparison to small cap stocks.797

As another alternative, the 

Commission could structure the 

Reporting Thresholds to include the 

nominal economic value of short 

derivative positions. Specifically, 

reporting on Form SHO would be 

required if a Manager’s total short 

position in the stock and in derivatives 

such as options and security-based 

swaps exceeded the relevant Reporting 

Thresholds.798 This alternative would 

decrease the likelihood that Managers 

seek to avoid the Reporting Thresholds 

by transacting in derivatives and thus, 

may increase the benefits of the data 

from Form SHO.799 Making it more 

difficult to circumvent the reporting 

requirements using derivatives might 

also decrease strategic, and sub-optimal, 

trading around the Reporting 

Thresholds which leads to lower price 

efficiency.800 However, increasing the 

amount of information that was 

disclosed on publicly released Form 

SHO may increase copycat activity that 

leads to herding and increased 

volatility. Conversely, incorporating 

derivatives in Form SHO reports may 

dilute the information filed by Managers 

relative to the case where only equity 

gross short positions are included, 

thereby reducing the amount of herding. 

This alternative could also result in 

situations in which Managers would 

have a reporting obligation despite 

having large long positions in the equity 

over the entire month, which would 

increase costs for the Managers and 

would provide less relevant 

information. Additionally, including 

derivatives in the Reporting Threshold 

computations would increase the 

complexity of the rule and the cost of 

implementing the rule. For instance, 

Managers may need to pull information 

from multiple systems to determine the 

total value of their short position for 

reporting. Pulling information from 

multiple systems can be costly. 

Additionally, while valuing short 

positions in most equities is fairly 

straightforward, this is not true for 

derivatives. There are often multiple 

methodologies used by different market 

participants to value derivative 

contracts such as options. Thus, an 

alternative including a threshold for a 

Manager’s short exposure in derivatives 

would be significantly more 

complicated than Adopted Rule 13f–2 

and Form SHO. 

An additional alternative could also 

involve requiring reporting thresholds 

to be based on activity and not just 

positions.801 This alternative would 

increase the amount of information 

available to the Commission regarding 

the activities of entities engaging in a 

high volume of short selling. This 

alternative might provide additional 

insight into Managers that sell short but 

do not hold short positions. 

Specifically, entities with high volumes 

of short selling are likely to be market 

makers who use short selling to 

maintain two sided quotes in the 

absence of inventory and other high 

frequency traders. These entities trade 

in large volumes but tend to end trading 

sessions fairly flat on inventory in larger 

stocks. Consequently, requiring 

reporting based on activity might not 

significantly improve the market’s 

ability to assess of bearish sentiment. 

However, one area where reporting 

based on activity may be beneficial 

would be in identifying short selling 

attacks that are relatively short lived. 

For example, an investor with a 

convertible bond may seek to distort the 

stock price right around the exercise 

date of their bond as such contracts 

stipulate that the holder of the 

convertible bond receives more shares if 

the stock price is lower. In this case, an 

attempted manipulator may seek to 

aggressively short sell right around a 

convertible bond exercise date. Activity 

that is concentrated enough in time 

might not trigger a reporting threshold 

based on average position over the prior 

month under the final rule. While this 

activity information may be helpful in 

flagging unusual short selling activity, 

the Commission could conceivably 

build reports based on existing CAT 

data 802 that would be more effective at 

detecting such behavior and Rule 13f– 

2 would identify these activities if the 

market participant exceeds the 

Reporting Thresholds. 

As an alternative, the Commission 

could measure the thresholds as of the 

last settlement day of the month rather 

than using the $10 million average daily 

prong or 2.5 percent average daily prong 

for Threshold A and the $500,000 

threshold over any single day for 

Threshold B.803 This alternative would 

have the advantage of simplifying 

compliance with Rule 13f–2 and Form 

SHO and thus may reduce compliance 

costs. Form SH data analysis indicates 

that using last settlement day of the 

month instead of average daily 

thresholds for Threshold A would only 

result in a marginal increase in the 

number of reporting Managers, from 252 

to 256. However, the Commission is 

concerned that this alternative might 

also invite more strategic trading around 

the end of the month than adopted Form 

SHO, which is structured to prevent 

trading around the threshold. For 


ddrumheller on DSK120RN23PROD with RULES2
75182 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

804See Id. 

805See ICI Letter, at 9. 

806See Proposing Release, at 15009. 

807See Proposing Release, at 15009. In this 

alternative, the thresholds would conform to the 

reporting period, such that the 2.5% and $10 

million daily average thresholds would be 

calculated over the alternative shortened time 

period. 

808Many commenters on temporary Rule 10a–3T 

stated that weekly reporting was overly 

burdensome. See, e.g., Seward Kissel LLP, available 

at https://www.sec.gov/comments/s7-31-08/s73108- 

43.pdf; Investment Adviser Association, available 

at https://www.sec.gov/comments/s7-31-08/s73108- 

38.pdf; and Securities Industry and Financial 

Markets Association, available at https://

www.sec.gov/comments/s7-31-08/s73108-52.pdf. 

809See Better Markets Letter, at 13 and Charles 

M. Jones, Adam V. Reed, and William Waller, 

Revealing Shorts an Examination of Large Short. 

Position Disclosures, 29 Rev. of Fin. Studies 3278, 

3282 (2016). 

810See supra note 770. 

811See MFA Letter at 4. 

instance, Managers with short positions 

near the threshold may temporarily 

reduce their positions to below a 

Reporting Threshold on exactly the days 

that short positions are measured for 

compliance with the threshold to avoid 

reporting. This inefficient trading may 

reduce price efficiency right around the 

reporting days as trading to avoid 

holding a position that would trigger 

reporting is not trading based on 

economic considerations but rather 

trading based on regulatory 

considerations and thus is inefficient 

and may harm price efficiency on these 

days. 

Instead of Threshold B, the 

Commission could require the same two 

prong, $10 million or 2.5 percent daily 

average gross position reporting 

threshold for short positions in equity 

securities of non-reporting company 

issuers, as well as for equity securities 

of reporting company issuers.804 This 

approach might be less complex as all 

short positions would be subject to the 

same reporting threshold. Further, it 

would retain a threshold that relates to 

the size of the short position and to the 

size of the issuance to ensure capturing 

positions that are relatively large 

whereas the Threshold B imposes a flat 

threshold that could result in some 

relatively large positions, in terms of 

daily average gross position of 

percentage of shares outstanding, not 

being filed on Form SHO. 

However, this alternative would 

increase the burden for Managers as 

information for non-reporting company 

issuers can be hard to find, making 

threshold calculations difficult. In 

particular, information on the number of 

shares outstanding can be difficult to 

obtain for non-reporting company 

issuers and when it is available it is 

often stale and inaccurate. This could 

lead to problems with the calculations 

for the 2.5 percent threshold. One 

commenter stated that a single 

percentage-based threshold level 

applied to both reporting and nonreporting company issuers, ‘‘. . . would 

mitigate unnecessary operational and 

cost burdens on managers, including 

complexities from monitoring and 

reporting with up to three separate 

thresholds.’’ 805 However, this 

alternative would require Managers to 

know the number of shares outstanding 

in non-reporting companies for each 

trading day for their short positions, and 

would therefore effectively impose new 

recordkeeping costs on Managers. 

Further, there are multiple sources from 

which Managers can obtain shares 

outstanding for securities of nonreporting company issuers. At times 

these sources may report different 

numbers for total shares outstanding. 

Consequently, Managers could also feel 

the need to track the sources used to 

identify shares outstanding each day 

and would incur costs to determine 

which sources to trust for compliance. 

One concern is that Managers would try 

to game different data sources in order 

to avoid having to report Form SHO. 

The Commission could enhance 

record keeping requirements associated 

with this alternative by requiring 

Managers to record and report on Form 

SHO the source of data used to calculate 

shares outstanding.806 This could 

improve the quality of the information 

reported in Form SHO for securities of 

issuers who do not report with the 

Commission by improving the quality of 

the data that Managers use when 

calculating their positions. It might also 

help mitigate concerns that Managers 

may try to game different data sources 

to avoid complying with the regulation. 

For securities of reporting issuers, 

accurate shares outstanding information 

is readily available, thus concerns about 

gaming data sources or using low 

quality information is not as relevant. 

However enhanced record keeping 

requirements would increase the costs 

to Managers. While the Commission 

believes that most Managers have ready 

access to this information, requiring that 

Managers record and report the 

information would require Managers to 

further build out systems, in 

conjunction with the systems already 

required to report Form SHO, to also 

capture the source of information used. 

4. Other Alternatives 

a. Alternative Reporting Frequency or 

Additional Reporting Delay 

As alternatives, the Commission 

could require reporting at different 

frequencies than the monthly reporting 

mandated by the rule. Specifically, the 

Commission could require gross short 

position assessment and reporting 

(assuming at least one of the thresholds 

had been crossed) at frequencies that are 

shorter than a month.807 For example, 

the Commission could require reporting 

daily, weekly,808 biweekly, or whenever 

there is a significant change in short 

position (as is currently the standard in 

the European Union), but at least 

monthly. These alternatives could 

require reporting if the average short 

position surpasses the threshold for the 

month prior to the reporting period or 

if average positions surpass the 

threshold for the prior period (e.g., one 

week, or two weeks). This could result 

in an increase in the number of 

Managers that report, since it is likely 

that some Managers hold short positions 

that cross a Form SHO threshold for the 

alternative time frequencies (e.g., one 

week) but not for the entire month. 

These Managers may be required to 

report with more frequent disclosures 

relative to Adopted Form SHO. 

The fundamental tradeoff with such 

thresholds compares the simplicity of 

the rule with the potential to game the 

threshold by strategic trading. Such 

alternative frequencies face the 

fundamental tradeoff of increased cost 

and increased transparency of the data. 

Put simply, increasing the reporting 

frequency increases the number of 

reports and thus increases the cost 

associated with reporting by a similar 

factor. 

Increased reporting frequency could 

also result in collecting more 

information than the current proposal. 

The difference between the information 

collected in the current proposal and 

this alternative would mainly come 

from the frequency and timeliness of the 

reports. The improved timeliness could 

increase the risk of copycat strategies 

and short squeezes, but also improve 

price efficiency. One commenter stated 

that a study of the EU’s short sale 

disclosure policy, which requires, 

‘‘immediate public disclosure of large 

short positions,’’ finds no evidence of 

increased manipulation or short 

squeezes.809 However, multiple studies 

have found evidence that the EU’s 

policy has result in short sellers seeking 

to avoid disclosure by accumulating 

positions slightly under the threshold, 

which could result in a loss price 

efficiency.810 Furthermore, one 

commenter stated that increasing the 

disclosure delay to 45 days would help 

prevent copycat trading and short 

squeezes.811 The Commission 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75183 

812See Proposing Release, at 15010. 

813See Seward & Kissel LLP Letter (discussing 

Temporary Rule 10a–3T) at 5, available at https:// 

www.sec.gov/comments/s7-31-08/s73108-43.pdf. 

814See Proposing Release, at 15010. 

815One commenter stated that the ‘‘. . . proposed 

data framework will not provide timely insight for 

the SEC to act given that it is monthly data with 

14 days delay after month end.’’ See SBAI Letter, 

at 2. The Commission recognizes that removing the 

14-day delay would increase its ability to monitor 

and respond more rapidly to market events 

stemming from short sale activity. However, as 

discussed elsewhere in this release, the delay is in 

part necessary to review and validate the data, and 

may also serve to reduce the likelihood of short 

squeeze and copycat behavior. 

816One commenter stated that the public 

dissemination of Rule 13f–2 data should be 

increased from 14 days to 45 days in order to 

provide additional protection against exposure of 

trading strategies, which could be used as part of 

a replication strategy or to facilitate a short squeeze. 

See MFA Letter, at 4. More generally, the 

commenter believes that since the amendments 

would provide only ‘‘limited marginal benefits,’’ 

reducing the cost of compliance, including the risk 

of exposing the identities of investment managers 

and their proprietary trading strategies, is 

warranted. 

817See Proposing Release, at 15010. 

818See Inline XBRL Filing of Tagged Data, 

Securities Act Release No. 10514 (June 28, 2018), 

83 FR 40846 at 40862, available at https://

www.sec.gov/rules/final/2018/33-10514.pdf 

(discussing costs associated with Inline XBRL filing 

of operating company financial statements and 

investment company risk/return summaries, 

including software licensing costs). 

819 5 U.S.C. 601 et seq. 

820 In response to the Commission’s request for 

comment, commenters provided general predictions 

without empirical data to support their assessments 

that Proposed Rule 13f–2, Proposed Form SHO, and 

the Proposed CAT Amendments would have a 

significant economic impact on a substantial 

number of ‘‘small entities.’’ See supra note 324 and 

accompanying text. 

821Rule 0–10. 

822Rule 0–7(a). 

823 15 U.S.C. 80b–1 et seq. 

824Rule 0–7(a), supra note 822. See generally, 

Reporting Threshold for Institutional Investment 

Continued 

recognizes that there are benefits and 

costs to more timely disclosure, and 

believes that the two week delay 

incorporated in adopted Form SHO 

effectively balances these costs and 

benefits. 

The Commission could also consider 

different reporting windows for 

Managers who meet the threshold short 

positions to report on Form SHO.812 The 

current proposal requires Managers to 

report on Form SHO within 14 calendar 

days of the end of each month. Shorter 

time horizons may increase the cost of 

reporting as Managers would have less 

time to gather and file the data on Form 

SHO and may need to build costlier 

procedures to ensure compliance with 

the reporting requirement.813 A 

mitigating factor would be that most of 

this reporting is likely to be done 

electronically, consequently it may not 

take the full 14 calendar days for 

Managers to gather and file the required 

data to the Commission. 

Additionally, the Commission could 

adopt different horizons for releasing 

the aggregated data after the reporting 

deadline.814 The fundamental tradeoff 

in terms of the delay between reporting 

and when the Commission releases the 

aggregated data is that a shorter delay 

increases the relevance of the data, in 

terms of the bearish sentiment it 

contains, which may improve 

managerial decision making, as well as 

providing more timely information 

about bearish sentiment in the 

market.815 At the same time a shorter 

delay increases the likelihood of 

copycat behavior, which decreases the 

incentive that short sellers have to 

gather information potentially leading to 

lower price efficiency and greater 

volatility.816 The converse is true for 

longer delays. Additionally, a shorter 

delay provides less time for the 

Commission to aggregate the data and 

run checks on the aggregated data to 

ensure the Commission’s aggregation is 

error-free, and also provides less time 

for amendments to be filed, both of 

which could harm the quality of the 

data. 

b. Report Form SHO in Inline XBRL 

The adopted rule would require Form 

SHO to be filed in Form SHO-specific 

XML, a structured, machine-readable 

data language. As an alternative, the 

Commission might require Form SHO to 

be filed in Inline eXtensible Business 

Reporting Language (‘‘Inline XBRL’’), a 

separate data language that is designed 

for business reporting information and 

is both machine-readable and humanreadable.817 Compared to the adopted 

Form SHO, the Inline XBRL alternative 

for Form SHO would provide more 

sophisticated validation, presentation, 

and reference features for filers and data 

users. However, given the fixed and 

constrained nature of the disclosures to 

be reported on Form SHO (e.g., the 

information would be as of a single 

reporting date rather than multiple 

reporting dates, and Managers would 

not be able to customize the content or 

presentation of their reported data), the 

benefits of these additional features 

would be muted. Compared to the 

adopted Form SHO, this alternative 

would impose greater initial 

implementation costs (e.g., licensing 

Inline XBRL filing preparation software) 

upon reporting persons that have no 

prior experience structuring data in 

Inline XBRL.818 By contrast, because 

many Managers that would be Form 

SHO filers would likely have experience 

structuring filings in a similar EDGAR 

Form-specific XML data language, such 

as in the context of filing Form 13F, the 

Form SHO-specific XML requirement 

will likely impose lower 

implementation compliance costs on 

Form SHO filers than an Inline XBRL 

requirement would impose. 

IX. Regulatory Flexibility Act 

Certification 

The Regulatory Flexibility Act 

(‘‘RFA’’) 819 requires Federal agencies, in 

promulgating rules, to consider the 

impact of those rules on small 

businesses. Section 603(a) of the 

Administrative Procedure Act, as 

amended by the RFA, generally requires 

the Commission to undertake a final 

regulatory flexibility analysis of rules it 

is adopting, to determine the impact of 

such rulemaking on ‘‘small businesses’’ 

unless the Commission certifies that the 

rule would not have a significant 

economic impact on a substantial 

number of ‘‘small entities.’’ 820

Certification for Rule 13f–2 and Form 

SHO. Although section 601(b) of the 

RFA defines the term ‘‘small business,’’ 

the statute permits agencies to formulate 

their own definitions. The explanation 

of the term ‘‘small entities’’ and the 

definition of the term ‘‘small business’’ 

in 17 CFR 240.0–10 821 of the Exchange 

Act do not explicitly reference 

Managers. Rule 0–10 does provide, 

however, that the Commission may 

‘‘otherwise define’’ small entities for 

purposes of a particular rulemaking 

proceeding. For purposes of Rule 13f–2 

and related Form SHO, therefore, the 

Commission has determined that the 

definition of the term ‘‘small business’’ 

found in 17 CFR 275.0–7(a) 822 under 

the Investment Advisers Act of 1940 823

is more appropriate to the functions of 

institutional managers such as the 

Managers with reporting obligations 

under Rule 13f–2. The definition will 

help ensure that all persons or entities 

that might be Managers subject to 

reporting requirements under Rule 13f– 

2 will be included within a category 

addressed by the Rule 0–7(a) definition. 

Therefore, for purposes of this rule 

and the RFA, a Manager is a small entity 

if it: (i) has assets under management 

having a total value of less than $25 

million; (ii) did not have total assets of 

$5 million or more on the last day of its 

most recent fiscal year; and (iii) does not 

control, is not controlled by, and is not 

under common control with another 

investment adviser that has assets under 

management of $25 million or more, or 

any person (other than a natural person) 

that had total assets of $5 million or 

more on the last day of its most recent 

fiscal year.824 The Commission did not 


ddrumheller on DSK120RN23PROD with RULES2
75184 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

Managers, Exchange Act Release No. 89290 (July 

10, 2020), 85 FR 46016, 46031 n.90 (July 31, 2020) 

(stating that ‘‘[r]ecognizing the growth in assets 

under management at investment advisers since 

Rule 0–7(a) was adopted, the Commission plans to 

revisit the definition of a small entity in Rule 0– 

7(a).’’). 

825See Molk and Partnoy, supra note 510, 

describing impediments that have kept different 

types of institutional investment managers from 

engaging in short selling. 826 Id. at 839 (positing that ‘‘institutions 

incorporate short selling into their strategies, not 

necessarily by taking net-short positions, but 

instead by combining leveraged long equity index 

positions with smaller actively managed short 

portfolios.’’). 

827A small entity, with less than $25M in assets 

under management, is not able to hold a short 

position of at least 2.5% in a company with a 

market capitalization above $1B. Such companies 

represent over 98.5% of the overall market cap of 

US equities. See also Stock Market Size Categories 

(2021), available at https://stockmarketmba.com/ 

sizecategories.php (calculating approximately three 

percent (3%) of the US stock market consists of 

common stocks of companies with less than $2B in 

market capitalization (i.e., small-cap and micro-cap 

stocks) and stating that micro-cap companies are 

generally too small for even most large institutional 

investment managers to invest in). 

828An analysis by Commission of the daily 

dataset of the Center for Research in Security Prices 

(‘‘CRSP’’) showed that for the month of Oct. 2021, 

on average, the number of companies with less than 

$1B in market capitalization (2,293) constituted 

1.51% of the overall market capitalization. 

829See Molk and Partnoy, supra note 510, at 846. 

830See David Goldin, Elephant in the room? Size 

and hedge fund performance, Aurum (June 28, 

2019), available at https://www.aurum.com/insight/ 

elephant-in-the-room-size-and-hedge-fundperformance/. 

831See Daniel Barth et al., The Hedge Fund 

Industry is Bigger (and Has Performed Better) Than 

You Think (Office of Fin. Research, Working Paper 

No. 20–01, Feb. 25, 2020, Revised Mar. 8, 2021). 

832See 17 CFR 240.0–10(e) (stating that a brokerdealer is a small entity if it has total net 

capitalization (net worth plus subordinated 

liabilities) of less than $500,000 on the date in the 

prior fiscal year as of which its audited financial 

statements were prepared pursuant to 17 CFR 

240.17a–5(d), and it is not affiliated with any 

person (other than a natural person) that is not a 

small business or small organization). 

833See 13 CFR 121.201. 

receive any comments on the 

certification as it related to entities 

impacted by Rule 13f–2. 

Under Rule 13f–2, Managers are not 

required to report on Form SHO unless 

they meet or exceed a specified 

Reporting Threshold. Managers with a 

gross short interest position in an equity 

security of a reporting company issuer 

will be subject to a two-pronged 

reporting threshold structure: a monthly 

average gross short position in the 

equity security with a U.S. dollar value 

of $10 million or more; or a monthly 

average gross short position as a 

percentage of shares outstanding in the 

equity security of 2.5 percent or more 

(Threshold A). Managers with a gross 

short interest position in an equity 

security of a non-reporting company 

issuer will be subject to a singlepronged reporting threshold structure: a 

gross short position in the equity 

security with a U.S. dollar value of 

$500,000 or more at the close of regular 

trading hours on any settlement date 

during the calendar month (Threshold 

B). While the parameters of the 

Reporting Thresholds under Rule 13f–2 

relate to the number and dollar value of 

shares of short positions, rather than 

assets under management, the 

Commission nevertheless anticipates 

that application of the Reporting 

Thresholds will result in Rule 13f–2 not 

applying to a significant number of 

‘‘small businesses’’ as defined under 

Rule 0–7(a). 

With respect to the first prong of 

Threshold A, a monthly average gross 

short position in the equity security 

with a U.S. dollar value of $10 million 

or more for reporting company issuer 

securities represents forty percent of the 

assets of an entity that qualifies as a 

‘‘small entity’’ under Rule 0–7(a). The 

Commission believes it is also unlikely 

that a significant number of small 

entities would place 40 percent of their 

respective assets under management in 

a short position in a single security. 

Further, many types of Managers that 

could be small entities, including bank 

trustees, endowments, and foundations, 

are subject to fiduciary standards that 

prohibit them from investing in large, 

concentrated short positions. Such 

restrictions deter small entities (with 

less than $25M of assets under 

management) from investing over $10M 

(greater than 40 percent) of their assets 

in a single short position, and therefore 

prevent them from triggering the first 

prong of Threshold A.825

With respect to the second prong of 

Threshold A, smaller Managers (those 

with under $25M in assets under 

management) would likely try to 

leverage their assets through a 

combination of traditional short sales 

and derivatives and similar transactions 

that create economic short exposure to 

a security. Such entities therefore, 

would likely engage in strategies that do 

not lend themselves to a clear 

determination that the second prong of 

Threshold A under Rule 13f–2 has been 

met.826 Further, the Commission 

estimates, based on an analysis of US 

common stocks,827 that Managers that 

qualify as small entities under Rule 0– 

7(a) would not meet the 2.5 percent 

monthly average reporting threshold for 

securities representing over ninety-eight 

percent (98 percent) of the overall 

market value.828

When it comes to meeting the dollar 

value limits of Threshold B and the first 

prong of Threshold A, it is important to 

note that for the subset of Managers that 

engage in the most short selling 

activity—hedge funds 829—less than 

twenty-five percent have less than $50M 

in assets under management.830 Indeed, 

research shows that most hedge funds 

have assets under management above 

the amount that would qualify them as 

small entities under Rule 0–7(a), i.e., 

above $25M.831 Further, the 

Commission certified in the Proposing 

Release that Proposed Rule 13f–2 would 

not have a significant economic impact 

on a substantial number of small 

entities, as defined under Rule 0–10, for 

purposes of the RFA. The Commission 

requested written comments regarding 

this certification and did not receive 

any. Additionally, and as described 

above, the adopted dollar-value based 

prong of Threshold A for reporting 

company issuer securities is based on a 

monthly average rather than a daily 

calculation, likely capturing fewer 

Managers than would have been 

required to report under the proposed 

daily dollar-value prong of Threshold A, 

so it is even less likely that small 

entities will be required to report on 

Form SHO as adopted. 

For these reasons, the Commission 

certifies that Rule 13f–2 will not have a 

significant economic impact on a 

substantial number of small entities, as 

defined under Rule 0–10, for purposes 

of the RFA. 

Certification for the Amendment to 

CAT. The amendment to the CAT NMS 

Plan will impose requirements on the 

CAT NMS Plan Participants (the 

national securities exchanges registered 

with the Commission under section 6 of 

the Exchange Act and FINRA), and 

broker-dealers that effect short sales 

utilizing the bona fide market making 

exception pursuant to Rule 203(b)(2)(iii) 

of Regulation SHO and report use of the 

exception to CAT. 

With respect to the national securities 

exchanges, the Commission’s definition 

of a small entity is an exchange that has 

been exempt from the reporting 

requirements of Rule 601 of Regulation 

NMS, and is not affiliated with any 

person (other than a natural person) that 

is not a small business or small 

organization.832 None of the national 

securities exchanges registered under 

section 6 of the Exchange Act that will 

be subject to the amendments are ‘‘small 

entities’’ for purposes of the RFA. In 

addition, FINRA is not a ‘‘small 

entity.’’ 833 Based on Commission 

knowledge and experience with brokerdealers that identify as market makers, 

the Commission does not believe that 

any broker-dealer that effects short sales 

utilizing the bona fide market making 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75185 

834 5 U.S.C. 801 et seq. 

exception pursuant to Rule 203(b)(2)(iii) 

of Regulation SHO and reports to the 

CAT will qualify as a small entity 

pursuant to Exchange Act Rule 0–10(c), 

because they either exceed $500,000 in 

total capital or are affiliated with a 

person that is not a small entity as 

defined in Rule 0–10. Given the above 

estimates it is possible, but unlikely, 

that in the future a small entity may 

come within scope of the Amendment 

to CAT, because such firms are likely to 

exceed $500,000 in total capital or be 

affiliated with a person that is not a 

small entity. 

For the foregoing reasons, the 

Commission certifies that the 

Amendment to CAT will not have a 

significant economic impact on a 

substantial number of small entities for 

purposes of the RFA. 

X. Other Matters 

Pursuant to the Congressional Review 

Act,834 the Office of Information and 

Regulatory Affairs has designated these 

rules as a ‘‘major rule,’’ as defined by 5 

U.S.C. 804(2). 

If any of the provisions of these final 

rules, or the application thereof to any 

person or circumstance, is held to be 

invalid, such invalidity shall not affect 

other provisions or application of such 

provisions to other persons or 

circumstances that can be given effect 

without the invalid provision or 

application. 

Statutory Authority 

The Commission is adopting the rule 

and form contained in this document 

under the authority set forth in the 

Exchange Act [15 U.S.C. 78a et seq.], 

particularly sections 3, 10(b), 12, 13(f), 

15, (d), 23(a), 35A, 36 thereof [15 U.S.C. 

78c, 78j(b), 78l, 78m(f), 78o(d), 78w(a), 

78ll, and 78mm], and Public Law 111– 

203, 929X, 124 Stat. 1376 (2010). The 

Commission is amending the CAT NMS 

Plan pursuant to the Exchange Act, 

particularly Sections 2, 3, 5, 6, 11A, 15, 

15A, 17(a) and (b), 19, and 23(a) thereof 

[15 U.S.C. 78b, 78c, 78e, 78f, 78k–1, 

78o, 78o–3, 78q(a) and (b), 78s, and 

78w(a)], and Rules 608(a)(2) and (b)(2) 

thereunder. 

List of Subjects in 17 CFR Parts 240 and 

249 

Reporting and recordkeeping 

requirements, Securities. 

Text of Amendments 

In accordance with the foregoing, the 

Commission is amending title 17, 

chapter II of the Code of the Federal 

Regulations as follows. 

PART 240—GENERAL RULES AND 

REGULATIONS, SECURITIES 

EXCHANGE ACT OF 1934 

■ 1. The authority citation for part 240 

is amended by removing the sectional 

authority for § 240.13f–2(T) to read in 

part as follows: 

Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 

77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn, 

77sss, 77ttt, 78c, 78c–3, 78c–5, 78d, 78e, 78f, 

78g, 78i, 78j, 78j–1, 78j–4, 78k, 78k–1, 78l, 

78m, 78n, 78n–1, 78o, 78o–4, 78o–10, 78p, 

78q, 78q–1, 78s, 78u–5, 78w, 78x, 78dd, 78ll, 

78mm, 80a–20, 80a–23, 80a–29, 80a–37, 80b– 

3, 80b–4, 80b–11, 7201 et seq., and 8302; 7 

U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 

U.S.C. 1350; and Pub. L. 111–203, 939A, 124 

Stat. 1376 (2010); and Pub. L. 112–106, sec. 

503 and 602, 126 Stat. 326 (2012), unless 

otherwise noted. 

* * * * * 

■ 2. Add § 240.13f–2 to read as follows: 

§ 240.13f–2 Reporting by institutional 

investment managers regarding gross short 

position and activity information. 

(a) An institutional investment 

manager shall file a report on Form SHO 

(referenced in 17 CFR 249.332), in 

accordance with the form’s instructions, 

with the Commission within 14 

calendar days after the end of each 

calendar month with regard to: 

(1) Each equity security that is of a 

class of securities that is registered 

pursuant to section 12 of the Exchange 

Act or for which the issuer of that class 

of securities is required to file reports 

pursuant to section 15(d) of the 

Exchange Act over which the 

institutional investment manager and all 

accounts over which the institutional 

investment manager (or any person 

under the institutional investment 

manager’s control) has investment 

discretion with respect to either: 

(i) A monthly average gross short 

position at the close of regular trading 

hours in the equity security with a U.S. 

dollar value of $10 million or more; or 

(ii) A monthly average gross short 

position at the close of regular trading 

hours as a percentage of shares 

outstanding in the equity security of 2.5 

percent or more; and 

(2) Each equity security that is of a 

class of securities that is not registered 

pursuant to section 12 of the Exchange 

Act or for which the issuer of that class 

of securities is not required to file 

reports pursuant to section 15(d) of the 

Exchange Act over which the 

institutional investment manager and all 

accounts over which the institutional 

investment manager (or any person 

under the institutional investment 

manager’s control) has investment 

discretion with respect to a gross short 

position in the equity security with a 

U.S. dollar value of $500,000 or more at 

the close of regular trading hours on any 

settlement date during the calendar 

month. 

(3) Form SHO and any amendments 

thereto must be filed with the 

Commission via the Commission’s 

Electronic Data Gathering, Analysis, and 

Retrieval system (‘‘EDGAR’’), in 

accordance with 17 CFR part 232 

(Regulation S–T). The Commission will 

publish, on an aggregated basis, certain 

information regarding each equity 

security reported by institutional 

investment managers on Form SHO and 

filed with the Commission via EDGAR. 

(b) For the purposes of this section: 

(1) The term institutional investment 

manager has the same meaning as in 

section 13(f)(6)(A) of the Exchange Act. 

(2) The term equity security has the 

same meaning as in section 3(a)(11) of 

the Exchange Act and § 240.3a11–1 

(Rule 3a11–1). 

(3) The term investment discretion has 

the same meaning as in § 240.13f–1(b) 

(Rule 13f–1(b)). 

(4) The term gross short position 

means the number of shares of the 

equity security that are held short as a 

result of short sales as defined in 17 

CFR 242.200(a) (Rule 200(a) of 

Regulation SHO), without inclusion of 

any offsetting economic positions such 

as shares of the equity security or 

derivatives of such equity security. 

(5) The term regular trading hours has 

the same meaning as in 17 CFR 

242.600(b)(77) (Rule 600(b)(77)). 

PART 249—FORMS, SECURITIES 

EXCHANGE ACT OF 1934 

■ 3. The general authority citation for 

part 249 continues to read as follows: 

Authority: 15 U.S.C. 78a et seq. and 7201 

et seq.; 12 U.S.C. 5461 et seq.; 18 U.S.C. 1350; 

Sec. 953(b) Pub. L. 111–203, 124 Stat. 1904; 

Sec. 102(a)(3) Pub. L. 112–106, 126 Stat. 309 

(2012), Sec. 107 Pub. L. 112–106, 126 Stat. 

313 (2012), Sec. 72001 Pub. L. 114–94, 129 

Stat. 1312 (2015), and secs. 2 and 3 Pub. L. 

116–222, 134 Stat. 1063 (2020), unless 

otherwise noted. 

* * * * * 

■ 4. Add § 249.332 to read as follows: 

§ 249.332 Form SHO, report of institutional 

investment managers pursuant to section 

13(f)(2) of the Securities Exchange Act of 

1934. 

This form shall be used by 

institutional investment managers that 

are required to furnish reports pursuant 

to section 13(f)(2) of the Securities 

Exchange Act of 1934 (15 U.S.C. 

78m(f)(2)) and 17 CFR 240.13f–2 (Rule 

13f–2). 

■ 5. Add Form SHO referenced in 

§ 249.332. 


ddrumheller on DSK120RN23PROD with RULES2
75186 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

Note: Form SHO is attached as Appendix 

A to this document. Form SHO will not 

appear in the Code of Federal Regulations. 

By the Commission. 

Dated: October 13, 2023. 

J. Matthew DeLesDernier, 

Deputy Secretary. 

Note: The following appendix will not 

appear in the Code of Federal Regulations. 

Appendix A—Form SHO 

OMB Number: XXXX–XXXX 

FORM SHO 

Information Required of Institutional 

Investment Managers Pursuant to Section 

13(f)(2) of the Securities Exchange Act of 

1934 and Rules Thereunder 

General Instructions 

Rule as to Use of Form SHO. Institutional 

investment managers (‘‘Managers’’) must use 

Form SHO for reports to the Commission 

required by Rule 13f–2 [17 CFR 240.13f–2] 

promulgated under section 13(f)(2) of the 

Securities Exchange Act of 1934 [15 U.S.C. 

78m(f)(2)] (‘‘Exchange Act’’). A Manager shall 

file a report on Form SHO in accordance with 

these instructions with the Commission 

within 14 calendar days after the end of each 

calendar month with regard to: (1) each 

equity security that is of a class of securities 

that is registered pursuant to section 12 of the 

Exchange Act or for which the issuer of that 

class of securities is required to file reports 

pursuant to section 15(d) of the Exchange Act 

over which the Manager and all accounts 

over which the Manager (or any person under 

the Manager’s control) has investment 

discretion with respect to either (A) a 

monthly average gross short position at the 

close of regular trading hours in the equity 

security with a value of $10 million or more, 

or (B) a monthly average gross short position 

at the close of regular trading hours as a 

percentage of shares outstanding in the 

equity security of 2.5 percent or more; and 

(2) each equity security that is of a class of 

securities that is not registered pursuant to 

section 12 of the Exchange Act or for which 

the issuer is not required to file reports 

pursuant to section 15(d) of the Exchange Act 

over which the Manager and all accounts 

over which the Manager (or any person under 

the Manager’s control) has investment 

discretion with respect to a gross short 

position in the equity security with a U.S. 

dollar value of $500,000 or more at the close 

of regular trading hours on any settlement 

date during the calendar month. For 

purposes of Rule 13f–2 and Form SHO, 

‘‘regular trading hours’’ shall have the 

meaning ascribed in Rule 600(b)(77) under 

the Exchange Act [17 CFR 242.600(b)(77)]. 

A Manager that determines that it has filed 

a Form SHO with errors that affect the 

accuracy of the short sale data reported must 

file an amended and restated Form SHO 

within ten (10) calendar days of discovering 

the error. 

Rules to Prevent Duplicative Reporting. If 

two or more Managers, each of which is 

required by Rule 13f–2 to file Form SHO for 

the reporting period, exercise investment 

discretion with respect to the same securities, 

only one such Manager must report the 

information in its report on Form SHO. If a 

Manager has information that is required to 

be reported on Form SHO and such 

information is reported by another Manager 

(or Managers), such Manager must identify 

the Manager(s) reporting on its behalf in the 

manner described in Special Instruction 5. 

Filing of Form SHO. A reporting Manager 

must file Form SHO with the Commission via 

the Commission’s Electronic Data Gathering, 

Analysis, and Retrieval system (‘‘EDGAR’’), 

in accordance with Regulation S–T. The 

Commission plans to publish certain data 

from the filings on an aggregated basis. 

All information included in a Form SHO 

report is deemed subject to a confidential 

treatment request under 17 CFR 200.83. The 

Commission plans to publish only aggregated 

data derived from information provided in 

Form SHO reports. 

Technical filing errors may cause delays in 

the filing of Form SHO. Technical support for 

making Form SHO reports is available 

through EDGAR Filer Support. 

Instructions for Calculating Reporting 

Threshold 

A Manager shall file a report on Form SHO: 

• with regard to each equity security that 

is of a class of securities that is registered 

pursuant to section 12 of the Exchange Act 

or for which the issuer is required to file 

reports pursuant to section 15(d) of the 

Exchange Act (a ‘‘reporting company issuer’’) 

in either of the following circumstances: (1) 

the Manager and all accounts over which the 

Manager or any person under the Manager’s 

control has investment discretion that are a 

monthly average gross short position at the 

close of regular trading hours in the equity 

security with a U.S. dollar value of $10 

million or more, or (2) the Manager and all 

accounts over which the Manager or any 

person under the Manager’s control has 

investment discretion that are a monthly 

average gross short position at the close of 

regular trading hours as a percentage of 

shares outstanding in the equity security of 

2.5 percent or more (‘‘Threshold A’’). 

• with regard to each equity security that 

is of a class of securities of an issuer that is 

not a reporting company issuer as described 

above (a ‘‘non-reporting company issuer’’), 

when the Manager and all accounts over 

which the Manager or any person under the 

Manager’s control has investment discretion 

that are a gross short position in the equity 

security with a U.S. dollar value of $500,000 

or more at the close of regular trading hours 

on any settlement date during the calendar 

month (‘‘Threshold B’’). 

With respect to each equity security to 

which the circumstances described in 

Threshold A or Threshold B applies, the 

Manager shall report the information, as 

described in the ‘‘Special Instructions’’ 

below, aggregated across accounts over 

which the Manager, or any person under the 

Manager’s control, has investment discretion. 

To determine whether the dollar value 

threshold described in (1) of Threshold A 

above is met, a Manager shall determine its 

gross short position at the close of regular 

trading hours in the equity security (as 

defined in Rule 13f–2) on each settlement 

date during the calendar month and multiply 

that figure by the closing price at the close 

of regular trading hours on the settlement 

date (‘‘end of day dollar value’’). The 

Manager shall then add all end of day dollar 

values during the calendar month and divide 

that sum by the number of settlement dates 

in the month to arrive at a ‘‘monthly average’’ 

for each equity security the Manager traded 

during that calendar month reporting period. 

To determine whether the dollar value 

threshold described in Threshold B above is 

met, a Manager shall determine its gross 

short position at the close of regular trading 

hours in the equity security (as defined in 

Rule 13f–2) on each settlement date during 

the calendar month and multiply that figure 

by the closing price at the close of regular 

trading hours on the settlement date. If such 

closing price is not available, a Manager shall 

use the price at which it last purchased or 

sold any share of that security. 

To determine whether the percentage 

threshold described in (2) of Threshold A 

above is met, the Manager shall (a) determine 

its gross short position at the close of regular 

trading hours in the equity security (as 

defined in Rule 13f–2) on each settlement 

date during the calendar month, and divide 

that figure by the number of shares 

outstanding in such security at the close of 

regular trading hours on the settlement date, 

and (b) add up the daily percentages during 

the calendar month as determined in (a) and 

divide that sum by the number of settlement 

dates in the month to arrive at a ‘‘monthly 

average’’ for each equity security the Manager 

traded during that calendar month reporting 

period. The number of shares outstanding of 

the security for which information is being 

reported shall be determined by reference to 

an issuer’s most recent annual or quarterly 

report, and any subsequent update thereto, 

filed with the Commission. 

Special Instructions 

1. This form consists of two parts: the 

Cover Page, and the Information Tables. 

Cover Page 

2. The period end date used in the report 

(and in the EDGAR submission header) is the 

last settlement day of the calendar month. 

The date shall name the month, and express 

the day and year in Arabic numerals, with 

the year being a four-digit numeral (e.g., 

2023). 

3. Amendments to Form SHO must restate 

the Form SHO in its entirety. If the Manager 

is filing the Form SHO report as an 

amendment, then the Manager must check 

the ‘‘Amendment and Restatement’’ box on 

the Cover Page; and enter the amendment 

number. Each Amendment and Restatement 

must include a complete Cover Page and 

Information Tables. Amendments must be 

filed sequentially. 

a. In the space designated on the Cover of 

Page of each Amendment and Restatement, a 

Manager shall (1) provide a written 

description of the revision being made; (2) 

explain the reason for the revision; and (3) 

indicate whether data from any additional 

Form SHO reporting period(s) (up to the past 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 75187 

12 calendar months) is/are affected by the 

Amendment and Restatement. 

b. If (3) applies, a Manager shall complete 

and file a separate Amendment and 

Restatement for each previous calendar 

month so affected (up to the past 12 months) 

and provide a description of the revision 

being made and explain the reason for the 

revision. 

4. Present the Cover Page information in 

the format and order provided in the form, 

including the non-lapsed Legal Entity 

Identifier (‘‘LEI’’), if any, of the Manager 

filing the Form SHO report. The Cover Page 

shall include only the required information. 

Do not include any portions of the 

Information Tables on the Cover Page. 

5. Designate the Report Type for the Form 

SHO by checking the appropriate box in the 

Report Type section of the Cover Page, and 

include, where applicable, the Name and 

non-lapsed LEI (if available) of each of the 

Other Managers Reporting for this Manager 

on the Cover Page, and the Information 

Tables, as follows: 

a. If all of the information that a Manager 

is required by Rule 13f–2 to report on Form 

SHO is reported by another Manager (or 

Managers), check the box for Report Type 

‘‘FORM SHO NOTICE,’’ include on the Cover 

Page the Name and non-lapsed LEI (if 

available) of each of the Other Managers 

Reporting for this Manager, and omit the 

Information Tables. 

b. If all of the information that a Manager 

is required by Rule 13f–2 to report on Form 

SHO is reported in this report, check the box 

for Report Type ‘‘FORM SHO ENTRIES 

REPORT,’’ omit the ‘‘Name and Non-Lapsed 

LEI (if available) of each of the Other 

Managers Reporting for this Manager’’ 

section of the Cover Page, and include the 

Information Tables. 

c. If only a part of the information that a 

Manager is required by Rule 13f–2 to report 

on Form SHO is reported in this report, 

check the box for Report Type ‘‘FORM SHO 

COMBINATION REPORT,’’ include on the 

Cover Page the name and non-lapsed LEI (if 

available) of each of the Other Managers 

Reporting for this Manager, and include the 

Information Tables. 

Information Tables 

6. Do not include any additional 

information in the Information Tables. Do not 

include any portions of the Information 

Tables on the Cover Page. 

7. In reporting information required on 

Information Tables 1 and 2, Managers must 

account for a gross short position in an ETF, 

and activity that results in the acquisition or 

sale of shares of the ETF resulting from call 

options exercises or assignments; put options 

exercises or assignments; tendered 

conversions; secondary offering transactions; 

or other activity, as discussed further below. 

In determining its gross short position in an 

equity security, however, a Manager is not 

required to consider short positions that the 

ETF holds in individual underlying equity 

securities that are part of the ETF basket. 

8. Instructions for Information Table 1— 

Manager’s Gross Short Position: 

a. Column 1. Settlement Date. Enter in 

Column 1 the last day of the calendar month 

of the reporting period on which a trade 

settles (‘‘settlement date’’). 

b. Column 2. Issuer Name. Enter in 

Column 2 the name of the issuer of the 

security for which information is being 

reported. Reasonable abbreviations are 

permitted. 

c. Column 3. Issuer LEI. If the issuer has 

an LEI, enter the issuer’s LEI in Column 3. 

d. Column 4. Title of Class. Enter in 

Column 4 the title of the class of the security 

for which information is being reported. 

Reasonable abbreviations are permitted. 

e. Column 5. CUSIP Number. Enter in 

Column 5 the nine (9) digit CUSIP number 

of the security for which information is being 

reported, if applicable. 

f. Column 6. FIGI. Enter in Column 6 the 

twelve (12) character, alphanumeric 

Financial Instrument Global Identifier 

(‘‘FIGI’’) of the security for which 

information is being reported, if a FIGI has 

been assigned. 

g. Column 7. End of Month Gross Short 

Position (Number of Shares). Enter in 

Column 7 the number of shares that represent 

the Manager’s gross short position in the 

security for which information is being 

reported at the close of regular trading hours 

on the last settlement date of the calendar 

month of the reporting period. The term 

‘‘gross short position’’ means the number of 

shares of the security for which information 

is being reported that are held short, without 

inclusion of any offsetting economic 

positions—including shares of the reportable 

equity security or derivatives of such 

security. 

h. Column 8. End of Month Gross Short 

Position (rounded to nearest USD). Enter in 

Column 8 the U.S. dollar value of the shares 

reported in Column 7, rounded to the nearest 

dollar. A Manager shall report the 

corresponding dollar value of the reported 

gross short position by multiplying the 

number of shares of the security for which 

information is being reported by the closing 

price at the close of regular trading hours on 

the last settlement date of the calendar 

month. In circumstances where such closing 

price is not available, the Manager shall use 

the price at which it last purchased or sold 

any share of that security. 

9. Instructions for Information Table 2— 

Daily Activity Affecting Manager’s Gross 

Short Position During the Reporting Period: 

a. Column 1. Settlement Date. Enter in 

Column 1 each date during the reporting 

period on which a trade settles (settlement 

date). The Manager shall report information 

for each settlement date during the calendar 

month reporting period as described in these 

instructions. 

b. Column 2. Issuer Name. Enter in 

Column 2 the name of the issuer of the equity 

security for which information is being 

reported. Reasonable abbreviations are 

permitted. 

c. Column 3. Issuer LEI. If the issuer has 

an LEI, enter the issuer’s LEI in Column 3. 

d. Column 4. Title of Class. Enter in 

Column 4 the title of the class of the security 

for which information is being reported. 

Reasonable abbreviations are permitted. 

e. Column 5. CUSIP Number. Enter in 

Column 5 the nine (9) digit CUSIP number 

of the security for which information is being 

reported, if applicable. 

f. Column 6. FIGI. Enter in Column 6 the 

twelve (12) character, alphanumeric FIGI of 

the security for which information is being 

reported, if a FIGI has been assigned. 

g. Column 7. Net Change in Short Position 

(Number of Shares). For the settlement date 

set forth in Column 1, enter the net change 

in short position (represented as a number of 

shares) reflecting how the reported gross 

short position in shares of the security for 

which information is being reported are 

being closed out—or increased—as a result of 

the acquisition or sale of shares of that equity 

security, by taking into account: 

(1) Short sales of the security that settled 

on that date. 

(2) Shares of the security that were 

purchased to cover, in whole or in part, an 

existing short position and settled on that 

date. 

(3) Shares of the security that were 

acquired in a call option exercise that 

reduces or closes a short position on that 

security and settled on that date. 

(4) Shares of the security that were sold in 

a put option exercise that creates or increases 

a short position on that security and settled 

on that date. 

(5) Shares of the security that were sold in 

a call option assignment that creates or 

increases a short position on that security 

and settled on that date. 

(6) Shares of the security that were 

acquired in a put option assignment that 

reduces or closes a short position on that 

security and settled on that date. 

(7) Shares of the security for which 

information is being reported that were 

acquired as a result of the tendered 

conversions that reduces or closes a short 

position on that security and settled on that 

date. 

(8) Shares of the security that were 

obtained through a secondary offering 

transaction that reduces or closes a short 

position on that security and settled on that 

date. Such secondary offering purchases 

must be reported whether they occurred 

outside or within the restricted period of 

Rule 105 of Regulation M, 17 CFR 242.105, 

which prohibits purchasing offering shares 

within the restricted period after selling 

short. 

(9) Shares of the security that resulted from 

other activity not previously reported on this 

form that creates or increases a short position 

on that security and settled on that date, or 

that reduces or closes a short position on that 

security and settled on that date. 

(10) Activity other than (1) through (9) 

above that creates or increases, or reduces or 

closes, a short position on that security, 

including, but not limited to, shares resulting 

from ETF creation or redemption activity. 

Paperwork Reduction Act Information 

Persons who are to respond to the 

collection of information contained in this 

form are not required to respond to the 

collection of information unless the form 

displays a currently valid Office of 

Management and Budget (‘‘OMB’’) control 

number. 


ddrumheller on DSK120RN23PROD with RULES2
75188 Federal Register / Vol. 88, No. 210 / Wednesday, November 1, 2023 / Rules and Regulations 

OMB Number: XXXX–XXXX 

United States 

Securities and Exchange Commission 

Washington, DC 20549 

FORM SHO 

Form SHO Cover Page 

Report for the Period Ended: [Month/Day/ 

Year] 

Check here if Amendment and Restatement 

[ ]; Amendment Number: 

Description of the Amendment and 

Restatement, Reason for the Amendment and 

Restatement, and Which Additional Form 

SHO Reporting Period(s) (up to the past 12 

calendar months), if any, is/are affected by 

the Amendment and Restatement: 

Institutional Investment Manager 

(‘‘Manager’’) Filing Report: 

Name: lllllllllllllllll

Mailing Address: llllllllllll

Business Telephone Number: lllllll

Business Email: lllllllllllll

Non-Lapsed Legal Entity Identifier 

(‘‘LEI’’): llllllllllllllll

Contact Employee: llllllllllll

Name and Title: lllllllllllll

Business Telephone Number: lllllll

Business Email: lllllllllllll

Date Filed: lllllllllllllll

The Manager filing this report hereby 

represents that all information contained 

herein is true, correct and complete, and that 

it is understood that all required items, 

statements, schedules, lists, and tables, are 

considered integral parts of this form. 

Report Type (Check only one): 

[ ] FORM SHO ENTRIES REPORT. (Check 

here if all entries of this reporting Manager 

are reported in this report.) 

[ ] FORM SHO NOTICE. (Check here if no 

entries reported are in this report, and all 

entries are reported by other reporting 

Manager(s).) 

[ ] FORM SHO COMBINATION REPORT. 

(Check here if a portion of the entries for this 

reporting Manager is reported in this report 

and a portion is reported by other reporting 

Manager(s).) 

Name and Non-Lapsed LEI of each of the 

Other Manager(s) Reporting for this Manager: 

[If there are no entries in this list, omit this 

section.] 

Name: lllllllllllllllll

Non-Lapsed LEI: lllllllllllll

[Repeat as necessary.] 

INFORMATION TABLE 1—MANAGER’S MONTHLY GROSS SHORT POSITION

Column 1 Column 2 Column 3 Column 4 Column 5 Column 6 Column 7 Column 8 

Settlement Date (Month 

End).

Issuer 

Name.

Issuer LEI Title of 

Class.

CUSIP 

Number.

FIGI .......... End of Month Gross Short Position (Number of Shares).End of Month Gross Short Position (rounded to nearest USD). 

(Repeat as Necessary) 

INFORMATION TABLE 2—DAILY ACTIVITY AFFECTING MANAGER’S GROSS SHORT POSITION DURING THE REPORTING

PERIOD

Column 1 Column 2 Column 3 Column 4 Column 5 Column 6 Column 7 

Settlement Date Issuer Name ..... Issuer LEI ......... Title of Class .... CUSIP Number FIGI ................... Net Change in Short Position (Number of 

Shares). 

(Repeat as Necessary) 

[FR Doc. 2023–23050 Filed 10–31–23; 8:45 am] 

BILLING CODE 8011–01–P 


ddrumheller on DSK120RN23PROD with RULES2