14950 Federal Register / Vol. 87, No. 51 / Wednesday, March 16, 2022 / Proposed Rules 

1See Notice of the Text of the Proposed 

Amendments to the National Market System Plan 

Governing the Consolidated Audit Trail for 

Purposes of Short Sale-related Data Collection, 

Exchange Act Release No. 34–94314 (Feb. 25, 2022). 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Part 240, 242, and 249 

[RELEASE NO. 34–94313; FILE NO. S7–08– 

22] 

RIN 3235–AM34 

Short Position and Short Activity 

Reporting by Institutional Investment 

Managers 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Proposed rule. 

SUMMARY: The Securities and Exchange 

Commission (the ‘‘Commission’’) is 

proposing a new rule and related form 

pursuant to the Securities Exchange Act 

of 1934 (the ‘‘Exchange Act’’), including 

Section 13(f)(2), which was added by 

Section 929X of the Dodd-Frank Wall 

Street Reform and Consumer Protection 

Act (‘‘DFA’’). The proposed 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 rule, institutional investment 

managers that meet or exceed a 

specified reporting threshold would be 

required to report, on a monthly basis 

using the proposed form, specified short 

position data and short activity data for 

equity securities. In addition, the 

Commission is proposing a new rule 

under the Exchange Act to prescribe a 

new ‘‘buy to cover’’ order marking 

requirement, and proposing to amend 

the national market system plan 

governing the consolidated audit trail 

(‘‘CAT’’) created pursuant to the 

Exchange Act to require the reporting of 

‘‘buy to cover’’ order marking 

information and reliance on the bona 

fide market making exception in the 

Commission’s short sale rules. The 

Commission is publishing the text of the 

proposed amendments to the CAT NMS 

Plan in a separate notice. 

DATES: Comments should be received on 

or before April 26, 2022. 

ADDRESSES: Comments should be 

submitted by any of the following 

methods: 

Electronic Comments: 

• Use the Commission’s internet 

comment form (https://www.sec.gov/ 

rules/submitcomments.htm); or 

• Send an email to rule-comments@

sec.gov. Please include File Number S7– 

08–22 on the subject line. 

Paper Comments: 

• Send paper comments to: Vanessa 

A. Countryman, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE, Washington, DC 20549–1090. 

All submissions should refer to File 

Number S7–08–22. This file number 

should be included on the subject line 

if email is used. To help us process and 

review your comments more efficiently, 

please use only one method. The 

Commission will post all comments on 

the Commission’s internet website 

(https://www.sec.gov/rules/ 

proposed.shtml). Comments are also 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Operating 

conditions may limit access to the 

Commission’s public reference room. 

All comments received will be posted 

without change. Persons submitting 

comments are cautioned that the 

Commission does not redact or edit 

personal identifying information from 

comment submissions. Commenters 

should submit only information that 

they wish to make available publicly. 

Studies, memoranda, or other 

substantive items may be added by the 

Commission or staff to the comment file 

during this rulemaking. A notification of 

the inclusion in the comment file of any 

such materials will be made available 

on the Commission’s website. To ensure 

direct electronic receipt of such 

notifications, sign up through the ‘‘Stay 

Connected’’ option at https://

www.sec.gov/ to receive notifications by 

email. 

FOR FURTHER INFORMATION CONTACT: 

Timothy M. Riley, Branch Chief; Patrice 

M. Pitts, Special Counsel; James R. 

Curley, Special Counsel; Quinn Kane, 

Special Counsel; Jessica Kloss, Attorney 

Advisor; Brendan McLeod, Attorney 

Advisor; and Josephine J. Tao, Assistant 

Director, Office of Trading Practices, 

Division of Trading and Markets, 

Securities and Exchange Commission, 

100 F Street NE, Washington, DC 20549, 

at (202) 551–5777. 

SUPPLEMENTARY INFORMATION: The 

Commission today is proposing for 

comment new rule 13f–2 (‘‘Proposed 

Rule 13f–2’’) (17 CFR 240.13f–2) and 

related form (‘‘Proposed Form SHO’’) 

(17 CFR 249.333) under the Exchange 

Act. Proposed Rule 13f–2 would require 

certain institutional investment 

managers to report, on a monthly basis 

on new Proposed Form SHO, certain 

short position data and short activity 

data for certain equity securities as 

prescribed in Proposed Rule 13f–2. 

The Commission is also proposing for 

comment a new rule prescribing a ‘‘buy 

to cover’’ order marking requirement 

under Regulation SHO (‘‘Proposed Rule 

205’’) (17 CFR 242.205), and 

amendments to the national market 

system plan governing the CAT, 

pursuant to Rules 608(a)(2) [17 CFR 

242.608(a)(2)] and 608(b)(2) [17 CFR 

242.608(b)(2)] of the Exchange Act 

(‘‘Proposal to Amend CAT’’) that enable 

the Commission to propose 

amendments to any effective national 

market system (‘‘NMS’’) plan. For the 

text of the proposed amendments to the 

CAT NMS Plan, please see the Notice of 

Proposed Amendments to the National 

Market System Plan Governing the 

Consolidated Audit Trail for Purposes of 

Short Sale-related Data Collection.1

Proposed Rule 13f–2, Proposed Form 

SHO, Proposed Rule 205, and the 

Proposal to Amend CAT are hereinafter 

collectively referred to as the 

‘‘Proposals.’’ 

Table of Contents 

I. Introduction 

II. Background 

A. Enhancing Short Sale Transparency 

B. Existing Short Sale Data 

C. Prior Nonpublic Short Sale Reporting by 

Certain Investment Managers to the 

Commission 

D. Petitions and Commentary Regarding 

Short Position Disclosure 

III. Proposed Rule 13f–2 and Proposed Form 

SHO 

A. Proposed Form SHO Filing Requirement 

Through EDGAR 

B. Proposed Form SHO 

C. Publication of Information by the 

Commission 

D. Reporting Thresholds 

E. Supplementing Current Short Sale Data 

Available From FINRA and the 

Exchanges 

F. Request for Comments 

IV. Potential Alternative Approach to 

Proposed Rule 13f–2 Regarding How the 

Information Reported on Proposed Form 

SHO Is Published by the Commission 

V. Proposed Amendment to Regulation SHO 

To Aid Short Sale Data Collection 

VI. Proposal to Amend CAT 

A. ‘‘Buy to Cover’’ Information 

B. Reliance on Bona Fide Market Making 

Exception 

C. Request for Comments 

VII. Paperwork Reduction Act Analysis 

A. Background 

B. Burdens for Managers Under Proposed 

Rule 13f–2 and Proposed Form SHO 

C. Burdens for Broker-Dealers Under 

Proposed Rule 205 

D. Burdens and Costs Associated With the 

Proposal To Amend CAT 

E. Collection of Information Is Mandatory 

F. Confidentiality 

G. Request for Comments 

VIII. Economic Analysis 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 51 / Wednesday, March 16, 2022 / Proposed Rules 14951 

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’’). 

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 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 at 11235 n.29 and 30. See 

generally discussion infra Part VIII.D.2. 

6See, e.g., Division of Economic and Risk 

Analysis, Short Sale Position and Transaction 

Reporting 6–7 (June 5, 2014) (‘‘DERA 417(a)(2) 

Study’’), available at https://www.sec.gov/files/ 

short-sale-position-and-transactionreporting%2C0.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 at 

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.D.1. 

7See Regulation SHO Adopting Release, supra 

note 4. 

8See 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 id. 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 OZ Mgmt., 

Exchange Act Release No. 75445 (July 14, 2015) 

(settled) (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. 

9See 17 CFR 242.203(b)(1) through (2). 

10See 17 CFR 242.204. 

11See 17 CFR 242.201. 

12See Exchange Act Release No. 58774 (Oct. 14, 

2008), 73 FR 61666 (Oct. 17, 2008). 

13Public Law 111–203, 929X, 124 Stat. 1376, 

1870 (July 21, 2010). 

14 15 U.S.C. 78m(f)(2). 

15As 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. As such, the term ‘‘institutional investment 

manager’’ typically can include investment 

advisers, banks, insurance companies, brokerdealers, pension funds and corporations. See also 

Instructions to Form 13F. 

A. Introduction 

B. Economic Justification 

C. Baseline 

D. Economic Effects 

E. Efficiency, Competition and Capital 

Formation 

F. Reasonable Alternatives 

G. Request for Comments 

IX. Regulatory Flexibility Act Certification 

X. Consideration of Impact on the Economy 

Statutory Authority and Text of Proposed 

Rules 13f–2 and 205, and Form SHO 

I. Introduction 

A short sale involves the 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 Short 

selling has long been used in financial 

markets as a means to profit from an 

expected downward price movement, to 

provide liquidity in response to 

unanticipated demand,3 or to hedge the 

risk of a long position in the same 

security or a related security.4 Short 

selling has also been shown to improve 

pricing efficiency by providing 

information to the market.5 While short 

selling can serve useful market 

purposes, it also may 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 registered on a national 

securities exchange, as necessary or 

appropriate in the public interest or for 

the protection of investors. Current 

regulatory requirements applicable to 

short sales of equity securities are 

generally found in Regulation SHO, 

which became effective on January 3, 

2005.7 Regulation SHO imposes four 

general requirements with respect to 

short sales of equity securities. It 

requires broker-dealers to properly mark 

sale orders as ‘‘long,’’ ‘‘short,’’ or ‘‘short 

exempt;’’ 8 before effecting a short sale, 

to locate a source of shares that the 

seller reasonably believes can be timely 

delivered (commonly referred to as the 

‘‘locate’’ requirement); 9 and to close out 

failures to deliver that result from long 

or short sales.10 Further, Regulation 

SHO imposes a short sale price test 

circuit breaker.11 In addition, the 

Commission adopted an antifraud 

provision, Rule 10b–21, to address 

failures to deliver in securities that have 

been associated with ‘‘naked’’ short 

selling.12 As discussed below, Proposed 

Rule 13f–2 would apply to equity 

securities that are subject to Regulation 

SHO in order to be consistent with those 

requirements. 

DFA Section 929X added Section 

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

‘‘Reports by institutional investment 

managers,’’ which requires the 

Commission to prescribe rules to make 

certain short sale data publicly available 

no less frequently than monthly.13

Specifically, Section 13(f)(2) provides 

that the Commission shall prescribe 

rules providing for the public disclosure 

of the name of the issuer and the title, 

class, CUSIP 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.14

Proposed Rule 13f–2 is designed to 

provide greater transparency through 

the publication of certain short sale 

related data to investors and other 

market participants by requiring certain 

institutional investment managers to 

report to the Commission, on a monthly 

basis on Proposed Form SHO, certain 

short position data and short activity 

data for certain equity securities. More 

information about the short sale activity 

and short positions of institutional 

investment managers (‘‘Managers’’) 15

may promote greater risk management 

among market participants, and may 

facilitate capital formation to the extent 

that greater transparency bolsters 

confidence in the markets. 

Proposed Rule 205 would establish a 

new ‘‘buy to cover’’ order marking 

requirement for certain purchase orders 

effected by a broker-dealer for its own 

account or for the account of another 

person at the broker-dealer. The 

Proposal to Amend CAT would require 

CAT reporting firms to report short sale 

data not currently required that would 

enhance regulators’ understanding of 

the lifecycle of a trade—from order 

origination, including an order’s mark, 

through order execution and allocation. 


jspears on DSK121TN23PROD with PROPOSALS2
14952 Federal Register / Vol. 87, No. 51 / Wednesday, March 16, 2022 / Proposed Rules 

16See generally Part VIII.D.1 (discussing how the 

Commission could have used the data provided 

under the Proposals to address market events such 

as the recent market volatility associated with 

meme stocks, and how the data provided under the 

Proposals could have aided the Commission in 

examining that market event). 

17See generally infra Part VIII.C.4 (discussing 

existing short selling data). 

18See generally infra Parts VIII.B and VIII.C.4.iv 

(discussing challenges of extracting short sale 

information—e.g., to estimate positions and to track 

how those positions change over time—from CAT). 

19See generally infra Parts VIII.C.5 and VIII.F 

(discussing the impact of copycat trading strategies 

on competition). 

20See infra Parts II.B and VIII.C.4 (discussing 

short sale data that is currently available and how 

that compares to the data to be reported on 

Proposed Form SHO). 

21See infra Part VIII.D.1. 

22See, e.g., Letter from Elizabeth King, Corporate 

Secretary, NYSE Group, and James M. Cudahy, 

President and CEO, National Investor Relations 

Institute (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 

[hereinafter ‘‘NYSE Petition’’]; 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 

Proposed Rule 205 and the Proposal to 

Amend CAT are intended to 

supplement the short sale data made 

available to the Commission in 

Proposed Form SHO filings by requiring 

the reporting to CAT of (i) ‘‘buy to 

cover’’ order marking information and 

(ii) reliance on the bona fide market 

making exception in Regulation SHO. 

The Commission believes greater 

transparency of short sale activity and 

short position data would improve the 

Commission’s oversight of financial 

markets and compliance with existing 

regulations, as well as facilitate 

regulators’ ability to reconstruct 

significant market events, which may, in 

turn, improve the Commission’s ability 

to respond to similar events in the 

future.16 This could, in turn, benefit the 

public and market participants by 

aiding the Commission in more 

effectively maintaining a fair and 

orderly market. 

The Commission believes that the 

short sale related information that 

would be collected under the Proposals, 

particularly the required disclosures of 

Proposed Form SHO and the aggregated 

data published pursuant to Proposed 

Rule 13f–2, would fill an information 

gap for market participants and 

regulators by providing insights into the 

lifecycle of a short sale. In contrast to 

data related to short sales that is 

currently collected and published by 

FINRA and most exchanges, the 

aggregated information derived from 

information reported on Proposed Form 

SHO and published pursuant to 

Proposed Rule 13f–2 would reflect the 

timing of increases and decreases in the 

reported short positions.17 Such 

aggregated information would help 

inform market participants regarding the 

overall short sale activity by reporting 

Managers. The information reported on 

Proposed Form SHO, along with the 

information gleaned through the 

operation of Proposed Rule 205 and the 

Proposal to Amend CAT would help the 

Commission and SROs to overcome 

current challenges in using data from 

CAT to estimate short positions and 

changes in short positions.18

The Commission acknowledges that 

the Proposals would entail costs to some 

market participants—more specifically, 

compliance costs associated with 

determining whether the Manager is 

required to report on Proposed Form 

SHO and, if so, with filing Proposed 

Form SHO, pursuant to Proposed Rule 

13f–2, and the costs associated with 

accommodating the additional order 

marks, pursuant to Proposed Rule 205 

and the Proposal to Amend CAT. 

Implementing Proposed Rule 13f–2 and 

Proposed Form SHO could also reduce 

certain industry participants’ incentives 

to gather information about the 

marketplace and specific securities. For 

example, requiring disclosure of short 

positions could facilitate copycat 

trading that, in turn, could limit the 

profit an investor may earn using 

strategies developed in connection with 

its marketplace information gathering 

efforts.19 In addition, requiring 

disclosure of large short positions, even 

in an aggregated format, could make 

holders of such short positions more 

susceptible to short squeezes. To the 

extent that these circumstances could 

reduce the value of marketplace 

information gathered to develop a short 

selling strategy, they could discourage 

investors from making an effort to gather 

marketplace information. A reduction in 

information collection could harm price 

efficiency, which could, in turn, affect 

capital allocations and managerial 

decisions. Aggregating short sale 

activity and short position information 

across all reporting Managers for each 

reported equity security prior to 

publication and publishing such data on 

a delay would likely mitigate—though 

not fully eliminate—the potential 

negative economic effects of the 

reporting requirements and associated 

information disclosure of Proposed Rule 

13f–2 and Proposed Form SHO. 

Proposed Rule 13f–2 and Proposed 

Form SHO are designed to address the 

requirements of Section 13(f)(2). In 

developing Proposed Rule 13f–2, the 

Commission recognizes the need to 

consider the important role short selling 

plays in the market as well as the 

benefits of providing more disclosure 

about short selling. For reasons 

discussed more fully below, the 

Commission believes Proposed Rule 

13f–2 represents an appropriate balance 

by offering increased transparency into 

the short selling activities of certain 

Managers with large short positions 

through the dissemination of aggregated 

information reported on new, standalone, Proposed Form SHO. The 

information reported on Proposed Form 

SHO would provide investors, market 

participants, and the Commission with 

short sale data that supplements what is 

currently available, free or on a fee 

basis, from FINRA and most 

exchanges.20 Proposed Rule 13f–2 and 

Proposed Form SHO would improve the 

utility of information regularly available 

to the Commission, and made available 

as appropriate to self-regulatory 

organizations (‘‘SROs’’), that could be 

used to examine market behavior and 

recreate significant market events. It 

would also increase information 

available to market participants and 

could assist in their understanding of 

the level of negative sentiment and the 

actions of short sellers collectively. 

While the primary focus of Proposed 

Rule 13f–2 and Proposed Form SHO is 

transparency, the Commission’s regular 

access to the data reported on Proposed 

Form SHO would also bolster its 

oversight of short selling. In addition, 

Proposed Rule 205 and the Proposal to 

Amend CAT would enhance the 

information regularly available to the 

Commission and other regulators that 

could be used to oversee short selling 

and to reconstruct significant market 

events. In turn, the Commission’s more 

accurate and timely reconstruction and 

response to market events could 

contribute to overall investor 

protections, particularly in times of 

increased market volatility.21

II. Background 

A. Enhancing Short Sale Transparency 

In recent years, market volatility 

associated with short selling has 

brought heightened attention to the 

difference in long and short position 

reporting requirements, and, more 

generally, the lack of transparency into 

the circumstances surrounding short 

sale transactions.22 The Commission has 


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Federal Register / Vol. 87, No. 51 / Wednesday, March 16, 2022 / Proposed Rules 14953 

[hereinafter ‘‘NASDAQ Petition’’]. See also Letter 

from E. Carter Esham, Executive Vice President, 

Emerging Companies, Biotechnology Innovation 

Organization (BIO) (Mar. 11, 2016) (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 

consistent and consolidated short sale information. 

See, e.g., Robert Smith, Laurence Fletcher, Madison 

Darbyshire, Eric Platt and Hannah Murphy, ‘Short 

squeeze’ spreads as day traders hunt next 

GameStop, Fin. Times (Jan. 27, 2021), available at 

https://www.ft.com/content/acc1dbfe-80a4-4b63- 

90dd-05f27f21ceb2; Are ‘‘meme stocks’’ harmless 

fun, or a threat to the financial old guard?, 

Economist (July 6, 2021). See also Sharon Nunn and 

Adam Kulam, Short-Selling Restrictions During 

Covid–19 (Jan. 12, 2021), available at https://

som.yale.edu/story/2021/short-selling-restrictionsduring-covid-19 for a discussion of global short 

selling regulatory responses to the Covid–19 

pandemic. 

23See, e.g., NYSE Petition and NASDAQ Petition, 

supra note 22. See also Final Report of the 2021 

SEC Government-Business Forum on Small 

Business Capital Formation (May 2021), available at 

https://www.sec.gov/files/2021_OASB_Annual_

Forum_Report_FINAL_508.pdf (requesting the 

Commission act to increase the transparency of 

short selling activities). 

24See infra Part VIII.D (stating that Proposed Rule 

13f–2, in conjunction with Proposed Rule 205 and 

the Proposal to Amend CAT, could help to advance 

the policy goal of investor protection by deterring 

market manipulation, and aid regulators in 

reconstructing significant market events and 

observing systemic risks). 

25See infra Part VIII.C, VIII.D. 26See infra Part VIII.D.1 (stating that ‘‘because 

short positions often take some time to create, the 

Commission could have attempted to quickly 

identify individual short sellers with large short 

positions in the various meme stocks in January 

2021 based on the most recent reports; then the 

Commission could have used the enhanced CAT 

data to understand how these short sellers traded 

during the heightened volatility.’’). 

27See infra Part VIII.D.1 (stating that ‘‘[i]n ‘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’’; stating further that ‘‘[i]f 

successful, the scheme can drive down the price, 

allowing the manipulators to profit when they ‘buyto-cover’ their short position at the reduced price.’’). 

See also, John D. Finnerty, Short Selling, Death 

Spiral Convertibles, and the Profitability of Stock 

Manipulation, SSRN (2005) at n.8, available at 

https://www.sec.gov/comments/s7-08-08/s70808- 

318.pdf (stating that the posting of ‘‘false notices on 

electronic bulletin boards in internet chat rooms is 

an example of the type of manipulative behavior 

that is difficult for regulators to monitor’’). 

28Proposed Rule: Short Sales, 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 (stating that 

‘‘[a]lthough short selling serves useful market 

purposes, it also may be used to illegally 

manipulate stock prices. One example is the ‘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. Further, 

unrestricted short selling can 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 price is falling for 

fundamental reasons.’’). 

29See Part VIII.D.1 (stating that ‘‘if a short and 

distort campaign is suspected, then detecting this 

behavior via the activity and positions data in 

Proposed Form SHO would be easier than it would 

be using current data. Short and distort campaigns 

are more likely to occur in stocks with lower market 

capitalizations with less public information. 

Consequently, among these stocks it may not, in 

dollar terms, take a very large short position to 

reach the 2.5% threshold in securities of smaller 

reporting issuers or the $500,000 threshold in 

securities of non-reporting issuers to report on 

Proposed Form SHO. As a result, it is likely that 

an entity engaging in such a practice would be 

required to report Proposed Form SHO data. 

Consequently, if short and distort type behavior 

were to be suspected, then the Commission would 

be more likely to identify individuals with large 

short positions and could thus quickly focus any 

inquiries on entities in an economic position to 

potentially profit from manipulation.’’). 

30Additionally, the Commission publishes on its 

website fail to deliver data, which can result from 

both long and short sales, twice per month for all 

equity securities. Securities and Exchange 

Commission, Fails-to-Deliver Data, available at 

https://www.sec.gov/data/foiadocsfailsdatahtm. 

Further, the CAT created pursuant to Rule 613 of 

Regulation NMS gives regulators, including the 

Commission, access to comprehensive information 

regarding the lifecycle of a trade—from origination, 

including an order’s mark (i.e., ‘‘long,’’ ‘‘short,’’ or 

‘‘short exempt’’), through execution and allocation. 

See Part VI. Notably, CAT is currently structured to 

collect information, but not to disseminate it. 

31This data is transaction by transaction for each 

security without identification of the broker-dealer 

or short seller. 

32See 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 (stating that ‘‘‘short interest’ 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. Short interest data is collected for 

all stocks—both those that are listed and traded on 

an exchange and those that are traded over-thecounter (OTC). FINRA and U.S. exchange rules 

require that brokerage firms report short interest 

data to FINRA on a per-security basis for all 

customer and proprietary firm accounts twice a 

month, around the middle of the month and again 

at the end of each month.’’). 

33See infra Part VIII.C.4.i. FINRA recently sought 

comment on a variety of potential enhancements to 

its short interest position program. See FINRA 

Regulatory Notice 21–19 (June 2021), available at 

https://www.finra.org/rules-guidance/notices/21-19. 

Any such changes to FINRA rules would be filed 

with the Commission and published for notice and 

public comment, pursuant to Exchange Act Section 

19(b) and Rule 19b–4 thereunder. See also FINRA 

Rule 4560. Short Interest Reporting, available at 

https://www.finra.org/rules-guidance/rulebooks/ 

finra-rules/4560 (requiring FINRA member firms to 

maintain a record of total ‘‘short’’ positions in all 

Continued 

received requests to increase 

transparency into short sale related 

activity through the adoption of 

reporting requirements similar to those 

currently required by holders of long 

positions above certain thresholds.23

As noted above, Section 13(f)(2) 

requires the Commission to prescribe 

rules to make certain short sale data 

publicly available no less frequently 

than monthly. After carefully 

considering the possible economic 

effects of various approaches, the 

Commission believes that publication of 

aggregated gross short position data of 

certain Managers, and certain related 

activity data, as discussed in more detail 

below, would provide valuable 

transparency to market participants and 

regulators.24 The Commission believes 

that the data resulting from Proposed 

Rule 13f–2 would help to provide 

valuable context to overall short 

position data currently available by 

distinguishing directional short selling 

of Managers from short sale activity 

effected pursuant to hedging as well as 

that of market makers and liquidity 

providers.25 In addition, the 

Commission believes that the data 

would provide regulators with a more 

complete picture of significant market 

events by shedding additional light on 

the potential role of short selling 

activity.26

In determining the proposed reporting 

requirements under Proposed Rule 13f– 

2 and Proposed Form SHO, the 

Commission is mindful of concerns that 

certain short selling activity can be 

carried out pursuant to potentially 

abusive or manipulative schemes. For 

instance, market manipulators may seek 

to spread false information about an 

issuer whose stock they sold short in 

order to profit from a resulting decline 

in the stock’s price.27 The Commission 

has previously noted various other 

forms of manipulation that can be 

advanced by short sellers to illegally 

manipulate stock prices, such as ‘‘bear 

raids.’’ 28 As discussed below, greater 

transparency into the activities of 

Managers holding large short positions 

in a security could help regulators’ 

oversight of short selling and deter these 

and other types of manipulative short 

selling campaigns potentially by alerting 

regulators to suspicious activity.29

B. Existing Short Sale Data 

There are currently multiple sources 

of public and nonpublic data related to 

short sales.30 FINRA and most 

exchanges collect and publish daily 

aggregate short sale volume data, and on 

a one month delayed basis publish 

information regarding short sale 

transactions.31 However, the 

Commission understands that some 

exchanges only make certain data 

available for a fee. In addition, FINRA 

collects and aggregates short interest 

data 32 from broker-dealer member 

firms, by security, twice each month.33


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customer and proprietary firm accounts and to 

regularly report such information to FINRA). 

34For stocks traded OTC, FINRA collects and 

publishes equity short interest information free on 

its Over-the-Counter Equities page, available at 

https://otce.finra.org/otce/equityShortInterest. 

35 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 September 18, 2008, 

September 21, 2008, and October 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 September 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 October 17, 2008, and stating that the 

Forms SH filed under the Order would remain 

nonpublic to the extent permitted by law). 

36See 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). 

37Press Release, Securities and Exchange 

Commission, SEC Takes Steps to Curtail Abusive 

Short Sales and Increase Market Transparency (July 

27, 2009), available at https://www.sec.gov/news/ 

press/2009/2009-172.htm (stating that the 

Commission and its staff were working with several 

SROs to make certain short sale volume and 

transaction data available through SRO websites). 

38Amendment 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). 

39 Id. at 58987. 

40 Id. 

41See supra note 37. 

42See supra note 22. 

43 Id. 

44See, e.g., Jane Lewis, Jim Chanos: the shortseller who called Enron, MoneyWeek (Sept. 28, 

2018), available at https://moneyweek.com/495688/ 

jim-chanos-the-short-seller-who-called-enronarticle. 

45See, e.g., Duncan Lamont, GameStop: the ethics 

of short sellers, Schroders (Jan. 29, 2021), available 

at https://www.schroders.com/en/insights/ 

economics/are-short-sellers-ethical/; Ariel D. 

Multak, The Big Patent Short: Hedge Fund 

Challenges to Pharmaceutical Patents and the Need 

for Financial Regulation, 23 Fordham J. Corp. & Fin. 

L. 301 (2017), available at https://

news.law.fordham.edu/jcfl/wp-content/uploads/ 

sites/5/2018/01/Multak-Note.pdf. 

46See, e.g., Tom Brennan, How Short-Sellers 

Almost Destroyed U.S. Banking, CNBC (Aug. 5, 

2010), available at https://www.cnbc.com/id/ 

28239960. 

47See, e.g., Alex Rosenberg, When shorting goes 

wrong: Zulily crushes the bears, CNBC (Aug. 18, 

2015), available at https://www.cnbc.com/2015/08/ 

17/when-shorting-goes-wrong-zulily-crushes-thebears.html. 

48Short Sale Reporting Study Required by DoddFrank Act Section 417(a)(2), Exchange Act Release 

No. 64383 (May 3, 2011), 76 FR 26787 (May 9, 

2011). See also DERA 417(a)(2) Study, supra note 

FINRA provides this aggregated short 

interest data to the appropriate listing 

exchange for publication, some of which 

charge a fee for access to the data. For 

over-the-counter (‘‘OTC’’) securities, 

which are not listed on an exchange, 

FINRA publishes the aggregated short 

interest data itself.34 FINRA’s 

aggregation of the short interest data for 

each security does not disclose the 

identity of reporting market participants 

or the size of any individual short 

position. 

C. Prior Nonpublic Short Sale Reporting 

by Certain Institutional Investment 

Managers to the Commission 

In October 2008, the Commission 

adopted interim temporary Rule 10a– 

3T, which required certain institutional 

investment managers to file weekly 

nonpublic reports with the Commission 

on Form SH regarding their short sales 

and positions in Section 13(f) securities, 

other than options.35 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. 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 and was specifically 

intended to provide the Commission 

with information to evaluate whether its 

short selling regulations were working 

as intended.36 Rule 10a–3T remained in 

effect through July 2009, at which time 

the Commission stated that it and its 

staff were working with several SROs to 

make publicly available certain 

information related to short sale 

activity, such as short sale volume and 

transaction data.37

Forms SH were nonpublic filings. The 

Commission’s determination to 

maintain the confidentiality of the 

information disclosed on Form SH was 

based in part on the concern that 

requiring public disclosure may have 

had the unintended consequence of 

giving rise to imitative short selling, 

thereby exacerbating already extreme 

levels of market volatility observed 

during the 2008 financial crisis.38 The 

Commission also stated that 

implementing a nonpublic, rather than 

public, disclosure requirement would 

help to prevent the potential for sudden 

and excessive fluctuations of securities 

prices and disruption in the functioning 

of the securities markets that could 

threaten fair and orderly markets.39

Moreover, the Commission stated at the 

time that requiring nonpublic 

submission of the form may help 

prevent artificial volatility in securities 

as well as further downward swings that 

are caused by short selling while also 

providing the Commission with 

valuable information to combat market 

manipulation.40 Just before interim 

temporary Rule 10a–3T was set to 

expire in August 2009, the Commission 

stated that it would continue to examine 

whether additional measures are needed 

to further enhance market quality and 

transparency, as well as address short 

selling abuses.41

D. Petitions and Commentary Regarding 

Short Position Disclosure 

NASDAQ, NYSE, and the National 

Investor Relations Institute, have 

previously petitioned the Commission 

requesting that, pursuant to DFA 

Section 929X, it require disclosure of 

individual short positions similar to the 

disclosures required under Section 

13(f)(1) or Regulations 13D and 13G for 

long-position reporting.42 The petitions 

also request that ‘‘short position’’ or 

‘‘short interest’’ be interpreted broadly 

to capture not only traditional short 

sales but also derivative and other 

transactions having the same economic 

impact. Among these petitioners’ 

concerns is that the lack of public 

disclosure of individual short positions 

may facilitate accumulations of 

significant positions in an issuer’s 

securities and potentially compromise 

investors’ ability to accurately evaluate 

market movements in those securities.43

They further argue that the benefits 

associated with requiring individual, 

public disclosure of short selling would 

include allowing investors to more 

accurately evaluate market movements 

and make more informed investment 

decisions, reducing manipulative 

conduct, increasing investor confidence, 

and improving issuers’ ability to engage 

with short sellers. 

While some market participants have 

noted instances when public 

announcements by short sellers have 

aided the market in ultimately 

discovering the truth behind fraudulent 

activity,44 critics of that position have 

countered with ways short sellers may 

unfairly harm issuers that are not 

engaged in fraudulent activity.45 Other 

such critics of short selling have posited 

that issuers may be unduly harmed 46

even when short sellers suffer through 

normal market forces.47

In response to requests for comment 

on the short sale reporting study 

required by Section 417(a)(2) of DFA,48


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6. The DERA 417(a)(2) Study was a study 

conducted by Commission staff in the Division of 

Economic and Risk Analysis analyzing the 

feasibility, costs, and benefits of real-time reporting 

of short positions in publicly listed securities. 

49See Letter from Stuart J. Kaswell, Executive 

Vice President & Managing Director, General 

Counsel, Managed Funds Association (June 22, 

2011) (‘‘2011 MFA Letter’’), available at https://

www.sec.gov/comments/4-627/4627-137.pdf; see 

also Letter from Matthew Newell, Associate General 

Counsel, Managed Funds Association (Sept. 6, 

2019), available at https://www.sec.gov/comments/ 

s7-26-18/s72618-6082119-191807.pdf. 

50 In this regard, the commenter in the 2011 MFA 

Letter stated that individual public disclosure 

would cause potential short sellers to either refrain 

from or minimize engaging in short sale 

transactions, including hedging activity, to avoid 

triggering any threshold for requiring individual 

public disclosure. The commenter further stated 

that public disclosure of individual short positions 

could be misleading to investors (stating that 

investors frequently short a stock for portfolio risk 

management purposes) and could potentially 

enable market participants to reverse engineer a 

reporting firm’s trading strategies. In addition, the 

commenter stated that individual public disclosure 

could expose market participants to the risk of a 

‘‘short squeeze,’’ which may deter investors from 

engaging in short selling more generally. 2011 MFA 

Letter, supra note 49. 

51See infra Part III.B.4 for a discussion of how 

technical errors are to be addressed in filing 

Proposed Form SHO with the Commission. 

52See generally infra Parts VIII.C.5 and VIII.F 

(discussing ‘‘copycat trading’’). 

53For purposes of Proposed Rule 13f–2, the term 

‘‘investment discretion’’ has the same meaning as 

in Rule 13f–1(b) under the Exchange Act. 17 CFR 

240.13f–1(b). Proposed Rule 13f–2(b)(2). 

54 15 U.S.C. 78l. 

55 15 U.S.C. 78o(d). 

56For purposes of Proposed Rule 13f–2 and 

Proposed Form SHO, the term ‘‘regular trading 

hours’’ would have the same meaning as in Rule 

600(b)(77) under the Exchange Act. See, e.g., 

Proposed Rule 13f–2(b)(5). 

57For purposes of Proposed Rule 13f–2, the term 

‘‘gross short position’’ means the number of shares 

of the reportable equity security that are held short, 

without inclusion of any offsetting economic 

positions (including shares of the reportable equity 

security or derivatives of such security). Proposed 

Rule 13f–2(b)(4). 

one commenter stated that identification 

of a market participant that has engaged 

in a short sale may have the unintended 

consequence of exposing investors to 

the risk of short squeezes.49 This 

commenter also maintained that 

individual public disclosure could chill 

short selling and thereby deny the 

marketplace certain resulting benefits, 

such as market liquidity, and pricing 

efficiency.50

Design of Proposals. As discussed 

more fully throughout the release, the 

Commission believes that Proposed 

Rule 13f–2 appropriately balances these 

competing interests. Proposed Rule 13f– 

2 would result in the publication of 

certain short sale related data, which 

would provide additional transparency 

to market participants, but data would 

be aggregated across all reporting 

Managers for each reported equity 

security prior to publication. The 

Commission believes that publicly 

disclosing the identity of individual 

reporting Managers may not currently 

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. 

Further, by establishing minimum 

reporting thresholds, Proposed Rule 

13f–2 would apply only to Managers 

with large gross short positions in a 

security, and would not generally apply 

to market participants that do not carry 

large overnight gross short positions in 

equity securities. 

Managers that meet a specified 

reporting threshold, as discussed below, 

would be required to file Proposed Form 

SHO with the Commission within 14 

calendar days after the end of the 

calendar month. The Commission 

would then publish aggregated 

information derived from data reported 

on Proposed Form SHO. The 

Commission estimates 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. At this time, the 

Commission 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.51 The additional delay prior to 

publication of the aggregated data 

would also help to reduce the risk of 

imitative trading activity by market 

participants and help to protect 

reporting Managers’ proprietary trading 

strategies.52

As discussed throughout this release, 

the Commission believes that, by 

limiting the reporting requirements to 

positions exceeding a reporting 

threshold and by publishing data on an 

aggregated and delayed basis, the 

structure of Proposed Rule 13f–2 and 

the information required to be reported 

on Proposed Form SHO would likely 

mitigate many potential negative effects 

on the market. 

III. Proposed Rule 13f–2 and Proposed 

Form SHO 

A. Proposed Form SHO Filing 

Requirement Through EDGAR 

Proposed Rule 13f–2 is designed to 

provide greater transparency through 

the publication of certain short sale 

related data to investors and other 

market participants by requiring a 

Manager to file a report in a structured 

data language in two information tables 

on Proposed Form SHO, in accordance 

with the form’s instructions (attached 

below). Managers would file Proposed 

Form SHO with the Commission via the 

Commission’s Electronic Data 

Gathering, Analysis, and Retrieval 

system (‘‘EDGAR’’) in an eXtensible 

Markup Language (‘‘XML’’) specific to 

Proposed Form SHO (‘‘custom XML,’’ 

here ‘‘Proposed Form SHO-specific 

XML’’). Managers would have two ways 

to file Proposed Form SHO or any 

amended Proposed Form SHO with the 

Commission. A Manager could use a 

fillable web form the Commission 

would provide on EDGAR to input 

Proposed Form SHO disclosures, which 

EDGAR would convert to Proposed 

Form SHO-specific XML, or, 

alternatively, a Manager could use its 

own software tool to file Proposed Form 

SHO to EDGAR directly in Proposed 

Form SHO-specific XML. 

A Manager would be required to file 

Proposed Form SHO with the 

Commission within 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 person 

under the Manager’s control) has 

investment discretion 53 collectively 

meet or exceed a quantitative reporting 

threshold. Specifically, a Manager must 

file a Proposed Form SHO report: 

• With regard to any equity security 

of an issuer that is registered pursuant 

to section 12 of the Exchange Act 54 or 

for which the issuer is required to file 

reports pursuant to section 15(d) of the 

Exchange Act 55 (a ‘‘reporting company 

issuer’’) in which the Manager meets or 

exceeds either (1) a gross short position 

in the equity security with a US dollar 

value of $10 million or more at the close 

of regular trading hours 56 on any 

settlement date during the calendar 

month, or (2) a monthly average gross 

short position 57 as a percentage of 

shares outstanding in the equity security 

of 2.5% or more (‘‘Threshold A’’); and 

• with regard to any equity security of 

an issuer that is not a reporting 

company issuer as described above (a 


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58LEI is a unique global identifier for legal 

entities participating in financial transactions that 

is currently used in regulatory reporting to financial 

regulators, including the Commission. 

59Regulation SHO applies to equity securities, 

both exchange-listed and over-the-counter, as 

defined in Section 3(a)(11) of the Exchange Act and 

Rule 3a11–1 thereunder. See Regulation SHO 

Adopting Release, supra note 4. 

60 17 CFR 240.13f–1(b). Rule 13f–1 is entitled 

‘‘Reporting by institutional investment managers of 

information with respect to accounts over which 

they exercise investment discretion.’’ 

61See supra Part II.C. 

‘‘non-reporting company issuer’’) in 

which the Manager meets or exceeds a 

gross short position in the equity 

security with a US dollar value of 

$500,000 or more at the close of regular 

trading hours on any settlement date 

during the calendar month (‘‘Threshold 

B’’). 

Threshold A and Threshold B are 

discussed further in Part III.D below and 

are referred to herein collectively as the 

‘‘Reporting Thresholds’’ (each a 

‘‘Reporting Threshold’’). For each equity 

security for which a Manager meets or 

exceeds a Reporting Threshold, such 

Manager, identifying itself using its 

name and active Legal Entity Identifier 

(‘‘LEI’’), if available,58 would be 

required to report information that is 

aggregated across accounts over which 

the Manager, or any person under the 

Manager’s control, has investment 

discretion. If a Manager does not have 

an active LEI, such Manager would file 

Proposed Form SHO using only its 

name as registered with the Commission 

to identify itself. 

Managers that meet a Reporting 

Threshold would be required to file 

Proposed Form SHO with the 

Commission via EDGAR within 14 

calendar days after the end of the 

calendar month. Section 13(f)(2) 

requires that public disclosure of certain 

short sale information at a minimum 

shall occur every month. The 

Commission believes that 14 calendar 

days after the end of each month 

provides sufficient time for Managers 

that meet a Reporting Threshold to 

assemble, review, and file the required 

information on Proposed Form SHO. 

Further, 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 would reduce the 

need for Managers to file amendments 

to Proposed Form SHO, as discussed 

below. 

Consistent with Regulation SHO, 

Proposed Rule 13f–2 would apply to 

equity securities.59 As such, the 

Commission believes that the short sale 

related data that would be published by 

the Commission under Proposed Rule 

13f–2 would provide additional context 

to market participants regarding equity 

securities that are subject to the 

requirements of Regulation SHO. 

For purposes of Proposed Rule 13f–2, 

the term ‘‘investment discretion’’ has 

the same meaning as in Rule 13f–1(b) 

under the Exchange Act.60 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 interim 

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,61 and is currently used for 

Form 13F ‘‘long’’ position reporting by 

certain Managers. Because Proposed 

Rule 13f–2 is designed to provide 

greater transparency to investors and 

other market participants through the 

publication of certain short sale related 

data, the Commission believes that 

using the same comprehensive 

definition of investment discretion for 

Manager reporting under Proposed Rule 

13f–2 is likewise appropriate. In 

addition, Managers that would be filing 

reports on Proposed Form SHO are 

likely experienced with reporting on 

Form 13F using this same definition. As 

discussed above, Proposed Rule 13f–2 is 

designed to address the requirements of 

Section 13(f)(2) by offering increased 

transparency into the activities of 

certain Managers with large short 

positions. As such, information reported 

by a Manager should include all 

accounts over which such Manager has 

investment discretion. 

Proposed Rule 13f–2 would require 

that a Manager calculate its ‘‘gross short 

position’’ in an equity security in 

determining whether it meets a 

Reporting Threshold. Under Proposed 

Rule 13f–2, ‘‘gross short position’’ 

would mean the number of shares of the 

equity security that are held short, 

without inclusion of any offsetting 

economic positions, including shares of 

the equity security or derivatives of 

such equity security. The Manager shall 

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. A Manager’s gross short 

position in a security is distinct from its 

net short position in such security, and 

the Commission believes that gross 

short position information provides a 

more complete view of a Manager’s 

short exposure, especially if coupled 

with the hedging information that the 

Commission is proposing Managers 

report on Proposed Form SHO, as 

discussed below. Requiring reporting of 

gross short positions would also likely 

result in more consistent reporting 

among Managers. Specifically, the 

Commission is concerned that using net 

short positions could result in Managers 

using varying approaches in 

determining what ‘‘long’’ positions, 

including equivalent ‘‘long’’ positions 

through derivatives, are appropriate to 

offset against their gross short position 

in determining whether the Manager 

meets a Reporting Threshold in the first 

instance. Consequently, the Commission 

believes that using a net short position 

could result in different reporting 

results for otherwise similarly situated 

Managers in terms of a gross short 

position in the equity security. 

The Commission is proposing 

required Manager disclosures that are 

significantly different from currently 

available data and that would be useful 

to both market participants and 

regulators, with a focus on addressing 

data limitations exposed by the market 

volatility in January 2021. 

B. Proposed Form SHO 

1. Filing Proposed Form SHO Reports 

Proposed Form SHO is entitled 

‘‘Information required of institutional 

investment managers pursuant to 

Section 13(f)(2) of the Securities 

Exchange Act of 1934 and rules 

thereunder.’’ Managers would use 

Proposed Form SHO for reports to the 

Commission required by Proposed Rule 

13f–2. A Manager 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. 

Pursuant to Proposed Rule 13f–2 and 

Proposed Form SHO, to determine 

whether the dollar value threshold 

described in the first prong of Threshold 

A—a gross short position in an equity 

security of a reporting company issuer 

(as described above) with a US dollar 

value of $10 million or more at the close 

of regular trading hours on any 

settlement date during the calendar 

month—is met, a Manager shall 

determine its end of day gross short 

position in the equity security on each 

settlement date during the calendar 

month and multiply that figure by the 


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62See ‘‘Rules to Prevent Duplicative Reporting’’ 

in the ‘‘General Instructions’’ of Form 13F, available 

at https://www.sec.gov/pdf/form13f.pdf. 63See infra Part VIII.D.1. 

64See Form 13F, available at https://

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

65Any requests for confidential treatment of the 

information reported on Proposed Form SHO 

should be made in accordance with Rule 24b–2 

under the Exchange Act (17 CFR 240.24b–2), should 

be filed electronically in accordance with proposed 

Rule 24b–2(i) and Rule 101(d) of Regulation S–T (17 

CFR 232.101(d)), and should provide enough 

factual support in the request to enable the 

Commission to make an informed judgment as to 

the merits of the request. 

closing price at the close of regular 

trading hours on the settlement date. 

To determine whether the second 

prong of Threshold A—2.5% or higher 

monthly average gross short position as 

a percentage of shares outstanding in 

the equity security—is met, the Manager 

shall (a) identify its gross short position 

(as defined in Proposed Rule 13f–2) 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 of the 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. 

To determine whether the dollar 

value threshold described in Threshold 

B—a gross short position in an equity 

security of a non-reporting company 

issuer (as described above) with a US 

dollar value of $500,000 or more at the 

close of regular trading hours on any 

settlement date during the calendar 

month—is met, a Manager shall 

determine its end of day gross short 

position in the equity security 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. In 

circumstances where such closing price 

is not available, the Manager would be 

required to use the price at which it last 

purchased or sold any share of that 

security in determining whether 

Threshold B is met. 

The rules to prevent duplicative 

reporting of Proposed Form SHO are 

modeled after those in Form 13F.62

More specifically, if two or more 

Managers, each of which is required by 

Proposed Rule 13f–2 to file Proposed 

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 Proposed 

Form SHO. If a Manager has information 

that is required to be reported on 

Proposed 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 to the Proposed 

Form SHO instructions. Such 

information would be reported by 

Managers on the ‘‘Cover Page,’’ as 

discussed further below. Duplicative 

reporting could result in unnecessary 

costs to Managers, and could make the 

aggregated data published by the 

Commission less accurate. 

The Commission believes 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. Proposed Rule 13f–2 

and Proposed Form SHO would 

improve the quality and scope of the 

information regularly available for the 

Commission’s use in examining market 

behavior and recreating significant 

market events. In addition, Proposed 

Rule 13f–2 and Proposed Form SHO 

would expand the scope of information 

available to market participants and 

could thereby assist in their 

understanding of the level of negative 

sentiment and the actions of short 

sellers collectively. While the primary 

focus of Proposed Rule 13f–2 and 

Proposed Form SHO is transparency, 

the Commission’s regular access to the 

data reported on Proposed Form SHO 

would also bolster its oversight of short 

selling. The Commission’s ability to 

more accurately and timely reconstruct 

and respond to market events could 

enhance investor protections, 

particularly in times of increased market 

volatility.63

Reporting via EDGAR would allow 

the Commission to download the 

Proposed Form SHO disclosures 

directly, facilitating efficient access, 

organization, and evaluation of the 

reported information, thereby allowing 

the Commission to more effectively 

examine market behavior, recreate 

significant market events, and further 

bolster its oversight of short selling 

activity. 

The Commission believes that 

requiring Proposed Form SHO to be 

filed in Proposed Form SHO-specific 

XML, a structured machine-readable 

data language, would 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.64

2. Confidential Treatment 

The instructions to Proposed Form 

SHO expressly provide that all 

information that would reveal the 

identity of a Manager filing a Proposed 

Form SHO report with the Commission 

is deemed subject to a confidential 

treatment request under Rule 24b–2 (17 

CFR 240.24b–2). The Commission 

currently plans to publish only 

aggregated data derived from 

information provided in Proposed Form 

SHO reports. Accordingly, Proposed 

Form SHO, by its terms, ensures that 

information reported on the form that 

could reveal the identity of the reporting 

Manager will 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 FOIA, Section 

13(f)(4)–(5), Rule 24b–2(b) under the 

Exchange Act, and any other applicable 

law.65 The Commission believes that, 

because the Commission currently plans 

to publish only aggregated data derived 

from information reported on Proposed 

Form SHO, it would be unlikely to grant 

requests for confidential treatment of 

the information from which the 

aggregated data is derived. While it is 

possible a person may be able to reverse 

engineer data in a situation where only 

one person was selling short, especially 

where the short seller has publicly 

disclosed that they have a short position 

in a specific security, the Commission 

anticipates that many potential negative 

effects on the market or that short seller 

would likely be mitigated by the delay 

in publication of the aggregated data. 

Further, the Commission believes that 

granting a request from a Manager that 

the data it provides on a Proposed Form 

SHO report be excluded from the 

aggregated data published by the 

Commission could affect the integrity of 

the data by limiting or possibly 

excluding relevant information. This 

likely would limit the usefulness of the 

information to the public. For these 

reasons, the Commission believes that, 

on balance, the public’s need for the 


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66See infra Part III.B.4. 

67FIGI is a randomly assigned 12 character, 

alphanumeric ID that provides a standardized 

unique unambiguous identification framework for 

financial instruments across all asset classes and 

jurisdictions. It is open sourced, freely available, 

and non-proprietary. 

aggregated data the Commission would 

publish likely would justify any 

potential harm that disclosing such 

aggregated disclosure would impose on 

the Manager requesting confidential 

treatment. 

3. Proposed Form SHO Contents 

Proposed Form SHO consists of two 

parts: (1) The Cover Page, and (2) the 

Information Tables. 

On the Cover Page— 

• The Manager shall report certain 

basic information, including its name, 

mailing address, business telephone and 

facsimile numbers, as well as the name, 

title, business telephone and facsimile 

numbers of the Manager’s contact 

employee for the Proposed Form SHO 

report; and the date the report is filed. 

The Manager will also provide its active 

LEI, if it has one. The Commission 

believes that this basic information 

should be included to identify the 

reporting Manager and the calendar 

month for which the Manager is 

reporting. 

• The Manager shall identify the 

calendar month (using the last 

settlement date of the calendar month) 

for which the Manager is reporting. The 

date should name the month, and 

express the day and year in Arabic 

numerals, with the year being a fourdigit numeral (e.g., 2022). 

• 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.’’ 

• The reporting Manager shall 

designate the report type for the 

Proposed 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 the other Manager’s 

active LEI is not available to the 

reporting Manager, the reporting 

Manager shall include only the name of 

the other Manager as registered with the 

Commission. This information will 

provide the Commission with a 

summary of the nature and scope of the 

information that the Manager is 

reporting for the calendar month, as 

well as identify other reporting 

Managers, if applicable. 

Æ If all of the information that a 

Manager is required by Proposed Rule 

13f–2 to report on Proposed 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. 

Æ If all of the information that a 

Manager is required by Proposed Rule 

13f–2 to report on Proposed Form SHO 

is reported in the report filed by the 

Manager, 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. 

Æ If only a part of the information that 

a Manager is required by Proposed Rule 

13f–2 to report on Proposed Form SHO 

is reported 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. 

• If the Manager is filing the Proposed 

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.66

Each amendment must include a 

complete Cover Page and Information 

Tables. Amendments must be filed 

sequentially. This information will 

provide the Commission with a 

summary of the nature and scope of the 

information that a Manager is reporting 

for the calendar month. 

In reporting information required on 

Information Tables 1 and 2, as discussed 

below, a Manager also must account for 

and report 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. 

However, for purposes of Proposed 

Form SHO reporting, a Manager, in 

determining its gross short position in 

an equity security, would not be 

required to consider short positions that 

the ETF holds in individual underlying 

equity securities that are part of the ETF 

basket. Not requiring the Manager to 

consider these short positions in the 

underlying equity securities should 

limit the burden to reporting Managers 

in determining whether such Manager 

meets a Reporting Threshold in such 

underlying equity securities, while not 

materially affecting the reported gross 

short position and short activity data. 

Information Table 1: ‘‘Manager’s 

Gross Short Position Information’’—The 

information being reported will include 

gross short position information 

regarding transactions that have settled 

during the calendar month being 

reported. 

• In Column 1, a Manager shall enter 

the last day of the calendar month being 

reported by the Manager on which a 

trade settles (‘‘settlement date’’). This 

information will identify the month 

being reported by the Manager. 

• In Column 2, a Manager shall 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 shall enter 

the issuer’s active LEI, if the issuer has 

an active LEI. The LEI provides 

standardized information that will 

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 shall 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 shall enter 

the nine (9) digit CUSIP number of the 

equity security for which information is 

being reported, if applicable. 

• In Column 6, a Manager shall enter 

the twelve (12) character, alphanumeric 

Financial Instrument Global Identifier 

(‘‘FIGI’’) 67 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 shall 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 shall enter 

the US dollar value of the shares 

reported in Column 7, rounded to the 

nearest dollar. A Manager shall report 

the corresponding dollar value of the 


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68See Brandon Renfro, What is Delta Hedging?, 

The Balance (Nov. 4, 2021), available at https://

www.thebalance.com/what-is-delta-hedging5207735. 69See infra Part VIII.D.1. 

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. This 

additional information regarding the 

dollar value of the reported short 

position will provide additional 

transparency and context to market 

participants and regulators. 

• In Column 9, a Manager shall 

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. A Manager shall 

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 68 (in 

which the Manager’s reported gross 

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

similar hedging strategies used by 

market participants. A Manager shall 

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 sellers’ view of the 

equity security. The Commission 

believes that hedging information also 

can assist with distinguishing position 

trading, which typically has 

corresponding hedging activity, from 

other strategies such as arbitrage. 

Information Table 2: ‘‘Daily Activity 

Affecting Manager’s Gross Short 

Position During the Reporting Period’’— 

The Manager shall report the 

information required by the Proposed 

Form SHO instructions for each date 

during the reporting period on which a 

trade settles (settlement date) during the 

calendar month. The Commission 

believes that 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; and other activity. 

The Commission believes that such 

activity data would also assist the 

Commission in assessing systemic risk 

and in reconstructing unusual market 

events, including instances of extreme 

volatility. 

• In Column 1, a Manager shall enter 

the date during the reporting period on 

which a trade settles for the activity 

reported. This will identify the 

settlement date activity being reported. 

• In Column 2, a Manager shall enter 

the name of the issuer, consistent with 

Section 13(f)(2), to identify the issuer of 

the security for which information is 

being reported. 

• In Column 3, a Manager shall enter 

the issuer’s active LEI, if the issuer has 

an active LEI. The LEI provides 

standardized information that will 

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 shall 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 shall enter 

the nine (9) digit CUSIP number of the 

equity security for which information is 

being reported, if applicable. 

• In Column 6, a Manager shall 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 shall 

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 shall 

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 will 

allow the Commission and other 

regulators to more quickly identify a 

potential ‘‘short squeeze,’’ which can be 

evidenced by short sellers closing out 

short positions by purchasing shares in 

the open market. If it appears 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 

may deter some market participants 

seeking to orchestrate a short squeeze.69

• In Column 9, for the settlement date 

set forth in Column 1, a Manager shall 

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 

shall enter the number of shares of the 

security for which information is being 

reported that are sold in a put option 

exercise that creates or increases 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 

shall enter the number of shares of the 

security for which information is being 

reported that are sold in a call option 

assignment that creates or increases 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 

shall enter the number of shares of the 

security for which information is being 

reported that are acquired in a put 

option assignment that reduces or closes 

a short position on that security and 


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70Regulation M Rule 105 makes it unlawful, in 

connection with an offering of certain equity 

securities, for any person to sell short a security that 

is the subject of an offering and purchase the 

offered securities from an underwriter or broker or 

dealer participating in the offering if such short sale 

was effected during the Rule 105 restricted period. 

See 17 CFR 242.105(a). 

71The filing options described for Proposed Form 

SHO are consistent with other EDGAR filings that 

are filed in Form-specific XML-based 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). 

72The Commission’s 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 

submitted in Proposed Form SHO filings. 

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 

shall enter the number of shares of the 

security for which information is being 

reported that are acquired as a result of 

tendered conversions that reduce or 

close 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 

shall 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.70

A secondary offering transaction, 

sometimes referred to as a ‘‘seasoned’’ 

offering, occurs when a company sells 

newly created shares to the market, at a 

time subsequent to the company’s initial 

public offering, or ‘‘IPO.’’ Purchasing 

securities in a secondary offering 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 

shall 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 

shall 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 believes that the 

information in Columns 9, 12, 13, 14, 

and 16 is 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. 

The Commission believes that the 

information in Columns 10, 11, and 15 

is 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. 

4. Procedures for Filing and Amending 

Proposed Form SHO 

Managers will have two ways to file 

Proposed Form SHO or any amended 

Proposed Form SHO to the Commission. 

A Manager can use a fillable web form 

provided by EDGAR to input Proposed 

Form SHO disclosures that EDGAR will 

convert to Proposed Form SHO-specific 

XML or, alternatively, use its own 

software tool to file Proposed Form SHO 

to EDGAR directly in Proposed Form 

SHO-specific XML.71 If a Manager uses 

the web-fillable Proposed Form SHO on 

EDGAR and encounters a technical error 

when filling out the form, such Manager 

will 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 

will receive an error message that the 

filing has been suspended, and will be 

required to correct the identified 

technical error and re-file the Proposed 

Form SHO through EDGAR.72

A Manager that determines or is made 

aware that it has filed a Proposed Form 

SHO with errors that affect the accuracy 

of the information reported must file an 

amended Proposed Form SHO within 

ten (10) calendar days of discovery of 

the error. Filing an amended Proposed 

Form SHO within 10 calendar days of 

discovery of the error would provide 

Managers with a reasonable period of 

time to prepare the Proposed Form SHO 

amendment, while helping to ensure 

that accurate information is received by 

the Commission in a timely manner. 

To facilitate the Commission’s process 

of aggregating the short sale related 

information reported on Proposed Form 

SHO for publication, amendments to 

Proposed Form SHO must restate the 

Proposed Form SHO in its entirety. To 

inform the Commission that the filing is 

an amendment of a previously filed 

Proposed Form SHO, a Manager must 

check the box on the Proposed Form 

SHO Cover Page to indicate that the 

filing is an ‘‘Amendment and 

Restatement.’’ On the Cover Page of 

each Amendment and Restatement filed, 

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 Proposed 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, 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. As discussed 

below, the Commission proposes to 

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 proposes to limit the 

requirement to file amended Proposed 

Forms SHO to twelve months to reduce 

the burden and cost on Managers. 

If a revision reported in an 

Amendment and Restatement changes a 

data point reported in the Proposed 

Form SHO that is being amended by 

twenty-five percent (25%) or more, 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. The 

Commission believes that a change of 

25% or greater reflects a significant 

change, particularly for securities with 

few Managers reporting Proposed Form 

SHO data, which, as discussed below, 

should be highlighted in the updated 

aggregated data that will be published. 

Regardless of the scope of the revision 

being reported, if the data being 

reported in an Amendment and 

Restatement affects the data reported on 


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73The Commission notes that publication of the 

aggregated information may be delayed for an initial 

period following effectiveness of Proposed Rule 

13f–2 and Proposed Form SHO. 

74See generally infra Parts VIII.C.5 and VIII.F 

(discussing ‘‘copycat trading’’). 

75See infra Parts III.D.2 and VIII.C.3.v for 

additional discussion of analysis of temporary Rule 

10a–3T data. 

76These costs to reporting Managers include, for 

example, compliance costs of reporting; costs 

associated with retaliation to short sellers, 

including an increased risk of short squeezes; and 

market participants reducing their short positions to 

avoid disclosure, which can have negative impacts 

on price discovery and market efficiency. 

the Proposed Form SHO reports filed for 

multiple Proposed 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 with notice of such occurrence, and 

provide an explanation of the reason for 

the revision. Reporting discrepancies 

could harm the integrity of the data 

being reported on Proposed Form SHO 

through EDGAR (and published by the 

Commission on an aggregated basis as 

discussed herein), particularly if such 

reporting discrepancies go uncorrected. 

The Commission believes that requiring 

a Manager to notify Commission staff 

when reporting discrepancies have 

occurred, with a description of the 

revision being made and the reason for 

the revision, would help Commission 

staff determine whether there may be an 

ongoing or continuing issue with the 

integrity of the data being reported by 

that Manager. 

Each reporting period, the 

Commission plans to update prior 

months’ aggregated Proposed 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 to correct 

a data point of 25% or greater to 

highlight for market participants that 

the published aggregated data includes 

significantly revised data. The 

Commission will publish the aggregated 

Proposed 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 Proposed Form 

SHO data will include a disclaimer that 

the Commission does not ensure the 

accuracy of the data being published. 

C. Publication of Information by the 

Commission 

The Commission will publish through 

EDGAR aggregated information 

regarding each equity security reported 

by all Managers. The Commission 

estimates that it will publish such 

aggregated information within one 

month after the end of the reporting 

calendar month.73 The Commission will 

use the time following receipt of the 

monthly forms to aggregate the data 

received from the reporting Managers. 

The Commission does not plan to verify 

the accuracy of data elements reported 

by Managers, but may consider doing so 

in the future after assessing whether 

such verification would be beneficial. 

This delay prior to publication will also 

help protect reporting Managers’ 

proprietary trading strategies, thereby 

reducing the risk of imitative trading 

activity by the market.74

Analysis of data filed under 

temporary Rule 10a–3T showed the 

mean duration that short positions were 

held after the end of the month ranged 

from nine (9) to thirteen (13) calendar 

days, increasing with higher threshold 

levels, and the median position was not 

held into the following month.75 At a 

Reporting Threshold of $10 million or 

2.5% of shares outstanding, positions 

were held for a mean of 9.85 calendar 

days and a median of 0 calendar days. 

Therefore, the Commission believes 

Managers would close the majority of 

short positions prior to publication. 

Under Proposed Rule 13f–2, the 

requirement to file Proposed Form SHO 

within 14 calendar days after the end of 

each calendar month applies to 

Managers who meet or exceed either 

Reporting Threshold. 

With regard to each individual equity 

security reported by Managers on 

Proposed Form SHO’s Information 

Tables 1 and 2 (discussed above), the 

Commission will publish the issuer’s 

name, and active LEI (if the issuer has 

an active LEI). The Commission will 

also publish the equity security’s title of 

class, CUSIP, and FIGI (if a FIGI has 

been assigned). These data points will 

identify the equity security for which 

information is being reported. 

With regard to Proposed Form SHO’s 

Information Table 1, entitled 

‘‘Manager’s Gross Short Position 

Information’’ (discussed above), the 

Commission will publish, 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 US dollar 

value of this reported gross short 

position. The Commission will also 

publish a summary of the Managers’ 

reported hedging information with 

regard to the reported equity security. 

Specifically, the Commission will 

identify the percentage of the aggregate 

gross short position for a reported equity 

security that is reported as being fully 

hedged, partially hedged, or not hedged. 

With regard to Proposed Form SHO’s 

Information Table 2, entitled ‘‘Daily 

Activity Affecting Manager’s Gross 

Short Position during the Reporting 

Period’’ (discussed above), 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 net 

activity will be expressed by a single 

identified number of shares of the 

reported equity security, and will be 

determined by offsetting the purchase 

and sale activity that is reported by 

Managers in Columns 7 through 16 of 

Information Table 2. A positive number 

of shares identified would indicate net 

purchase activity in the equity security 

on the specified settlement date, while 

a negative number of shares identified 

would indicate net sale activity. 

The aggregated information published 

would provide market participants with 

additional information beyond what is 

currently publicly available, specifically 

information regarding the scope of 

activity during the calendar month by 

reporting Managers as a group. 

Furthermore, by providing the 

aggregated security-level information 

through EDGAR in a structured, 

machine-readable data language, the 

Commission would allow investors and 

other public data users to download the 

aggregated information directly. In each 

case, the data could then be analyzed 

using various tools and applications, 

thus potentially removing the need to 

pay a third-party vendor to search for, 

extract, and structure the published 

information. 

D. Reporting Thresholds 

1. Threshold Structure 

Setting a reporting threshold level 

involves a tradeoff between the interests 

of gathering and disclosing data, such as 

short sale related data, and potential 

costs to reporting Managers.76 A 

reporting threshold that is set too low 

could impose substantial compliance 

costs on Managers that tend to have 

small short positions or are low volume 

short sellers, and may only provide 

incrementally meaningful short sale 

related data. A reporting threshold that 

is set too high might limit the amount 

of data provided to regulators and 

industry participants, and incentivize 

Managers to develop trading strategies 


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77With regard to reporting thresholds, research 

has shown that some short sellers in Europe, for 

example, avoid crossing the stated percentage 

reporting threshold of 0.5% of shares outstanding 

by keeping their short positions just under such 

reporting threshold. See Eur. Sec. and Mkts. Auth., 

ESMA Report on Trends, Risks and Vulnerabilities 

No. 1, 62–63 (2018), available at https://

www.esma.europa.eu/sites/default/files/library/ 

esma50-165-538_report_on_trends_risks_and_

vulnerabilities_no.1_2018.pdf. 

78See, e.g., Albert J. Menkveld, High frequency 

trading and the new market makers, 16 J. Fin. 

Mkts., 712, 712–740 (2013). 

designed to avoid having to report their 

short sale related data altogether.77

The Reporting Thresholds are 

designed to require the filing of 

Proposed Form SHO by Managers with 

substantial gross short positions. The 

Reporting Thresholds are 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 Reporting Thresholds are based on 

a Manager’s gross short position in the 

equity security itself, and do not include 

the calculation of derivative positions or 

long positions in the equity security. 

While the proposed rule does not 

include derivatives as part of the 

threshold calculation, the Commission 

is proposing to require 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. The 

Commission believes this proposed 

approach balances Managers’ reporting 

costs with the utility such data provides 

to regulators. 

Threshold A. The Commission is 

proposing a two-pronged reporting 

threshold structure with regard to any 

equity security of an issuer 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). Specifically, 

Threshold A, identified in Proposed 

Rule 13f–2(a), is focused on Managers 

that, with regard to each equity security 

of a reporting company issuer in which 

the Manager and all accounts over 

which the Manager or any person under 

the Manager’s control has investment 

discretion, collectively have either (1) a 

gross short position in the equity 

security with a US 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 

2.5% or higher monthly average gross 

short position as a percentage of shares 

outstanding in the equity security. 

This two-pronged approach measures 

the size of the short position in question 

relative to both a monetary dollar 

amount and the number of shares 

outstanding. This approach is 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. As noted 

above, the Reporting Thresholds are 

based on a Manager’s gross short 

position in the equity security itself, and 

do not include the calculation of 

derivative positions or long positions in 

the equity security. The Commission 

believes that this is a simple and 

straight forward approach for Managers 

to determine whether they meet 

Threshold A that avoids any additional 

cost and complexity of including 

derivative or long positions. 

The Commission believes that 

requiring reporting of short positions 

with a US dollar value of $10 million or 

more would capture Managers with 

substantial short positions, even if such 

positions are relatively small compared 

to the market capitalization of the 

issuer. To determine whether this dollar 

threshold is met, a Manager will 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. 

The Commission believes that using 

end of day gross short position, rather 

than an intraday high gross short 

position, for example, would help to 

prevent Managers engaged in intraday 

market making strategies (who do not 

typically carry large overnight short 

positions) from triggering this $10 

million threshold.78 The use of the end 

of day position on any settlement date 

as opposed to the last settlement date of 

the month is designed to prevent a 

scenario where, for example, a Manager 

engages in trading activity on the last 

day of the month to avoid reporting 

altogether. 

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. To determine whether this 

percentage threshold is met, a Manager 

shall (a) identify its gross short position 

in the equity security at the close of 

each settlement date during the calendar 

month, and divide that figure by the 

number of shares outstanding in such 

security at the close of that settlement 

date, and (b) add up the daily 

percentages during the calendar month 

as determined in (a) and divide that 

total by the number of settlement dates 

during the calendar month of the 

reporting period. The number of shares 

outstanding of the equity security shall 

be determined by reference to an 

issuer’s most recent annual or quarterly 

report, and any subsequent update 

thereto, filed with the Commission. 

Threshold B. The Commission is 

separately proposing a single-pronged 

reporting threshold structure with 

regard to any equity security of a nonreporting company issuer. Specifically, 

Threshold B, identified in Proposed 

Rule 13f–2(a), is focused on Managers 

that, with regard to each equity security 

of a non-reporting company issuer in 

which the Manager and all accounts 

over which the Manager or any person 

under the Manager’s control has 

investment discretion, collectively have 

a gross short position in the security 

with a US dollar value of $500,000 or 

more at the close of regular trading 

hours on any settlement date during the 

calendar month. 

With regard to an equity security of a 

non-reporting company issuer, the 

Commission understands that the 

number of total shares outstanding may 

not be readily and consistently 

accessible to Managers. As such, the 

Commission has determined that a 

single-pronged reporting threshold 

based on a set dollar value is 

appropriate for equity securities of nonreporting company issuers. The 

Commission believes that this approach 

is an efficient way for Managers to 

determine whether they meet Threshold 

B that avoids the potential additional 

cost and complexity of locating total 

number of shares outstanding for a nonreporting company issuer that might be 

difficult, or impossible, to locate. 

Like Threshold A, Threshold B is 

based on a Manager’s gross short 

position in the equity security itself, and 

does not include the calculation of 

derivative positions or long positions in 

the equity security. As noted above, the 

Commission believes that this is a 

simple and straight forward approach 

for Managers to determine whether they 

meet Threshold B that avoids any 

additional cost and complexity of 

including derivative or long positions. 

The Commission believes that 

requiring reporting of short positions 

with a US dollar value of $500,000 or 


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79See, 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. 

80To perform this analysis, Form SH data on 

daily short positions for November 2008 through 

February 2009 were filtered to remove duplicate 

and missing observations, weekend or holiday 

observations, and positions below the de minimis 

reporting threshold. They were matched to Center 

for Research in Security Prices, LLC for daily 

closing prices and Compustat for daily shares 

outstanding. The Commission recognizes that the 

results of an analysis of Form SH data may not fully 

reflect the status quo but that the analysis uses 

appropriate data currently available to the 

Commission for this use. The Form SH data covered 

a limited time period, may not be comparable 

because of subsequent market changes, and did not 

represent ‘‘normal’’ market conditions as the 

trading took place during and after the 2008 

financial crisis. Additionally, 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 report. Further, we believe that 

many aggregated short positions that we calculated 

using Form SH data likely overestimate the actual 

number of shares that were short. This is because 

in many instances the size of a short position 

calculated using Form SH data was greater than 

100% of FINRA short interest for the same stock on 

the same date. This difference could potentially be 

explained if arranged financing, which is not 

included in the definition of FINRA short interest, 

was a large fraction of aggregated Form SH short 

positions. According to FINRA, ‘‘arranged financing 

programs (sometimes called ‘enhanced lending’ or 

‘short arranging products’) [describe an arrangement 

in] which a customer [ ] borrow[s] shares from [its 

broker’s] domestic or foreign affiliate and [then] 

use[s] those shares to close out a short position in 

the customer’s account.’’ See FINRA Notice 21–19 

available at https://www.finra.org/sites/default/ 

files/2021-06/Regulatory-Notice-21-19.pdf. In 

addition, this difference could also be explained if 

affiliated Managers reported the same short 

positions on multiple Form SH filings. Despite the 

potential overestimate, the Commission believes 

that the analysis provides information informative 

for selecting the Reporting Threshold because it 

involves the same type of entities (Managers) and 

the same activity (short positions). Intraday short 

selling activity could not be examined because the 

data field for ‘‘Number of Securities Sold Short’’ 

was populated in only 7% of observations after 

filters were applied, likely because most short 

selling volumes were below the threshold. 

81Although they were not required to, some 

Managers submitted data for positions below the 

10a–3T reporting threshold. These were excluded 

from the analysis. See Part VIII.C.3.v for additional 

discussion. See also infra notes 365–66 and 

accompanying text. 

more would capture Managers with 

substantial short positions in an equity 

security of a non-reporting company 

issuer, even if such positions are 

relatively small compared to the market 

capitalization of the issuer. To 

determine whether this dollar threshold 

is met, a Manager will 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. In circumstances where 

such closing price is not available, 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, in 

determining whether Threshold B is 

met. 

The Commission believes that using 

end of day gross short position, rather 

than an intraday high gross short 

position, for example, would help to 

prevent market participants engaged in 

intraday market making strategies (who 

do not typically carry large overnight 

short positions) from triggering this 

$500,000 threshold. The use of the end 

of day position on any settlement date 

as opposed to the last settlement date of 

the month is designed to prevent a 

scenario where, for example, a Manager 

engages in trading activity on the last 

day of the month to avoid reporting 

altogether. 

2. Determination of Reporting Threshold 

As discussed in this section, the 

Reporting Thresholds are based on 

comment letters and analysis of Form 

SH data collected under Rule 10a–3T. 

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 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.79

Threshold A. Based on analysis of 

Form SH data,80 the Commission 

believes that a two-pronged threshold of 

$10 million or 2.5% of shares 

outstanding would provide significant 

coverage of the dollar value of positions, 

while limiting the reporting burden on 

Managers. Panel A of Table I shows the 

Reporting Threshold would have 

captured 89% of the dollar value of the 

positions reported by Managers who 

were required to report Form SH; Panel 

B shows that it would have captured 

346 Managers.81 The reporting burden 

would not significantly increase 

compared to slightly higher threshold 

levels, while the value of the positions 

potentially collected would drop 

significantly for higher dollar threshold 

levels. 

TABLE I—VARIOUS THRESHOLD LEVELS FOR MONTHLY AVERAGE POSITIONS AND MONTHLY MAXIMUM DOLLAR VALUE

Greater than 

(%) 

Greater than 

$0 $1M $5M $10M $15M $20M $25M $50M $100M 

Panel A: Percentage of Position Dollar Value 

0.0 .............................. 100 100 100 100 100 100 100 100 100 

0.25 ............................ 100 100 100 100 98 96 94 88 82 

0.5 .............................. 100 100 98 95 92 88 85 76 68 

1.0 .............................. 100 100 96 91 85 81 77 65 54 

1.5 .............................. 100 100 96 90 83 78 74 60 48 

2.0 .............................. 100 100 95 90 83 77 72 58 45 

2.5 .............................. 100 100 95 89 82 77 72 56 43 

3.0 .............................. 100 100 95 89 82 76 71 55 42 

4.0 .............................. 100 100 95 89 82 76 71 54 40 

5.0 .............................. 100 100 95 89 82 76 71 54 39 

Panel B: Number of Managers by Position Percentage or Position Dollar Value 

0.0 .............................. 442 442 442 442 442 442 442 442 442 

0.25 ............................ 442 442 442 442 435 429 425 421 419 

0.5 .............................. 442 435 406 402 388 380 373 360 355 

1.0 .............................. 442 433 384 373 348 335 320 294 281 

1.5 .............................. 442 432 377 362 333 314 293 255 232 


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82This 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. 

83The short interest data reported reflects 

aggregate short positions as of the specified 

reporting dates. 

TABLE I—VARIOUS THRESHOLD LEVELS FOR MONTHLY AVERAGE POSITIONS AND MONTHLY MAXIMUM DOLLAR VALUE— 

Continued 

Greater than 

(%) 

Greater than 

$0 $1M $5M $10M $15M $20M $25M $50M $100M 

2.0 .............................. 442 432 374 350 319 297 275 229 202 

2.5 .............................. 442 432 373 346 312 286 261 210 178 

3.0 .............................. 442 432 373 345 310 282 255 200 165 

4.0 .............................. 442 432 372 344 306 277 247 184 142 

5.0 .............................. 442 432 372 343 303 274 243 174 127 

This table reports the coverage of Managers reporting at different threshold levels. Data are from Form SH filings for a 4 month period from 

2008 to 2009. The ‘‘Greater than’’ levels are cumulative. Entries are calculated as a percentage of Manager/stock observations for the row or 

column criteria. Rows are monthly average positions as a percentage of shares outstanding and columns are monthly maximum unscaled dollar 

value of positions as determined by the daily closing price in Center for Research in Security Prices, LLC (CRSP). Values in Panel A are average percentages of total position dollar value. Values in Panel B are the average number of Managers reporting. 

Threshold B. Based on analysis of 

OTC Markets data,82 the Commission 

believes that a threshold of $500,000 

would provide significant coverage of 

the dollar value of positions, while 

limiting the reporting burden on 

Managers. The $500,000 threshold is 

also similar to the median dollar value 

of 2.5% of the market capitalization of 

OTC stocks for which we were able to 

obtain total shares outstanding. The 

median for this set of stocks was 

approximately $460,000. The proposed 

threshold of $500,000 is the rounded 

median and is likely greater than 2.5% 

of the market capitalization of the equity 

securities of non-reporting company 

issuers, assuming such equities have 

lower market capitalization than that of 

reporting company issuers. The 

Commission believes that this level 

provides a reasonable estimate in the 

absence of data on the market 

capitalization for equity securities of 

non-reporting company issuers. Table II 

shows Threshold B would have 

captured over 99% of the dollar value 

of short positions and 15% to 24% of 

Managers, assuming 1 to 3 Managers 

had equivalently-sized short positions 

in each stock. 

TABLE II—VARIOUS THRESHOLD LEVELS FOR OTC STOCKS

Greater than % of $ Short Interest % of Short Positions 

(1 Manager per stock) 

% of Short Positions 

(3 Managers per stock) 

$50K ............................................................................................. 99.91 48.08 35.47 

$100K ........................................................................................... 99.82 40.38 27.56 

$250K ........................................................................................... 99.52 29.70 21.58 

$500K ........................................................................................... 99.17 23.72 15.60 

$1M .............................................................................................. 98.65 19.66 13.03 

$5M .............................................................................................. 95.30 10.90 6.84 

$10M ............................................................................................ 92.66 8.76 3.63 

This table reports the coverage of the short interest in the equities in non-reporting company issuers at different threshold levels. Data are from 

OTC Markets Group for September 30, 2020. The ‘‘Greater than’’ levels are cumulative. ‘‘% of $ Short Interest’’ is the percentage of total dollar 

value of short interest. ‘‘% of Short Positions’’ is the percentage of short positions, assuming 1 or 3 Managers have short positions in each stock. 

E. Supplementing Current Short Sale 

Data Available From FINRA and the 

Exchanges 

As noted above, certain short sale data 

is publicly disseminated currently by 

FINRA and most of the exchanges. 

Notably, however, FINRA or the 

exchanges, at their discretion, could 

modify, or eliminate, their collection or 

publication of such short sale data. 

Moreover, the Commission understands 

that some of the exchanges require 

payment of a fee to access the data, 

which may make it difficult for some 

investors to access. The Commission 

believes that the short sale data 

provided pursuant to Proposed Rule 

13f–2 and Proposed Form SHO would 

supplement the short sale information 

that is currently publicly available from 

FINRA and the exchanges, with the 

benefit of having certain of the short 

sale data provided consolidated in a 

readily accessible location (i.e., 

EDGAR), with aggregated data free to all 

investors and other market participants. 

The short sale data collected pursuant to 

Proposed Rule 13f–2 and Proposed 

Form SHO, for example, would include 

certain activity related data that is not 

currently available from FINRA or the 

exchanges, including activity in related 

options. While FINRA’s existing short 

interest data reports aggregate short 

positions on a bi-monthly basis,83 they 

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 

collected pursuant to Proposed Rule 

13f–2 and Proposed Form SHO would 

help to fill that gap. The Commission 

believes that publication of this 

additional information, aggregated as 

discussed above, could help to further 

inform market participants regarding 

overall short sale activity by reporting 


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84See 17 CFR 240.15c2–11(e)(3). 

85See 17 CFR 242.300(a). 

Managers with substantial short 

positions. 

F. Request for Comments 

While the Commission welcomes any 

public input on Proposed Rule 13f–2 

and Proposed Form SHO, the 

Commission asks commenters to 

consider the following questions. 

• Q1: EDGAR: Managers that meet a 

Reporting Threshold would be required 

to report prescribed short sale related 

data on Proposed Form SHO through 

EDGAR. 

Æ Are there are other reporting 

mechanisms for reporting Managers that 

would be more appropriate, including 

more efficient, than reporting through 

EDGAR? If so, please identify the 

alternative reporting mechanism, and 

provide the reasons why such 

alternative reporting mechanism would 

be more appropriate. 

• Q2: Managers: Under Proposed 

Rule 13f–2, the Commission is 

proposing that the information reported 

by Managers be aggregated across all 

reporting Managers prior to publication. 

Æ Please discuss any views on the 

reporting requirements of Proposed Rule 

13f–2 and Proposed Form SHO. 

Æ Please discuss any views regarding 

the Commission’s proposed approach to 

aggregate the reported information 

across all reporting Managers prior to 

publication and address the pros and 

cons, as applicable, of the Commission’s 

proposed approach. 

Æ Proposed Rule 13f–2 would require 

that a Manager provide identifying 

information including its active LEI (if 

it has one) when filing Proposed Form 

SHO. If a Manager does not have an 

active LEI, should such Manager be 

required to obtain an LEI? 

• Q3: Hedging Information: When 

reporting on Proposed Form SHO, 

Managers would be required to identify 

whether the gross short position 

reported is fully hedged, partially 

hedged, or not hedged. 

Æ Please describe any views regarding 

the reporting of hedging information as 

proposed by the Commission and 

address the pros and cons, as 

applicable. 

Æ Do Managers generally know 

whether a position is fully hedged or 

partially hedged? 

Æ Is there a common understanding 

among Managers regarding what fully 

hedged or partially hedged means? Are 

those understandings different than the 

Commission’s proposed instructions 

and discussion above? If there is a 

common understanding or definition, 

please describe it. 

Æ Is the Commission’s description of 

‘‘fully hedged’’ or ‘‘partially hedged’’ 

appropriate for purposes of reporting 

under Proposed Rule 13f–2? If so, 

describe why. If not, please describe 

what would be an appropriate definition 

of these terms for purposes of Manager 

reporting under Proposed Rule 13f–2. 

Æ Would the required hedging 

information provide important 

information to assist in interpreting the 

reported gross short position 

information? 

D If not, what other information might 

help to inform on the economic 

exposure of the reported gross short 

position? 

• Q4: Publication of ‘‘Activity’’ 

Information by the Commission: 

Æ Please discuss any views regarding 

the Commission’s proposed approach 

with regard to the publication of 

aggregated ‘‘net’’ activity, as described 

above, and address the pros and cons, 

as applicable. 

Æ Would aggregated ‘‘net’’ activity be 

more useful and informative if it was 

published by ‘‘category’’ of activity 

identified in Information Table 2, rather 

than consolidated across all 

‘‘categories’’ of activity identified in 

Information Table 2? 

Æ Is there another manner in which 

aggregated ‘‘activity’’ information could 

be published that would be more useful 

and informative than is proposed by the 

Commission? If so, please describe. 

• Q5: Reporting Thresholds: Under 

Proposed Rule 13f–2, only Managers 

that meet a stated Reporting Threshold 

would be required to report on Proposed 

Form SHO through EDGAR. This 

approach is intended to focus reporting 

by Managers with substantial gross short 

positions. 

Æ Are the proposed Reporting 

Thresholds appropriate? If so, explain 

why. If not, explain why not and how 

the Reporting Thresholds should be 

modified. 

Æ Do you believe that Managers 

would try to avoid triggering the 

proposed Reporting Thresholds? If so, 

please explain. 

Æ In determining whether the dollar 

value threshold in Threshold A (U.S. 

dollar value of $10 million or more) is 

met, the Commission proposes that a 

Manager utilize the closing price at the 

close of regular trading hours on the 

settlement date. Should Managers be 

required to use a specific source of 

information in determining the closing 

price of the equity security? If yes, 

explain why, and describe the source(s) 

of information. Could there be 

circumstances in which a closing price 

is not available for equity securities 

subject to Threshold A? If yes, please 

describe those circumstances. In such 

circumstances, should a Manager be 

required to use a specific source of 

information in determining the closing 

price of the equity security? 

Æ To determine whether the 

percentage threshold in Threshold A 

(2.5% or more) is met, the Commission 

proposes that a Manager utilize the 

number of outstanding shares of the 

security for which information is being 

reported as determined by reference to 

an issuer’s most recent annual or 

quarterly report, and any subsequent 

update thereto, filed with the 

Commission. Are there circumstances in 

which Managers should not reference 

these reports filed with the Commission 

to determine the number of outstanding 

shares? If yes, please describe those 

circumstances. Should Managers be 

required or permitted to use a different 

source of information in determining 

the number of shares outstanding of the 

equity security? If yes, please explain 

why, and describe the source(s) of 

information. 

Æ In determining whether the dollar 

value threshold in Threshold B (U.S. 

dollar value of $500,000 or more) is met, 

the Commission proposes that a 

Manager utilize the closing price at the 

close of regular trading hours on the 

settlement date. The Commission 

further proposes that in circumstances 

where such closing price is not 

available, a Manager would be required 

to utilize the price at which it last 

purchased or sold any share of that 

equity security in determining whether 

Threshold B is met. Should Managers be 

required to use a specific source of 

information in determining the closing 

price of such an equity security—for 

example, the closing price provided on 

an interdealer quotation system 

(‘‘IDQS’’) 84 or an alternative trading 

system (‘‘ATS’’) 85? Or alternatively, last 

available sale price of such equity 

security? If yes, explain why, and 

describe the source(s) of information. 

Æ Managers would be required to 

report their gross short positions in 

equity securities without offsetting such 

gross short positions with long shares of 

the equity security or with an equivalent 

long position through derivatives of the 

equity security. Are there any pros and 

cons of such a proposed approach, 

especially when compared to using a 

‘‘net’’ short interest position 

calculation? If so, explain why, and 

describe any associated costs and 

benefits. 

• Q6: Securities Covered: Under 

Proposed Rule 13f–2, Managers would 

be required to report to the Commission 

certain short sale related data, as 


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14966 Federal Register / Vol. 87, No. 51 / Wednesday, March 16, 2022 / Proposed Rules 

described above, for equity securities 

consistent with the Commission’s short 

sale regulations (i.e., Regulation SHO). 

Æ Should reporting Managers be 

required to report short sale related data 

for a different universe of securities than 

equity securities consistent with 

Regulation SHO? If so, please explain 

why and describe the universe of 

securities that would be more 

appropriate. 

Æ Should fixed income securities be 

included under Proposed Rule 13f–2? If 

yes, explain why and describe what 

costs and benefits might be associated 

with such reporting. 

Æ Should other securities be included 

under Proposed Rule 13f–2? If yes, 

identify such securities, explain why, 

and describe what costs and benefits 

might be associated with such reporting. 

Æ Should certain securities be 

excluded from Proposed Rule 13f–2 

reporting? If yes, identify the securities 

in question, and explain why. 

Æ ETFs would be included under 

Proposed Rule 13f–2. Should ETFs be 

excluded from Proposed Rule 13f–2? If 

yes, describe why. If no, explain why 

not. 

• Q7: Economic Short Positions: 

Proposed Rule 13f–2 requires that a 

Manager calculate its gross short 

position in the equity security in 

determining whether it meets the 

Reporting Thresholds. 

Æ Should a Manager also be required 

to include short positions resulting from 

derivatives in determining whether it 

meets the Reporting Thresholds? If so, 

explain why, and describe any 

associated costs and benefits to doing 

so. If not, explain why not. 

D Should only certain derivative 

positions be included? If so, which ones 

and why? 

D Should certain derivative positions 

not be included? If so, which ones and 

why? 

D Does excluding derivative positions 

create opportunities to avoid triggering 

the Reporting Thresholds through other 

economically equivalent instruments? If 

so, please explain. 

• Q8: Short Position Information: 

Under Proposed Rule 13f–2, Managers 

that meet a Reporting Threshold are 

required to report their end of month 

gross short position in the equity 

security. 

Æ Should a Manager also be required 

to separately report its end of month 

gross short position in derivatives, 

including, for example, options? Please 

explain. 

Æ If yes, should only certain 

derivatives be reported? Please explain. 

Æ If yes, should certain derivatives 

not be reported? Please explain. 

Æ Please describe any views related to 

the pros or cons associated with 

reporting end of month gross short 

positions in derivatives. 

Æ Proposed Form SHO requires 

Managers to report CUSIP and if 

assigned, FIGI, for a security for which 

information is being reported in both 

Instruction Tables 1 and 2. If a FIGI has 

been assigned, should a Manager be 

required to report CUSIP as well? 

Æ Please describe any views related to 

the position data that a Manager would 

be required to report as described in 

Information Table 1 of Proposed Form 

SHO. 

• Q9: Short Sale ‘‘Activity’’ 

Information Reported by Managers: 

Under Proposed Rule 13f–2, Managers 

would be required to report on Proposed 

Form SHO all activity in the equity 

security on each settlement date during 

the calendar month. 

Æ Please describe any views related to 

the ‘‘categories’’ of activity data that a 

Manager would be required to report as 

described in Information Table 2 of 

Proposed Form SHO. 

Æ With regard to the reporting of 

‘‘other’’ activity, are there certain types 

of ‘‘other’’ activity that should be 

reported? If yes, describe the other 

activity and describe why it should be 

reported. 

Æ ETF creations and redemptions 

would be included under Proposed Rule 

13f–2. Should ETF creations and 

redemptions be excluded from Proposed 

Rule 13f–2? If yes, describe why. If no, 

explain why not. 

Æ Should other activity be included 

or excluded from Proposed Rule 13f–2? 

If yes, describe the other activity and 

describe why it should be included or 

excluded. 

• Q10: Indirect Short Positions or 

Short Activities: Managers meeting a 

Reporting Threshold would be required 

to report a gross short position in an 

ETF, but would not be required to 

consider short positions that the ETF 

holds in individual underlying equity 

securities that are part of the ETF basket 

in determining whether the Manager 

meets a Reporting Threshold for such 

underlying equity securities that are 

part of the ETF basket. 

Æ Should Managers be required to 

consider short positions that the ETF 

holds in individual underlying equity 

securities that are part of the ETF basket 

in determining whether the Manager 

meets a Reporting Threshold for such 

underlying equity securities that are 

part of the ETF basket? If yes, explain 

why. If no, explain why not. 

Æ Are there other diversified portfolio 

products in addition to ETFs that 

should be included? If yes, describe the 

product. Describe why, or why not, a 

Manager should be required to consider 

short positions in individual underlying 

equity securities of the product’s basket 

of assets. 

• Q11: Frequency of Reporting: Under 

Proposed Rule 13f–2, a Manager that 

meets a Reporting Threshold must file 

Proposed Form SHO with the 

Commission within 14 calendar days 

after the end of each calendar month. 

Æ Is monthly reporting by Managers 

appropriate? If so, explain why. If no, 

explain why not and describe an 

alternative frequency of reporting that is 

more appropriate. 

Æ Does reporting within 14 calendar 

days of the end of the calendar month 

provide reporting Managers sufficient 

time to accurately report the short sale 

related information as described in 

Proposed Rule 13f–2? If no, please 

explain why not and describe any 

suggested alternative timeline(s). 

Alternatively, is the 14 calendar days 

after the end of the calendar month 

reporting period for Managers too much 

time? If so, please explain why and 

describe any suggested alternative. 

• Q12: Multiple Managers with 

Investment Discretion. As noted above, 

as is the case for Form 13F filers, under 

Proposed Rule 13f–2, to prevent 

duplicative reporting of Proposed Form 

SHO if two or more Managers, each of 

which is required by Proposed Rule 

13f–2 to file Proposed 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 

Proposed Form SHO. 

Æ Please describe any views related to 

the pros or cons associated with the 

Commission’s proposed approach as 

described above. 

Æ Will a Manager always be aware of 

instances in which there is another 

Manager(s) with investment discretion 

with respect to the same securities? If 

yes, how will that Manager be aware of 

the other Manager(s)? If yes, if there is 

more than one Manager that has 

investment discretion with respect to 

the same securities, how would each 

manager determine which Manager 

shall report short position and short 

position activity pursuant to Proposed 

Form SHO in order to avoid duplicative 

reporting? 

Æ Should there be a mechanism that 

requires Managers to coordinate with 

one another to avoid duplicative 

reporting? If yes, please describe. In 

addition, please describe any alternative 

approach designed to prevent 

duplicative reporting by Managers. 

• Q13: Amendments to Proposed 

Form SHO: A Manager that determines 


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Federal Register / Vol. 87, No. 51 / Wednesday, March 16, 2022 / Proposed Rules 14967 

86Reporting of Securities Loans, Exchange Act 

Release No. 93613 (Nov. 18, 2021) (‘‘Reporting of 

Securities Loans Proposing Release’’). 

87Reopening of Comment Period for Reporting of 

Securities Loans, Exchange Act Release No. 34– 

94315 (Feb. 25, 2022). 88See generally infra Part VIII.D.2. 

that it has filed a Proposed Form SHO 

that includes inaccurate information 

must file an amended Proposed Form 

SHO within 10 calendar days of 

discovery of the error. Amendments to 

Proposed Form SHO must restate the 

Proposed Form SHO in its entirety and 

provide on the Proposed Form SHO 

Cover Page prescribed information 

about the revision being made— 

including the impact on prior Proposed 

Form SHO reporting periods. In 

prescribed circumstances, Managers 

must notify the Commission staff of the 

filing of an amended Proposed Form 

SHO. 

Æ Please discuss any views regarding 

the Commission’s proposed approach 

regarding filing amendments to 

Proposed Form SHO and address the 

pros and cons, as applicable, of the 

Commission’s proposed approach. In 

particular: 

D Should the Commission provide 

updated data on a rolling basis for more 

(or less than) 12 consecutive months? 

D Should Managers notify 

Commission staff of errors for any data 

point of greater than, or less than, 25%? 

Should the Commission flag, with an 

asterisk or other indicator, updates to 

published data that are less than 25% of 

prior published data? Should the 

Commission use other types of 

indicators (e.g., asterisk for an update of 

25% or greater, or other indicator for 

update of less than 25%, etc.)? 

D In filing an amended Proposed 

Form SHO, should Managers be 

required to re-file the entire Proposed 

Form SHO, or should Managers have the 

opportunity to re-file only the data that 

is being corrected? 

D The Commission is proposing to 

require Managers to notify Commission 

staff about multiple consecutive 

Amendments and Restatements to help 

Commission staff determine if there is a 

continuing issue with the integrity of 

that Manager’s filings. Should Managers 

be required to notify Commission staff 

only if there are a specified number of 

months of consecutive Amendments 

and Restatements, e.g., three, four, or 

five consecutive months? 

D The Commission is proposing that if 

a revision reported in an Amendment 

and Restatement changes a data point 

reported in the Proposed Form SHO by 

twenty-five percent (25%) or more, the 

Manager must notify the Commission 

staff via email within two (2) business 

days after filing the Amendment and 

Restatement. Does two (2) business days 

provide a Manager with sufficient time 

to notify the Commission? If no, please 

explain why not and describe any 

suggested alternative timeline(s). 

D The Commission is proposing that, 

regardless of the scope of the revision 

being reported, if the data being 

reported in an Amendment and 

Restatement affects the data reported on 

the Proposed Form SHO reports filed for 

multiple Proposed Form SHO reporting 

periods, the Manager, within two (2) 

business days after filing the 

Amendment and Restatement, must 

provide the Commission staff via email 

with notice of such occurrence, and 

provide an explanation of the reason for 

the revision. Does two (2) business days 

provide a Manager with sufficient time 

notify the Commission? If no, please 

explain why not and describe any 

suggested alternative timeline(s). 

On November 18, 2021, the 

Commission proposed rule 10c–1 under 

the Exchange Act 86—a rule designed to 

increase the transparency and efficiency 

of the securities lending market by 

requiring lenders of securities to 

provide the material terms of securities 

lending transactions to a registered 

national securities association, such as 

FINRA. On [insert date of vote], the 

Commission reopened the comment 

period for proposed Rule 10c–1.87 We 

encourage commenters to review the 

Reporting of Securities Loans Proposing 

Release to determine whether it might 

affect their comments on this proposing 

release and Proposed Rule 13f–2 and 

Proposed Form SHO. 

IV. Potential Alternative Approach to 

Proposed Rule 13f–2 Regarding How 

the Information Reported on Proposed 

Form SHO Is Published by the 

Commission 

As noted above, the Commission’s 

Proposed Rule 13f–2 would require that 

a Manager provide identifying 

information including its name and 

active LEI, if the Manager has an active 

LEI, when filing Proposed Form SHO 

through EDGAR. The Commission 

would collect information from all 

reporting Managers and publish 

aggregated information across all 

Managers reporting in a particular 

equity security. The Commission, 

however, seeks comment on the 

following alternative approach 

regarding how the information reported 

on Proposed Form SHO by reporting 

Managers would be published by the 

Commission. Under this alternative 

approach, the Commission would not 

alter the proposed Reporting Thresholds 

or the information that would be 

reported by a reporting Manager on 

Proposed Form SHO, as described 

herein. However, under this alternative, 

the information reported by a Manager 

on Proposed Form SHO would be 

published as it is reported to the 

Commission, and would not be 

aggregated with information reported by 

other Managers. Reported information 

would therefore be published at the 

individual Manager level, rather than 

aggregated across all reporting Managers 

prior to publication. The reporting 

Manager’s identifying information, 

including its name and active LEI, if the 

Manager has an active LEI, would be 

removed in an effort to anonymize the 

information published. In anonymizing 

the reporting Manager’s information 

prior to publication, the Commission 

would be seeking to balance the above 

noted calls for additional short sale 

transparency with, among other things, 

the above noted concerns regarding 

potential issuer and investor retaliation 

against identified short sellers. The 

Commission remains concerned that 

such retaliation could result in a 

reduction in short selling, along with a 

reduction in the corresponding liquidity 

and price transparency benefits. The 

Commission further understands that 

despite measures designed to help 

anonymize published information, it 

may still be possible for market 

participants to identify certain reporting 

Managers. For example, it is not 

uncommon for there to be only one large 

short seller in an equity security, and 

under such circumstances, sophisticated 

traders may be able to link individual 

short sellers to their short positions 

reported on Proposed Form SHO 

through public statements, social media 

posts, or even rumors.88 Using 

Threshold A as described above, the 

Commission estimates that 32% of 

reportable equity securities would have 

only one reporting Manager. 

• Q14: Managers and the Potential 

Alternative Approach: Under the 

potential alternative approach 

presented, the reported information by a 

Manager would be published at the 

Manager level, without aggregation with 

other reporting Managers, with the 

reporting Manager’s identifying 

information, including any active LEI, 

being removed prior to publication. 

Æ Please discuss the Commission’s 

potential alternative approach, and 

address the pros and cons, as 

applicable. 


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14968 Federal Register / Vol. 87, No. 51 / Wednesday, March 16, 2022 / Proposed Rules 

89Unlike the netting requirements under Rule 200 

of Regulation SHO, the ‘‘buy to cover’’ order 

marking determination under Proposed Rule 205 

will be made on a ‘‘gross’’ basis. The Commission 

believes that this approach would help minimize 

costs to broker-dealers because it would require 

them to determine only whether any short position 

is held by the account on whose behalf the 

purchase is being effected regardless of whether 

such short position is offset by any long position 

in the same security held by the purchaser in the 

same or any other account. 

90See infra Part VIII.D.1 for a discussion of how 

the Commission could have used this data to 

enhance our understanding and recreation of the 

‘meme stock’ phenomenon of January 2021. 

V. Proposed Amendment to Regulation 

SHO To Aid Short Sale Data Collection 

The Commission is proposing new 

Rule 205 of Regulation SHO to facilitate 

its collection of more comprehensive 

data on the lifecycle of short sales. 

Proposed Rule 205 would establish a 

new ‘‘buy to cover’’ order marking 

requirement for certain purchase orders 

effected by a broker-dealer for its own 

account or the account of another 

person at the broker-dealer. Specifically, 

a broker-dealer 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 brokerdealer 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 time of order 

entry.89 If, for example, the purchaser 

has a gross short position of 100 shares 

in security ABC in account number 123 

at broker-dealer X, then purchases 50 

shares of ABC through broker-dealer X 

in account number 123 (a purchase 

amount less than the purchaser’s gross 

short position in the account at brokerdealer X), broker-dealer X would be 

required to mark the purchase order as 

‘‘buy to cover.’’ If the purchase order 

was instead for 150 shares of ABC in 

account number 123 (a purchase 

amount greater than the purchaser’s 

gross short position in account number 

123 at broker-dealer X), broker-dealer X 

would likewise be required to mark the 

purchase order as ‘‘buy to cover.’’ The 

proposed ‘‘buy to cover’’ marking 

requirement would not impact 

compliance with, or the operation of, 

other rules under Regulation SHO, 

including a broker-dealer’s 

determination of whether to mark a sale 

order as ‘‘long,’’ ‘‘short,’’ or ‘‘short 

exempt’’ pursuant to Rule 200. 

There is presently no ‘‘buy to cover’’ 

order marking requirement, so the 

Commission does not currently have 

regular access to ‘‘buy to cover’’ order 

marking information. The Commission 

believes that having ‘‘buy to cover’’ 

order marking information would 

provide additional context to the 

Commission and other regulators 

regarding the lifecycle of short sales by 

identifying the timing of purchases that 

close out, in whole or in part, open 

short positions in a security. The 

Commission believes this information 

would assist in reconstructing market 

events, and would be useful in 

identifying and investigating any 

potentially abusive trading practices 

including any potential manipulative 

short squeezes.90

To reduce potential burdens and costs 

to broker-dealers, the proposed rule 

would require the broker-dealer to 

determine only whether a purchase is 

being made for an account at the brokerdealer that has a gross short position in 

that equity security in that account at 

the time of the purchase. The 

Commission believes that this 

simplified approach would help 

minimize costs to broker-dealers by 

allowing short positions held in any 

accounts other than the purchasing 

account, as well as offsetting long 

positions held by the purchaser in the 

purchasing account or any other 

account, to be excluded for purposes of 

the broker-dealer’s ‘‘buy to cover’’ order 

marking determination. The 

Commission believes that the resulting 

data would provide the Commission 

with an indication of which purchases 

are potentially associated with a ‘‘short 

squeeze,’’ where short sellers are 

pressured to cover their open short 

positions by purchasing shares as a 

result of increases in the price of a stock 

or borrowing costs. Having access to 

‘‘buy to cover’’ information would help 

the Commission identify instances in 

which an increase in ‘‘buy to cover’’ 

orders in a particular equity security 

coincides with an increase in price 

and/or borrowing costs in the same 

equity security, and thus identify where 

‘‘short squeezes’’ may be occurring. As 

discussed further below, this data 

would aid the Commission in 

reconstructing significant market events 

related to short selling. 

The Commission alternatively 

considered proposing to require the 

broker-dealer to look across multiple 

accounts held by the customer within 

the broker-dealer itself, if applicable, 

and/or to its customer’s account(s) held 

at other firms, if applicable, but 

determined that the costs and burdens 

to the broker-dealer would likely 

increase significantly under such an 

approach. With regard to other accounts 

held by the customer within the brokerdealer itself, the broker-dealer would 

incur additional costs and burdens in 

conducting such review. With regard to 

its customer’s accounts held at other 

firms, the Commission understands that 

this information is not typically 

available to the broker-dealer and might 

be challenging to obtain. As a result, 

after considering the potential costs and 

burdens to broker-dealers, Proposed 

Rule 205 would require the brokerdealer to determine only whether a 

purchase is being made for an account 

at the broker-dealer that has an open 

short position in that equity security in 

that account. 

The proposed ‘‘buy to cover’’ 

requirement would likely create onetime programming costs to brokerdealers as well as ongoing costs 

associated with order marking. The 

proposed ‘‘buy to cover’’ order mark 

determination would be distinct from 

that made by broker-dealers’ existing 

order marking systems and processes 

designed to ensure compliance with 

Rule 200 of Regulation SHO. Thus, 

broker-dealers would be required to 

update their respective systems and 

processes to account for compliance 

with Proposed Rule 205 (i.e., brokerdealers would likely need to program 

systems to add an additional field for 

the ‘‘buy to cover’’ order mark). 

While the Commission welcomes any 

public input on Proposed Rule 205, the 

Commission asks commenters to 

consider the following questions. 

• Q15: Should Proposed Rule 205 

also require the broker-dealer to mark a 

purchase as ‘‘buy to cover’’ if the person 

is purchasing in an account that does 

not have a gross short position, but the 

person may have gross short positions 

in other accounts at the same and/or 

other broker-dealers? Would a purchase 

in a different account than an account 

with a gross short position in that 

security also be reflective of a person’s 

intent to buy to cover a gross short 

position in that security? To what extent 

do short sellers buy to cover short 

positions by purchasing securities 

through accounts other than the account 

holding the short position? Would 

persons buy to cover securities at 

accounts at different broker-dealers? 

How often might such buy to cover 

orders occur in different accounts or at 

different broker-dealers? What would be 

the additional burdens or costs of such 

an additional requirement? 

• Q16: Are there likely to be costs, 

other than those described in the 


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91The 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. 

92See Exchange Act Release No. 67457 (July 18, 

2012), 77 FR 45722 (Aug. 1, 2012) (‘‘Rule 613 

Adopting Release’’). 

93Exchange 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 at 

84943–85034. 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 

August 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). 

94 ‘‘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. 

95An ‘‘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. 

96 ‘‘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. 

97Section 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[.]’’ 

98See Proposed Section 6.4(d)(ii)(D) of the CAT 

NMS Plan; Proposed Rule 205(a) of Regulation 

SHO, 17 CFR 242.205(a)). 99Section 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). 

100See 17 CFR 242.613(j)(7) (defining ‘‘Material 

Terms of the Order’’ to include ‘‘open/close 

indicator’’); Exchange Act Release No. 77724 (Apr. 

27, 2016); 81 FR 30614, 30680 (May 17, 2016). 

101See CAT NMS Plan Approval Order, 81 FR at 

84747. 

102See id. 

103See id. 

release, to broker-dealers resulting from 

the proposed ‘‘buy to cover’’ order 

marking requirement? 

• Q17: Should Proposed Rule 205 

require broker-dealers to make the ‘‘buy 

to cover’’ order marking determination 

based on the purchaser’s net short 

position instead of gross short position? 

What are the costs and benefits 

associated with each approach? 

VI. Proposal To Amend CAT 

In July 2012, the Commission adopted 

Rule 613 of Regulation NMS, which 

required national securities exchanges 

and national securities associations (the 

‘‘Participants’’) 91 to jointly develop and 

submit to the Commission a national 

market system plan to create, 

implement, and maintain a consolidated 

audit trail (the ‘‘CAT’’).92 The goal of 

Rule 613 was to create a modernized 

audit trail system that would provide 

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 the CAT 

NMS Plan.93

Section 6.4(d) of the CAT NMS Plan 

provides that each Participant, through 

its Compliance Rule,94 must require 

Industry Members 95 to record and 

electronically report certain information 

to the CAT Central Repository, which 

means that any broker-dealer that is a 

member of a national securities 

exchange or a member of a national 

securities association must report the 

lifecycle of an order from 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.96 This provides regulators, 

including the Commission, access to 

comprehensive information regarding 

the lifecycle of orders, from origination 

to execution, as well as the postexecution allocation of shares. 

Broker-dealers, through the 

Compliance Rule adopted pursuant to 

the CAT NMS Plan, are required to 

report some short sale order data, 

including for sell orders, whether an 

order is long, short, or short exempt,97

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 of 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 now believes it is 

appropriate 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. ‘‘Buy to Cover’’ Information 

First, the Commission proposes that 

Industry Members be required to report 

to the CAT ‘‘buy to cover’’ information, 

which would be collected pursuant to 

Regulation SHO through Proposed Rule 

205 as discussed in Part IV above. 

Specifically, the Commission proposes 

to amend Section 6.4(d)(ii) of the CAT 

NMS Plan by adding new subparagraph 

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 Rule 205(a) 

of Regulation SHO (17 CFR 

242.205(a)).98 This provision would 

require Industry Members to identify 

‘‘buy to cover’’ equity orders received or 

originated by Industry Members and 

Customers 99 as ‘‘buy to cover’’ orders in 

order receipt and order origination 

reports submitted to the CAT Central 

Repository. 

The originally proposed CAT NMS 

Plan would have required all CAT 

Reporters (i.e., Participants and Industry 

Members) to report an ‘‘open/close 

indicator’’ as a ‘‘Material Term’’ on all 

orders, as required by Rule 613.100 This 

open/close indicator could have been 

used to identify ‘‘buy to cover’’ equities 

orders, because it would have provided 

information on whether an order is to 

open or close an existing position in a 

security. However, when the 

Commission approved the CAT NMS 

Plan, it determined that it was 

appropriate to remove the proposed 

requirement that an open/close 

indicator be reported as part of the 

Material Terms of the Order for equities 

and Options Market Maker 

quotations.101 At the time, three 

commenters objected to the requirement 

that CAT Reporters report an open/close 

indicator for equities transactions. 

Among other things, commenters noted 

that an ‘‘open/close indicator’’ is not 

used for equities, and believed that an 

additional or separate cost-benefit 

analysis should be done before it be 

required for equities.102 One of these 

commenters stated that including an 

‘‘open/close indicator’’ for equities 

would require ‘‘significant process 

changes and involve parties other than 

CAT Reporters, such as buy-side clients, 

OMS/EMS vendors, and others.’’ 103

Ultimately, the Commission decided 

that limiting the open/close indicator to 


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104See id. The Commission believes that the 

proposed reporting requirements here do not have 

the same issue regarding the lack of a clear 

definition because, unlike simply requiring an 

‘‘open/close indicator,’’ the proposed reporting 

requirements more clearly define when a ‘‘buy to 

cover’’ indicator would be required to be reported. 

105See Section 6.3(d) and 6.4(d) of the CAT NMS 

Plan. Because ‘‘buy to cover’’ information will only 

be available on order receipt and order origination 

reports, Commission staff and regulators will have 

to do more analysis to identify certain CAT records 

(e.g., order routes, modifications, cancellations, and 

executions) as associated with a ‘‘buy to cover’’ 

order since Industry Members would not be 

required to report ‘‘buy to cover’’ information on 

these CAT reports, but the Commission believes 

this inefficiency is justified by the reduction in 

burden of reporting for Industry Members. 106 17 CFR 242.105. 

107See proposed Section 6.4(d)(ii)(E) of the CAT 

NMS Plan. 

108 17 CFR 242.203(b)(1). 

109 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, supra note 

4 (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 61690, 61698–99 (Oct. 

17, 2004) (adopting amendments to Regulation SHO 

and providing additional guidance on what 

constitutes bona fide market making). Whether 

activity is considered bona fide market making 

activity for purposes of Regulation SHO will 

‘‘depend on the facts and circumstances of the 

particular activity’’ in question, and only market 

makers 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 id. at 

61699. 

110See id. at 61699. 

listed options was ‘‘reasonable,’’ 

acknowledging concerns in other areas, 

‘‘including the lack of a clear definition 

of the term for equities transactions.’’ 104

The Commission believes it is now 

appropriate to require ‘‘buy to cover’’ 

CAT reporting by Industry Members. 

Unlike the ‘‘open/close indicator’’ 

requirement in Rule 613, which was 

included in the definition Material 

Terms of the Order, the Commission is 

proposing to only require reporting by 

Industry Members on a subset of CAT 

reports related to equity buy orders; 

specifically, order receipt and order 

origination reports. Pursuant to the CAT 

NMS Plan, Material Terms of the Order 

are required to be reported to the CAT 

for numerous other events in an order’s 

lifecycle, including routing of an order, 

receipt of an order that has been routed, 

order modifications, order cancellations, 

and executions of orders, in whole or in 

part.105 In addition, the proposed 

provisions only require ‘‘one-sided’’ 

CAT reporting—that is, except in 

circumstances where an Industry 

Member originates a ‘‘buy to cover’’ 

order and submits it to another Industry 

Member as a Customer (requiring both 

Industry Members to report ‘‘buy to 

cover’’ information as part of order 

origination and order receipt reports, 

respectively), only one CAT Reporter is 

required to report that an order is a ‘‘buy 

to cover’’ order to the CAT. In addition, 

the ‘‘buy to cover’’ information does not 

have the same definitional issues as an 

‘‘open/close indicator’’ because ‘‘buy to 

cover’’ is being added to Regulation 

SHO, as discussed in Part IV above. 

‘‘Buy to cover’’ is also a more narrow 

concept than an ‘‘open/close indicator’’ 

and would require only a change to CAT 

reporting for a subset of equity buy 

orders, and thus would not affect CAT 

reporting for a majority of equity orders, 

and would not change CAT reporting 

relating to options trading at all. 

Because of this, the costs associated 

with the reporting of ‘‘buy to cover’’ 

information to the CAT should be 

substantially less than the costs of 

reporting an ‘‘open/close indicator’’ 

would have been. 

The Commission believes that 

requiring proposed reporting of ‘‘buy to 

cover’’ information to the CAT would 

provide valuable information for the 

Commission and other regulators in 

investigations and reconstruction of 

market events. The Commission and 

regulators currently do not have ready 

access to ‘‘buy to cover’’ information 

because they do not regularly receive 

Industry Member and customer position 

information, and it is only possible to 

identify ‘‘buy to cover’’ orders if the 

Commission or regulators 

independently obtain position 

information, such as by obtaining trade 

data and blotters from Industry 

Members. Even then, it is difficult to 

identify and track equity orders that are 

‘‘buy to cover.’’ Ready access to ‘‘buy to 

cover’’ information in the CAT would 

allow regulators to more easily 

determine whether a purchase of an 

equity security increases the equity 

exposure of an Industry Member or 

Customer and whether the buy covers a 

short position. Ready access to 

information used to determine whether 

an order adds to an existing position or 

covers an existing short position would 

assist in detecting and investigating 

portfolio pumping, short selling abuses, 

short squeezes marking the close, 

potential manipulation, insider trading, 

or other rule violations, such as 

violations of Rule 105 of Regulation M, 

which generally governs when short 

sellers can participate in a follow-on 

offering.106 This information would also 

enhance the Commission staff’s and 

regulators’ analysis and interpretations 

of the impact short selling and ‘‘buys to 

cover’’ have on the market, by more 

accurately lining up trading activity 

data available in the CAT with security 

price changes to examine and study the 

impact of ‘‘short squeezes’’ on equity 

prices. 

B. Reliance on Bona Fide Market 

Making Exception 

The Commission also proposes 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 for the reported 

short sales. Specifically, the 

Commission proposes to amend Section 

6.4(d)(ii) of the CAT NMS Plan to add 

a new subparagraph (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 bonafide market making activities in the 

security for which the exception in Rule 

203(b)(2)(iii) of Regulation SHO is 

claimed.107 The Commission believes 

that this information would provide 

valuable data to both the Commission 

and other regulators regarding the use of 

this exception by market participants, 

an exception which allows a brokerdealer (and consequently, a short seller) 

to avoid or delay certain requirements of 

Regulation SHO, including the locate 

and close out requirements. 

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.108 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.109 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.110 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 


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111See Regulation SHO Adopting Release, supra 

note 4, at 48015 n.67. 112See Rule 613 Adopting Release, 77 FR at 

45751. 113See id. 114See, e.g., In the Matter of Wilson-Davis & 

Company, Inc., Respondent, Order Making Findings 

and Imposing Remedial Sanctions and a Cease-andDesist Order Pursuant to Sections 15(b) and 21C of 

the Securities Exchange Act of 1934, Release No. 

80533 (April 26, 2017) (settled matter); In the 

Matter of Jeffrey A. Wolfson, Robert A. Wolfson, 

and Golden Anchor Trading II, LLC (n/k/a Barabino 

Trading, LLC), Respondents, Order Making 

Findings and Imposing Remedial Sanctions and 

Cease-and-Desist Order Pursuant to Sections 15(b) 

and 21C of the Securities Exchange Act of 1934 as 

to Robert A. Wolfson and Golden Anchor Trading 

II, LLC (n/k/a Barabino Trading, LLC), Release No. 

67450 (July 17, 2012) (settled matter). 

115See Regulation SHO Adopting Release, supra 

note 4, at 48015. 

116 Depending on the circumstances, the proposed 

requirement to report the use of the bona fide 

market making exception to Regulation SHO at 

order initiation could either reduce or increase 

compliance costs to market participants. In some 

cases, for example, examiners identifying market 

participants for examination of prolonged fails to 

deliver would be able to readily determine that 

such fails were due to bona fide market making 

activity, obviating the need to examine the 

particular market participant based on such fails 

alone. In other circumstances, by contrast, an 

indication of reliance on the bona fide market 

maker exception could be flagged for examination 

if it appears that the market participant is unlikely 

to be engaging in bona fide market making activities 

to the extent of the fails to deliver that have 

occurred—for instance, a market participant that 

does not post any quotes in the security for which 

the fails are occurring that has indicated it is relying 

on the bona fide market making exception in 

Regulation SHO. The Commission does not believe 

requiring the indicator will have a chilling effect on 

market making generally. Rather, the indicator will 

be used to identify whether a short sale for which 

a market participant is asserting the bona fide 

market making exception has been effected in 

connection with bona fide market making activities 

such that the narrow exception to a narrow 

exception to the locate requirement of Regulation 

SHO applies. 

delays associated with complying with 

such a requirement.111

The Commission previously proposed 

to require a locate identifier for short 

sales to be reported to the CAT in Rule 

613, but removed this requirement, 

among others, from the adopted rule 

text.112 At the time, the Commission 

believed that the CAT would still 

achieve significant benefits without 

requiring the routine recording and 

reporting of these specific data elements 

to the CAT, that the Commission could 

obtain information from a broker-dealer 

in a follow-up request if necessary, and 

that the benefits of having these specific 

data elements in the CAT would be 

minimal.113 However, with greater 

experience and access to CAT Data, the 

Commission now believes that it is 

important for regulatory and 

surveillance purposes to capture 

information regarding the use of the 

narrow bona fide market making 

exception to Regulation SHO and no 

longer believes that the benefits of 

having this specific data element in the 

CAT would be minimal. The 

Commission also believes that requiring 

this reporting would impact 

substantially fewer CAT Reporters than 

the original Rule 613 proposal, which 

would have required locate identifiers 

for all short sales. 

There are a number of settled 

enforcement actions against firms in 

connection with their use of the 

exception.114 Firms are not permitted to 

use the bona fide market making 

exception for, among other things, 

speculative selling strategies or 

investment purposes of the brokerdealer that are disproportionate to the 

usual market making patterns or 

practices of the broker-dealer in that 

security.115 Firms that do not need to 

obtain a locate prior to effecting a short 

sale, on the basis of the bona fide market 

making exception, have a competitive 

advantage over firms that are required to 

obtain a locate because these firms can 

trade more quickly and more easily 

adjust to or take advantage of changing 

market conditions. Currently, the 

Commission must request information 

from a broker-dealer to determine which 

orders have been submitted pursuant to 

the bona fide market making exception. 

The Commission believes 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.116

While Regulation SHO does not 

require market maker firms to record 

whether they are relying upon the 

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

Regulation SHO for bona fide market 

making activity, the Commission 

believes that market maker firms that 

engage in equity trading should be able 

to identify what trading activity 

qualifies for the exception so a firm can 

demonstrate its eligibility for the 

asserted exception. Thus, the 

Commission believes that this 

information should be easily reportable 

to the CAT by Industry Members that do 

rely upon this exception. As noted 

above, there is a narrow exception to 

Regulation SHO’s locate requirement for 

bona fide market making in Rule 

203(b)(2)(iii), and a firm should know at 

the time that it submits a sell short order 

without performing a locate pursuant to 

the bona fide market making exception 

whether or not it qualifies for the 

exception. 

C. Request for Comments 

While the Commission welcomes any 

public input on the Proposal to Amend 

CAT, the Commission asks commenters 

to consider the following questions. 

• Q18: Proposal to Amend CAT: 

Under the Proposal to Amend CAT, 

Industry Members would be required to 

report certain additional short sale 

related data to the CAT, as described 

above. 

Æ Are the proposed reporting 

requirements related to ‘‘buy to cover’’ 

and the bona fide market making 

exception sufficiently clear and 

understandable to allow Industry 

Members to collect and report the 

necessary information? Are the 

proposed requirements sufficiently clear 

for the Participants to implement the 

necessary changes to their Compliance 

Rules? Are the proposed requirements 

sufficiently clear for the CAT Plan 

Processor to implement necessary 

systems and technical changes and 

implement revised technical or other 

specifications required to facilitate and 

allow for the reporting of these new 

CAT data elements? 

Æ Please describe any technical 

challenges or concerns relating to the 

reporting, capture and processing of the 

proposed new information. 

Æ Are there concerns relating to the 

collection of ‘‘buy to cover’’ information 

by executing brokers to report to the 

CAT? What difficulties would Industry 

Members face in reporting their own 

proprietary ‘‘buy to cover’’ orders? 

Customer ‘‘buy to cover’’ orders? Are 

there other concerns relating to the 

reporting of ‘‘buy to cover’’ information 

to the CAT? If so, please describe those 

concerns and the specific issues or other 

burdens that should be considered by 

the Commission. 

Æ Are there concerns relating to the 

collection of or reporting reliance on the 

bona fide market making exception of 

Regulation SHO to the CAT? Would it 

be difficult for market making firms to 

identify what orders are originated 

pursuant to the bona fide market making 

exception? If so, please describe those 

concerns and the specific issues or other 

burdens that should be considered by 

the Commission. 

Æ The proposal would require brokerdealers to identify, at order origination, 

whether they are asserting use of the 

bona fide market making exception to 

the locate requirement. Should the 

Commission also require identification 

of purchases by broker-dealers to close 

out fails to deliver resulting from bona 

fide market making under Rule 204 of 


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117Rule 204 requires a participant of a registered 

clearing agency to deliver securities to a registered 

clearing agency for clearance and settlement on a 

long or short sale transaction in any equity security 

by settlement date, or to immediately close out a 

failure to deliver by borrowing or purchasing 

securities of like kind and quantity by the 

applicable close out date. For a short sale, a 

participant must close out a failure to deliver by no 

later than the beginning of regular trading hours on 

T+3. For a long sale, or for activity that is 

attributable to ‘‘bona fide’’ market making activities, 

a participant must close out a failure to deliver by 

no later than the beginning of regular trading hours 

on T+5. 

118 44 U.S.C. 3501 et seq. 

119 44 U.S.C. 3507(d) and 5 CFR 1320.11. 

120See supra Part III.A. 

121See supra Part V. 

122See supra Part VI.A. 

123See also Instructions to Form 13F. 

124This estimate is similar to the estimate 

provided in the Disclosure of Short Sales and Short 

Positions by Institutional Investment Managers, 73 

FR at 61686. However, the number of estimated 

Proposed 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 346 Form SH 

filers would have been required to file had a 

threshold of 2.5% of shares outstanding or $10 

million position dollar value been imposed during 

the analyzed time period. The estimate of 1,000 is 

higher than the 346 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 nonreporting 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 

issuers. 

Regulation SHO? 117 If so, please 

describe the costs and benefits of such 

an approach. 

Æ Is there any other short sale related 

data that should be reported to the CAT? 

If so, please describe the costs and 

benefits of reporting that data. 

• Q19: Cost of Reporting: Under the 

Proposal to Amend CAT, Industry 

Members would be required to report 

certain additional short sale related data 

to the CAT, as described above. 

Æ Please describe any views related to 

the anticipated costs or other burdens, 

as well as benefits, associated with 

reporting under the Proposal to Amend 

CAT, and identify the specific costs or 

other burdens that should be considered 

by the Commission. 

VII. Paperwork Reduction Act Analysis 

A. Background 

Certain provisions of Proposed Rule 

13f–2, Proposed Form SHO, Proposed 

Rule 205, and the Proposal to Amend 

CAT contain new ‘‘collection of 

information’’ requirements within the 

meaning of the Paperwork Reduction 

Act of 1995 (‘‘PRA’’).118 The 

Commission is submitting the proposed 

collection of information to the Office of 

Management and Budget (‘‘OMB’’) for 

review in accordance with the PRA.119

The title for the collection of 

information is: ‘‘Proposal to Enhance 

Short Sale Data.’’ OMB has not yet 

assigned a control number to the 

collection of information. An agency 

may not conduct or sponsor, and a 

person is not required to respond to, a 

collection of information unless it 

displays a currently valid OMB control 

number. The requirements of this 

collection of information are mandatory 

for Managers under Proposed Rule 13f– 

2 and Proposed Form SHO, for brokerdealers under Proposed Rule 205, and 

Plan Participants and CAT reporting 

firms under the Proposal to Amend 

CAT. 

As discussed above,120 Proposed Rule 

13f–2 and related Proposed 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 Proposed 

Form SHO, through EDGAR in Proposed 

Form SHO-specific XML, certain short 

position and activity data. Under 

Proposed Rule 13f–2 and Proposed 

Form SHO, only those Managers that 

meet a specified Reporting Threshold 

for an equity security would be required 

to file Proposed Form SHO. 

Proposed Rule 205 would establish a 

new ‘‘buy to cover’’ order marking 

requirement for purchase orders effected 

by a broker-dealer that applies if, at the 

time of order entry, the account for 

which the purchase order is placed has 

a gross short position in the security 

being purchased.121 Such information 

would provide additional context to the 

Commission and other regulators 

regarding the lifecycle of short sales, 

would assist in reconstructing market 

events, and would be useful in 

identifying and investigating potentially 

abusive short selling practices. The 

Commission believes that many brokerdealers will have existing order marking 

systems and processes, and will be 

familiar with how to adapt and update 

them to accommodate new order marks. 

The Proposal to Amend CAT is 

intended to supplement the short sale 

related data that would be reported by 

certain Managers to the Commission 

pursuant to Proposed Rule 13f–2 and 

Proposed Form SHO. As discussed 

above, the Commission proposes that 

CAT reporting firms be required to 

report ‘‘buy-to-cover’’ information to the 

CAT and believes that this information 

would allow Commission and SRO staff 

to review the life of a short sale, from 

creation to termination, which would 

assist in reconstructing unusual market 

events such as the market volatility in 

early 2021.122 In addition, the 

Commission proposes 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 for the 

‘‘locate’’ requirement in Rule 203 under 

Regulation SHO for the reported short 

sales. The Commission believes that this 

information would provide valuable 

data to both the Commission and other 

regulators regarding the use of the bona 

fide market making exception by market 

participants. The Proposal to Amend 

CAT could potentially affect all CAT 

reporting firms, but the Commission 

believes that the proposal will primarily 

affect those CAT reporting firms that 

engage in short sale activity with 

subsequent purchases to cover such 

short positions. 

Given the differences in the 

information collections applicable to 

these parties, the burdens applicable to 

Managers, broker-dealers and CAT 

reporting firms are separated in the 

analysis below. 

B. Burdens for Managers Under 

Proposed Rule 13f–2 and the Related 

Proposed Form SHO 

1. Applicable Respondents 

As discussed above, Proposed Rule 

13f–2 and Proposed Form SHO would 

require Managers that trigger a 

Reporting Threshold to file monthly via 

EDGAR, on Proposed Form SHO, certain 

short position and activity data. Under 

Section 13(f)(6)(A) of the Exchange Act 

and for purposes of Proposed Rule 13f– 

2, Managers would 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.123 Thus, the 

requirements of Proposed Rule 13f–2 

could apply, for example, to investment 

advisers that exercise investment 

discretion over client assets, including 

investment company assets; brokerdealers; insurance companies; banks 

and bank trust departments; and 

pension fund managers or corporations 

that manage corporate investments or 

employee retirement assets. Of those, 

the Commission estimates that, 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.124

2. Burdens and Costs 

The Commission believes that the 

burden associated with Proposed Rule 


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125See supra note 35. 126Form SH was adopted in the wake of the 2008 

financial crisis, and remained in effect until July 

2009. 127See Disclosure of Short Sales and Short 

Positions by Institutional Investment Managers, 73 

FR at 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.’’). 128Under 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 opening 

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. Exchange Act 

Release No. 58591 (Sept. 18, 2008), 73 FR 55175, 

55176 (Sept. 24, 2008). 

129See id. 

130 20 hours per filing × 1,000 filings by Managers 

each month × 12 months = 240,000 hours. 131The $217.55 wage rate reflects current 

estimates of the blended hourly rate for an in-house 

compliance attorney ($368), a senior programmer 

($334) and in-house compliance clerk ($71). 

$217.55 is based on the following calculation: 

(($368) + ((($334 + $71) ÷ 2) × 10)) ÷ 11 = $217.55. 

The estimated proportion of compliance attorney 

(1/11th) to senior programmer and in-house 

compliance clerk (10/11ths) 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 $368 per hour and $334 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 1800-hour work 

year and inflation, and multiplied by 5.35 to 

account for bonuses, firm size, employee benefits 

and overhead. The $71 per hour figure for a 

compliance clerk is based on salary information 

from the SIFMA Report, modified by Commission 

staff to account for an 1800-hour work-year and 

inflation, and multiplied by 2.93 to account for 

bonuses, firm size, employee benefits and overhead. 

See Exchange Act Release No. 89290 (July 10, 

2020), 85 FR 46016 (July 31, 2020) (‘‘Proposed 

Reporting Threshold for Institutional Investment 

Managers’’). 132 20 hours per filing × 1,000 filings by Managers 

each month × 12 months × $217.55 per hour = 

$52,212,000. 

133See Electronic Submission of Applications for 

Orders, 86 FR at 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.’’). 

134The Commission believes most Managers 

would 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. In order to achieve a conservative 

estimate of industry costs, the Commission 

estimates that all of the 1,000 Managers estimated 

to file Proposed Form SHO each month will do so 

directly using the structured XML-based data 

language rather than the fillable web form provided 

by EDGAR. 

135See Investment Company Act Release No. 

34441 (Dec. 15, 2021) (proposing release) at 123– 

125, available at https://www.sec.gov/rules/ 

proposed/2021/ic-34441.pdf (stating that, in the 

context of money market funds filing Form N–CR, 

the use of the XML-based data language for that 

Form may result in ‘‘some additional reporting 

costs related to adjusting their systems to a different 

data language’’ but that such changes ‘‘may reduce 

costs and introduce additional efficiencies for 

money market funds already accustomed to 

reporting using structured data and may reduce 

overall reporting costs in the longer term.’’). 

136The 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 Investment Company Act Release No. 

34441 (Dec. 15, 2021) at 282 Table 10. See also, 

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.’’). 

137Based on industry sources, Commission staff 

previously estimated that the average hourly rate for 

technology services in the securities industry 

(outside senior programmer or systems 

programmer) is $270. See Exchange Act Release No. 

83062 (Apr. 18, 2018), 83 FR 21574, 21653 n.493 

(May 9, 2018) (‘‘Regulation Best Interest Proposing 

Release’’). 

138 2 hours per filing × $270 per hour × 1,000 

filings each month × 12 months = $6,480,000. 

13f–2 and the related Proposed Form 

SHO reporting in EDGAR would be 

similar to a Manager’s reporting 

requirements for former Form SH. In 

October 2008, the Commission adopted 

interim 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.125 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.126 In 

adopting interim temporary Rule 10a3T, which required certain Managers to 

file weekly nonpublic reports via Form 

SH, the Commission believed that 

Managers would spend an estimated 20 

hours to prepare and file each Form 

SH.127

While recognizing that the 

information required under former Form 

SH differs from that required under 

Proposed Form SHO, the Commission 

believes that both forms require the 

reporting of short sale related data of 

similar depth and complexity.128

However, Proposed Rule 13f–2 would 

require 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,129 which is 

anticipated to decrease the overall 

volume of reports required to be filed by 

Managers. Accordingly, the Commission 

believes that the burden associated with 

preparing and filing Proposed Form 

SHO in EDGAR would be approximately 

20 hours per filing, consistent with that 

of former Form SH. The Commission 

further estimates that Managers would 

collectively spend approximately 

240,000 hours per year to comply with 

the reporting requirements of Proposed 

Rule 13f–2.130 The Commission 

estimates that the hourly cost of internal 

expertise required for each filing would 

be $217.55, which includes a blended 

calculation of the estimated hourly rate 

for a compliance attorney, senior 

programmer, and in-house compliance 

clerk.131 Taken together the estimated 

burden hours and hourly rate for the 

filing of Proposed Form SHO result in 

an estimated annual cost to the industry 

of $52,212,000.132 The Commission, 

however, recognizes that advances in 

technology over time could result in 

Managers spending less time preparing 

and filing Proposed Form SHO than is 

estimated above.133

The Commission also anticipates that 

most Managers will file Proposed Form 

SHO directly in the structured XMLbased data language for Proposed Form 

SHO,134 rather than using the fillable 

web form provided by EDGAR, resulting 

in some limited additional costs for 

each filing.135 The Commission believes 

that Managers that file Proposed Form 

SHO using a structured XML-based data 

language could incur an additional 

burden of 2 hours of work by a 

programmer,136 at an estimated cost of 

$540.137 The Commission further 

estimates that Managers would 

collectively spend up to approximately 

24,000 hours and $6,480,000 per year to 

file Proposed Form SHO directly in a 

structured XML-based data language.138

The Commission also estimates that a 

similar, additional burden of 2 hours of 

work by a programmer per filing would 

apply to Managers filing an amended 

Form SHO directly in a structured XMLbased data language. 

The Commission estimates that 

approximately 3.5% of the Managers 

that file Proposed Form SHO each 

month would also file an amended 

Proposed Form SHO, resulting in an 


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14974 Federal Register / Vol. 87, No. 51 / Wednesday, March 16, 2022 / Proposed Rules 

139The estimate of 3.5% of Regulation SHO filers 

that are anticipated to file an amended Proposed 

Form SHO is based on the frequency of recent 

filings of amended Form 13F. See Exchange Act 

Release No. 93518 (Nov. 4, 2021), 86 FR 64839, 

64860–61 Table 5 Notes 7, 8, and 10 (Nov. 19, 2021) 

(estimating a total of 5,466 Form 13F–HR filings, 

1,535 Form 13F–NT filings, and 244 Form 13F 

amendment filings (244 ÷ 7,001 = 3.5%) and noting 

that ‘‘[t]his estimate is based on the number of Form 

13F amendments filed as of December 2019.’’). 

140See Form SHO, Special Instructions at 4. 

141See supra note 131. 

142The 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 $316 per hour and 

a senior risk management specialist at a cost of $365 

per hour. Of the work performed by programmers, 

we anticipate that it will be performed equally by 

a senior programmer at a cost of $334 per hour and 

a programmer analyst at a cost of $246 per hour. 

((($316 per hour × 0.5) + ($365 per hour × 0.5)) × 

195 hours) + ((($334 per hour × 0.5) + ($246 per 

hour × 0.5)) × 130 hours) ÷ 325 = $320.30. 

143 325 initial technology-related burden hours × 

$320.30 per hour = $104,097.50. 

144See Amendments to Form PF to Require 

Current Reporting and Amend Reporting 

Requirements for Large Private Equity Advisers and 

Large Liquidity Fund Advisers, Investment Act 

Release No. 5950 (Jan. 26, 2022), 87 FR 9106 (Feb. 

17, 2022) (The Commission recognizes that 

Proposed Rule 13f–2 would 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 would be covered by 

Proposed Rule 13f–2.). 

145See id. at 9140 Table 2. 

146See Exchange Act Release No. 93784 (Dec. 15, 

2021), 87 FR 6652, 6678 (Feb. 4, 2022). 

additional burden and cost for an 

estimated 35 Managers each month.139

The additional burden could take up to 

the original 20 hours to process and file, 

as it would require the filing of an 

entirely new Proposed Form SHO.140

The associated wage rate would also be 

consistent with the cost of expertise 

required to complete the original 

Proposed Form SHO, estimated to be 

$217.55 per hour.141 The Commission 

also estimates that each amended 

Proposed Form SHO would 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 Proposed Form SHO filing. 

PRA TABLE 1—ESTIMATED MANAGER BURDEN AND COSTS ASSOCIATED WITH PROPOSED FORM SHO REPORTING

Managers 

(monthly) 

Proposed 

Form SHO 

reports 

processed 

and filed 

(annual) 

Hours 

needed 

to process and 

file Proposed 

Form SHO 

(avg.) 

Total industry 

burden hours 

to process and 

file Proposed 

Form SHO 

(annual) 

Wage rate 

(Avg.) 

Total 

industry 

cost burden 

(annual) 

Proposed Form SHO Filings .................. 1,000 12,000 20 240,000 $217.55 $52,212,000 

Use of Structured XML-Based Data 

Language ............................................ 1,000 12,000 2 24,000 270 6,480,000 

Amended Proposed Form SHO Filings 35 420 20 8,400 217.55 1,827,420 

Use of Structured XML-Based Data 

Language ............................................ 35 420 2 840 270 226,800 

Total ................................................ ........................ ........................ ........................ 273,240 ........................ 60,746,220 

In addition to the costs associated 

with the reporting burden, the 

Commission believes that Managers 

could incur an initial technology-related 

burden of 325 hours, at an hourly 

estimated wage rate of $320.30,142 for an 

estimated total cost of $104,097.50 per 

Manager,143 to update their current 

systems to capture the required 

information, and automate and facilitate 

the completion and filing of Proposed 

Form SHO. The Commission generally 

believes that the type of Managers that 

would trigger a Reporting Threshold 

would likely have sophisticated 

technologies and would be able to 

implement systems to help automate the 

reporting requirements of Proposed Rule 

13f–2. In particular, the estimate of 325 

initial technology-related burden hours 

for Managers filing Proposed Form SHO 

is based on the estimated initial filing 

burden (325 hours) for large hedge fund 

advisers 144 to fulfill proposed 

amendments to the reporting 

requirements for Form PF,145 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).146 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 

Proposed Form SHO. 

PRA TABLE 2—ESTIMATED MANAGER BURDEN AND COSTS ASSOCIATED WITH PROPOSED FORM SHO INITIAL

TECHNOLOGY PROJECTS

Managers 

with proposed 

Form SHO 

reportable 

short interest 

positions 

Number of 

hours needed 

for initial 

technology 

projects 

(avg.) 

Industry 

burden hours 

for initial 

technology 

projects 

Wage rate 

(avg.) 

Total 

industry 

cost burden 

Proposed Form SHO Initial Technology Projects ............ 1,000 325 325,000 $320.30 $104,097,500 

In making its estimates for the 

population of Managers that may be 

required to file a Proposed Form SHO, 

the Commission notes that its estimate 

may be over-inclusive of the number of 

Managers that can reasonably be 

expected to be covered. This is 

highlighted by the estimate that only 

346 Form SH filers would have had to 

file a report if one of the proposed 

Reporting Thresholds for Proposed 

Form SHO—$10 million or 2.5% of 


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Federal Register / Vol. 87, No. 51 / Wednesday, March 16, 2022 / Proposed Rules 14975 

147See supra Part III.D.2 Table I, Panel B. 148See supra Part III.A discussing equity 

securities subject to requirements of Regulation 

SHO. 149This estimate is derived from broker-dealer 

FOCUS filings as of December 31, 2020. 150This estimate is derived from an analysis 

conducted by Commission staff of CAT data 

indicating that 1,218 broker-dealers would have 

been required to mark an order ‘‘buy to cover’’ in 

November 2021. The Commission further estimates 

that a month-long period is likely to capture all 

broker-dealers to which the marking requirement of 

Proposed Rule 205 would apply. 151Our estimate of 62.25 billion annual ‘‘buy to 

cover’’ orders was calculated based on a staff review 

of short sale trades, comprised of trades marked 

‘‘short’’ and ‘‘short exempt’’ during the five years 

from 2016 through 2020. Based on a review of Rule 

605 reports from the three largest market centers 

during August 2008, we have previously estimated 

a ratio of 14.4 orders to each completed trade. We 

gross up our 4.3 billion estimate of average annual 

short sale trades from 2016 to 2020 by 14.4, which 

yields 62.25 billion average annual short sale 

orders. A similar review of Rule 605 reports from 

large market centers has not been performed since 

the August 2008 period. The ratio of short sale 

orders to completed trades may have increased or 

decreased since that time. 

152This figure was calculated as follows: 62.25 

billion ‘‘buy to cover’’ orders divided by 1,218 

broker-dealers anticipated to place orders requiring 

the ‘‘buy to cover’’ order mark. 

153The upper end of this estimate—.5 seconds— 

is based on the same time estimate for marking sell 

orders ‘‘long’’ or ‘‘short’’ under Rule 200(g) of 

Regulation SHO. See Regulation SHO Adopting 

Release, supra note 4, at 48023. See also, Exchange 

Act Release No. 48709 (Oct. 28, 2003) 68 FR 62972, 

63000 n. 232 (Nov. 6, 2003); Exchange Act Release 

No. 59748 (Apr. 10, 2009), 74 FR 18042, 18089 

(Apr. 20, 2009) (providing the same estimate—.5 

seconds—for marking sell orders ‘‘short exempt’’ 

under Rule 200(g) of Regulation SHO). The lower 

end of this estimate—.042 seconds—is based on a 

Commission estimate that computing speeds are 

twelve times faster today than they were in 2007. 

See infra note 312. 

outstanding shares—were to be 

applied.147 However, Form SH 

represented a narrower population of 

potential filers (e.g., only those that 

exercise investment discretion with 

respect to accounts holding Section 

13(f) securities having an aggregate fair 

market value of at least $100 million) 

than prospective Proposed Form SHO 

filers. Form SH also applied to a 

narrower population of securities, 13(f) 

securities, than Proposed Form SHO, 

which is proposed to apply more 

broadly to all equity securities.148

Additionally, Proposed Rule 13f–2 will 

include a second Reporting Threshold 

(Threshold B) that applies to short 

positions in non-reporting company 

issuers, which could result in additional 

Managers having to file a Proposed 

Form SHO. The number of Managers 

with accounts containing short 

positions big enough to trigger either of 

the proposed threshold prongs for 

Proposed Form SHO may have 

increased in the thirteen years since 

Form SH was implemented, particularly 

if overall shorting activity has increased. 

The Commission also recognizes that 

technological innovation and 

automation can change quickly, 

providing for new opportunities to 

streamline processes and reduce both 

initial and ongoing burdens and costs. 

Thus, the Commission seeks specific 

comment as to whether the proposed 

burden estimates are appropriate or 

whether such estimates should be 

increased or reduced. The Commission 

invites comment on the estimated 

number of Managers anticipated to be 

required to file a Proposed Form SHO 

each month (1,000), the estimated time 

burden (20 hours) of preparing and 

filing each required Proposed Form 

SHO, and the estimated initial time 

burden (325 hours) for Managers to 

update their systems and technology to 

facilitate the filing of Proposed Form 

SHO. The Commission also invites 

comment on the estimated number of 

Managers that will file Proposed Form 

SHO each month directly in Proposed 

Form SHO-specific XML (1,000), the 

estimated associated additional burden 

(2 hours of work by a programmer) for 

each filing, and whether the burden is 

more accurately categorized as an 

ongoing per filing burden or an initial, 

one-time technological systems update 

burden. If those estimates or any other 

element of Proposed Rule 13f–2 and 

Proposed Form SHO burdens or costs 

should be increased or decreased, please 

address by how much and why. 

C. Burdens for Broker-Dealers Under 

Proposed Rule 205 

1. Applicable Respondents 

As discussed above, Proposed Rule 

205 would add a new ‘‘buy to cover’’ 

marking requirement for a broker-dealer 

effecting a purchase order for its own 

account or on behalf of another person, 

wherein the account has a gross short 

position in the security being 

purchased. Proposed Rule 205 would 

require that, regardless of the size of 

such purchase for such account, the 

broker-dealer mark the purchase ‘‘buy to 

cover.’’ All broker-dealers whose 

accounts or whose customers’ accounts 

at the broker-dealer could hold a short 

position are potentially subject to the 

requirements of Proposed Rule 205. As 

of December 31, 2020, there were 3,551 

broker-dealers registered with the 

Commission.149 The Commission 

estimates that of the 3,551 registered 

broker-dealers, 1,218 place orders that 

would require a ‘‘buy to cover’’ order 

mark.150

2. Burdens and Costs 

For purposes of the PRA, the 

Commission staff estimates that a total 

of approximately 62.25 billion ‘‘buy to 

cover’’ orders would be entered 

annually.151 This would make for an 

average of approximately 51.1 million 

annual ‘‘buy to cover’’ order marks by 

each broker-dealer anticipated to require 

a ‘‘buy to cover’’ order mark.152 Each 

instance of marking an order ‘‘buy to 

cover’’ is estimated to take between 

approximately .00001158 and .000139 

hours (.042 and .5 seconds) to 

complete.153 This estimate is based on 

a number of factors, including: 

previously estimated burdens for the 

current marking requirements of Rule 

200(g) of Regulation SHO requiring 

broker-dealers to mark sell orders 

‘‘long,’’ ‘‘short,’’ or ‘‘short exempt’’; 

broker-dealers should already have the 

necessary mechanisms and procedures 

in place and already be familiar with 

processes and procedures to comply 

with the marking requirements of Rule 

200(g) of Regulation SHO; brokerdealers should be able to continue to 

use the same or similar mechanisms, 

processes and procedures to comply 

with Proposed Rule 205; and that 

computing speeds have significantly 

improved since the initial order marking 

burdens of Rule 200(g) of Regulation 

SHO were initially estimated. 

PRA TABLE 3—ESTIMATED BROKER-DEALER BURDEN ASSOCIATED WITH ‘‘BUY TO COVER’’ ORDER MARKING

Broker-Dealers 

that may 

‘‘buy to cover’’ 

Annual ‘‘buy to 

cover’’ orders 

Burden hours per ‘‘buy to cover’’ 

order 

Total annual industry 

burden hours 

Annual burden per 

broker-dealer 

‘‘Buy to Cover’’

Order Marking ..

1,218 62.25 billion ...... .00001158 (.042 seconds) to 

.000139 (.5 seconds).

721,000 to 8,652,750 ..... 592 to 7,104. 


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14976 Federal Register / Vol. 87, No. 51 / Wednesday, March 16, 2022 / Proposed Rules 

154See Exchange Act Release No. 61595 (Feb. 26, 

2010), 75 FR 11232, 11287 (Mar. 10, 2010), basing 

its cost estimates for the implementation of ‘‘short 

exempt’’ order marking on the estimates contained 

in Regulation SHO Adopting Release, supra note 4, 

at 48023, which based its cost estimates on input 

from industry sources. 

155The adjustment for inflation was calculated 

using information in the Consumer Price Index, 

U.S. Department of Labor, Bureau of Labor Statistics 

for February 2010 and November 2021. 

156This figure was calculated as follows: 

$170,000 implementation cost × 1,218 brokerdealers anticipated to mark ‘‘buy to cover’’ = 

$207,060,000 industry-wide implementation cost. 

157See supra note 151. 

158See supra note 154 and accompanying text. 

159See supra Part VI; see also proposed CAT 

NMS Plan Sections 6.4(d)(ii)(D) and 6.4(d)(ii)(E). 

In addition to the burden and costs 

associated with the marking of 

individual ‘‘buy to cover’’ orders, the 

Commission believes that broker-dealers 

required to mark ‘‘buy to cover’’ will 

incur initial, one-time technology 

project costs to update their existing 

order marking systems. The 

Commission believes that the 

implementation cost of the ‘‘buy to 

cover’’ marking requirement will likely 

be similar to the implementation cost of 

the ‘‘short exempt’’ order marking 

requirements of Rule 200(g) of 

Regulation SHO.154 The initial 

implementation cost of the ‘‘short 

exempt’’ order marking requirement was 

estimated to be approximately $115,000 

to $145,000 per broker-dealer. Taking 

the average of that range and updating 

it for inflation results in an approximate 

one-time cost of $170,000 per brokerdealer,155 and a total initial combined 

implementation cost of approximately 

$207,060,000 for all broker-dealers that 

are estimated to ‘‘buy to cover.’’ 156

PRA TABLE 4—ESTIMATED BROKER-DEALER COSTS ASSOCIATED WITH INITIAL ‘‘BUY TO COVER’’ ORDER MARKING

SYSTEM UPDATES

Broker-dealers 

that may 

‘‘buy to cover’’ 

Estimated initial 

technology cost 

to update order 

marking systems 

Total initial costs 

to all broker-dealers 

‘‘Buy to Cover’’ Initial System Updates ................................................... 1,218 $170,000 $207,060,000 

In making its estimate of annual ‘‘buy 

to cover’’ orders, the Commission notes 

that its estimate may be over-inclusive 

of the total number of purchase orders 

that can be reasonably expected to be 

covered by Proposed Rule 205. As noted 

above, the estimate is based on the 

average annual orders marked ‘‘short’’ 

and ‘‘short exempt’’ over a five year 

period—2016 through 2020. Such data 

was used based on the assumption that, 

over the course of a year, for every short 

position created by a ‘‘short’’ or ‘‘short 

exempt’’ sale order, there will be an 

equal and opposite number of ‘‘buy to 

cover’’ purchase orders placed in order 

to cover, and ultimately close out, those 

short positions. However, the 

Commission recognizes that industry 

practices may differ in terms of how 

order marks are applied (e.g., whether 

orders marked ‘‘short’’ are defaulted to 

in some instances where the seller may 

in fact be net long) and/or how short 

positions are created (e.g., potentially 

with multiple, smaller orders over time) 

and covered (e.g., potentially with 

fewer, larger orders). The Commission 

also requests comment on the 14.4 ratio 

of orders to trades used to calculate the 

total number of anticipated ‘‘buy to 

cover’’ orders. The Commission 

recognizes that the number of orders 

that result in a transaction may have 

materially changed since the August 

2008 estimate based on a review of Rule 

605 reports.157 The Commission also 

requests comment on the estimated 

range of .042 to .5 seconds (.00001158 

to .000139 hours) that it takes for a 

broker-dealer to properly mark a 

purchase order for an account that holds 

a gross short position in the security 

being purchased as ‘‘buy to cover.’’ The 

Commission also requests comment on 

the estimated cost of $170,000 per 

broker-dealer of initially adding the 

‘‘buy to cover’’ mark to existing order 

marking systems, including whether 

having existing order marking systems, 

potentially having previously updated 

such systems to include a ‘‘short 

exempt’’ order mark, and significant 

advances in technology and automation 

may have reduced the estimated costs 

from those described in 2003 and 

2004.158 Thus, the Commission seeks 

specific comment as to whether the 

proposed burden estimates are 

appropriate or whether such estimates 

should be increased or reduced. Among 

the other factors of these estimates, the 

Commission invites comments on the 

estimated number of ‘‘buy to cover’’ 

orders anticipated to be placed by 

broker-dealers each year (62.25 billion), 

the estimated ratio of orders per trade 

(14.4:1), the time required to accurately 

mark a purchase order ‘‘buy to cover’’ 

(between .042 and .5 seconds), and the 

cost of updating existing order marking 

systems to accommodate the ‘‘buy to 

cover’’ order mark ($170,000). If those 

estimates or any other element of the 

estimated Proposed Rule 205 burdens 

should be increased or decreased, please 

address by how much and why. 

D. Burdens and Costs Associated With 

the Proposal To Amend CAT 

1. Summary of Collections of 

Information 

The Proposal to Amend CAT would 

amend the CAT NMS Plan to require 

Participants to update their Compliance 

Rules to require reporting by Industry 

Members of the following information: 

(i) 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 Rule 205(a) of Regulation 

SHO (17 CFR 242.205(a)); and (ii) 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 bonafide market making activities in the 

security for which exception Rule 

203(b)(2)(iii) of Regulation SHO is 

claimed.159

2. Proposed Use of Information 

The Commission believes that 

requiring proposed reporting of certain 

short sale information to the CAT would 

provide valuable information for the 

Commission and other regulators in 

investigations and reconstruction of 

market events. Ready access to ‘‘buy to 

cover’’ information in the CAT would 

allow regulators to determine whether a 

purchase or sale of an equity security 

increases or decreases equity exposure 

of an Industry Member or Customer, and 

whether the buy covers a short position. 

The ability to determine whether an 

order adds to an existing position or 

covers an existing short position would 


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Federal Register / Vol. 87, No. 51 / Wednesday, March 16, 2022 / Proposed Rules 14977 

160The 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. 

161See supra note 149. 

162See also supra Part VI.B.2. 

163The Commission derives estimated costs 

associated with Plan Processor and Industry 

Member staff time based on per hour figures from 

SIFMA’s Management & Professional Earnings in 

the Securities Industry 2013, modified by 

Commission staff to account for an 1800-hour workyear, and multiplied by 5.35 to account for bonuses, 

firm size, employee benefits and overhead, and 

adjusted for inflation based on Bureau of Labor 

Statistics data on CPI–U between January 2013 and 

January 2020 (a factor of 1.12). For example, the 

2020 inflation-adjusted effective hourly wage rate 

for attorneys is estimated at $426 ($380 × 1.12). 

164The 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 $101,520 

= (Senior Programmer for 200 hours at $339 an hour 

= $67,800) + (Senior Database Administrator for 40 

hours at $349 an hour = $13,960) + (Senior Business 

Analyst for 40 hours at $281 an hour = $11,240) + 

(Attorney for 20 hours at $426 an hour = $8,520). 

165See CAT NMS Plan Approval Order, 81 FR at 

84911–43. See also OMB Control No. 3235–0671, 85 

FR 37721 (June 23, 2020) (notice of submission of 

request for approval of extension). 

166See CAT NMS Plan Approval Order, 81 FR at 

84918. 

be useful in detecting and investigating 

portfolio pumping, short selling abuses, 

short squeezes marking the close, 

potential manipulation, insider trading, 

or other rule violations. It would also 

assist Commission staff and regulatory 

staff analysis of the impact of ‘‘buys to 

cover’’ on equity prices and price 

volatility, and determine the impact of 

‘‘short squeezes.’’ The Commission 

believes that requiring Industry 

Members to identify short sales for 

which they are claiming the bona fide 

market making exception would 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 to certain proposed 

collections of information for the 

Proposal to Amend CAT would be the 

25 Plan Participants (the 24 national 

securities exchanges and one national 

securities association (FINRA)).160

b. Members of National Securities 

Exchanges and National Securities 

Associations 

The respondents for certain 

information collection for the Proposal 

to Amend CAT are the Participants’ 

broker-dealer members, that is, Industry 

Members. The Commission understands 

that there are currently 3,551 brokerdealers; 161 however, not all brokerdealers are expected to have new CAT 

reporting obligations under the Proposal 

to Amend CAT.162 Based on an analysis 

of CAT data from November 2021, 

conducted by Commission staff, the 

Commission estimates that 

approximately 1,218 broker-dealers will 

be affected by the Proposal to Amend 

CAT, including 1,218 broker-dealers 

that would be required to report ‘‘buyto-cover’’ information on buy orders for 

equity securities and 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 bonafide market making activities in the 

security for which the exception in Rule 

203(b)(2)(iii) of Regulation SHO is 

claimed. 

4. Total Initial and Annual Reporting 

and Recordkeeping Burdens 

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 the 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.163 Put another 

way, pursuant to the proposed 

amendments 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 Proposal to Amend CAT would 

require the Participants to engage the 

Plan Processor to modify the Central 

Repository to accept and process the 

new short sale data elements on order 

receipt and origination reports. The 

Commission estimates that the 

Participants would incur an initial, onetime burden of 130 hours, or 5 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 external cost of 

$101,520, or a per Participant expense 

of approximately $4,060.80 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 a preliminary 

estimate that it would take 300 hours of 

Plan Processor staff time to implement 

these changes.164

The Commission believes that other 

Paperwork Reduction Act burdens that 

would 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– 

0671.165 The Commission believes that 

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.166 In addition, the 

Commission anticipates that each 

exchange and national securities 

association would 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 


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167See OMB Control No. 3235–0045 (August 19, 

2016), 81 FR 57946 (August 24, 2016) (Request to 

OMB for Extension of Rule 19b–4 and Form 19b– 

4 PRA). 

168See CAT NMS Plan Approval Order, 81 FR at 

84911–43. 

169See, e.g., CAT NMS Plan Approval Order, 81 

FR at 84930. 

170See CAT NMS Plan Approval Order, 81 FR at 

84930. 

171OATS was FINRA’s Order Audit Trail System, 

which existed prior to the creation of the CAT and 

was an order audit trail system maintained by 

FINRA, was retired on September 1, 2021 because 

FINRA determined that the accuracy and reliability 

of the CAT met certain standards and thus OATS 

was duplicative in light of the implementation of 

CAT. See Exchange Act Notice No. 92239 (June 23, 

2021), 86 FR 34293 (June 29, 2021). 

172See CAT NMS Plan Approval Order, 81 FR at 

84860. 

173The Commission is basing this figure on the 

estimated internal burden for a broker-dealer that 

handles orders subject to customer specific 

disclosures required by Rule 606(b)(3) to both 

update its data capture systems in-house and format 

the report required by Rule 606. See Exchange Act 

Release No. 84528 (November 2, 2018), 83 FR 

58338, 58383 (November 19, 2018) (‘‘Rule 606 

Adopting Release’’). The Commission believes that 

this is a reasonable proxy for a preliminary 

estimation for the burdens and costs associated 

with updating data capture systems for reporting 

purposes here because in both rulemakings brokerdealers were required to update in-house data 

reported for pre-existing reporting obligations, and, 

as discussed above, the Paperwork Reduction Act 

analysis for Rule 613 and the CAT NMS Plan did 

not attempt to quantify the burden hours or external 

cost estimates for each individual component 

comprising the broker-dealer’s data collection and 

reporting responsibility. See supra note 169. 

174The Commission believes that the preliminary 

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 

firms report to the CAT. Outsourcing Industry 

Members will not be required to change internal 

CAT reporting systems, but instead would have to 

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. 

Paperwork Reduction Act Information 

Collection submission for Form 19b– 

4.167 The Commission does not expect 

the baseline number of 19b–4 filings to 

increase as a result of the Proposal to 

Amend CAT, nor does it believe that the 

incremental costs exceed those costs 

used to arrive at the average costs and/ 

or burdens reflected in the Form 19b– 

4 PRA submission. 

b. Broker-Dealer Burdens 

The Commission believes that certain 

Industry Members will have initial, onetime burdens and costs relating to the 

Proposal to Amend CAT, to update 

systems and processes as necessary to 

capture and report the proposed data 

elements to CAT. The Commission has 

estimated these initial burdens and 

costs below. 

The Commission also believes that the 

Proposal to Amend CAT would 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 believes that the ongoing 

burden imposed by the Proposal to 

Amend 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 3235–0671.168

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,169 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 comprising the 

broker-dealer’s data collection and 

reporting responsibility.170 The 

Proposal to Amend CAT would 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 

would 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. 

Buy to Cover Information on Orders 

With regard to the obligation to report 

‘‘buy to cover’’ information on orders to 

the CAT, the Commission believes that 

it is appropriate to divide the 1,218 

Industry Members that would be 

required to report buy to cover 

information to the CAT for the original 

receipt or origination of orders into two 

categories: (i) Industry Members that 

report directly to the CAT (‘‘insourcing 

Industry Members’’); and (ii) Industry 

Members that use third-party reporting 

agents such as service bureaus for CAT 

reporting (‘‘outsourcing Industry 

Members’’). For purposes of this 

Paperwork Reduction Act analysis, the 

Commission estimates that of the 1,218 

Industry Members that would be 

required to report buy to cover 

information to the CAT for the original 

receipt or origination of orders, 126 

would be insourcing Industry Members, 

and 1,092 would be outsourcing 

Industry Members. This is based on the 

CAT NMS Approval Order, which based 

on an analysis of specific data provided 

by FINRA on how firms report OATS 

data estimated that there were 126 large 

OATS 171 reporting broker-dealers, with 

all other broker-dealers either not 

reporting to CAT at the time or reporting 

to OATS through service bureaus.172

The Commission believes it is 

reasonable to estimate for purposes of 

this Paperwork Reduction Act analysis 

that the same number of broker-dealers 

that reported directly to OATS report 

directly to CAT, and that it unlikely that 

previously outsourcing broker-dealers 

and broker-dealers without an 

obligation to report to OATS developed 

the infrastructure necessary to report to 

the CAT. 

The Commission estimates that the 

126 insourcing Industry Members will 

incur an initial, aggregate, one-time 

burden of 32,760 hours, or that each of 

these insourcing Industry Members 

would incur an initial, average one-time 

burden of 260 hours, and that these 126 

insourcing Industry Members will incur 

an initial, aggregate, one-time external 

expense of approximately $1,890,000 for 

software and hardware to facilitate 

reporting of the new data elements to 

CAT, or that each insourcing Industry 

Member would incur an initial, average 

one-time external expense of 

approximately $15,000 for hardware 

and software to facilitate reporting of 

the new data elements to CAT.173

The Commission estimates that the 

1,092 outsourcing Industry Members 

will incur an initial, aggregate, one-time 

burden of 10,920 hours, or that each of 

these outsourcing Industry Members 

would incur an initial, one-time burden 

of 10 hours on average, and that together 

these 1,092 outsourcing Industry 

Members will incur an initial, aggregate, 

one-time external expense of 

approximately $1,092,000 for software 

and hardware to facilitate reporting of 

the new data elements to CAT and for 

external expenses relating to fees paid to 

CAT reporting agents to update their 

systems or coding as necessary, or that 

each outsourcing Industry Member 

would incur an initial, average one-time 

external expense of approximately 

$1,000.174


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175See supra note 165. 

176The 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 Rule 

606 Adopting Release, 83 FR at 58383. The 

Commission believes that this is a reasonable proxy 

for a preliminary estimation for 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. 

177The Commission believes that the preliminary 

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 

firms report to the CAT. Outsourcing Industry 

Members will not be required to change internal 

CAT reporting systems, but instead would have to 

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. 

178See supra note 165. 

As discussed above, the Commission 

does not believe that these CAT 

Reporters would have an ongoing PRA 

burden or external costs related to the 

reporting of the new information to CAT 

because the ongoing burden and 

external costs are 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– 

0671.175

Bona Fide Market Making Exception 

Information 

The Commission believes that this 

aspect of the Proposal to Amend CAT 

will only impose additional burdens on 

Industry Members that trade equity 

securities and rely upon or plan to rely 

upon the bona fide market making 

exception. Based on an analysis of data 

reported to the CAT in November 2021, 

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), the Commission believes 

that approximately 104 CAT Reporters 

will be subject to the new reporting 

obligation. The Commission believes 

that 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, and thus for 

some broker-dealers this information 

could be more easily reportable than 

information not currently available to 

Industry Members, such as the ‘‘buy to 

cover’’ identification of equity buy 

orders. 

With regard to the obligation to report 

regarding bona fide market making 

exception information to the CAT, the 

Commission believes that it is 

appropriate to divide the 104 Industry 

Members that would 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 104 Industry Members that 

would be required to this information, 

60 Industry Members would be 

reporting this information directly to the 

CAT, and 44 Industry Members would 

be reporting this information through 

third-party reporting agents. The 

Commission believes this is a 

reasonable estimation because it 

believes that the majority of Industry 

Members that are identified as market 

makers in the CAT are large enough to 

have developed their own systems and 

technology to report directly to the CAT. 

The Commission estimates that the 60 

insourcing Industry Members that report 

directly to the CAT will incur an initial, 

aggregate, one-time burden of 15,600 

hours, or that each of these CAT 

Reporters would incur an initial, 

average one-time burden of 260 hours, 

and that each of these 60 insourcing 

Industry Members will incur an initial, 

aggregate, one-time external expense of 

approximately $900,000 for software 

and hardware to facilitate reporting of 

the new data elements to CAT, or that 

each insourcing Industry Member 

would incur an initial, average one-time 

external expense of approximately 

$15,000.176

The Commission estimates that the 44 

outsourcing Industry Members that use 

third-party reporting agents to report to 

the CAT will incur an initial, aggregate, 

one-time burden of 440 hours, or that 

each of these outsourcing Industry 

Members would incur an initial, onetime burden of 10 hours on average, and 

that these 44 outsourcing Industry 

Members will incur an initial, aggregate, 

one-time external expense of 

approximately $44,000 for software and 

hardware to facilitate reporting of the 

new data elements to CAT, or that each 

outsourcing Industry Member would 

incur an initial, average one-time 

external expense of approximately 

$1,000.177

As discussed above, the Commission 

believes 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 3235–0671.178

Because this information is already 

collected and maintained by market 

makers that engage in equity trading and 

claim the exception pursuant to Rule 

17a–3 of the Exchange Act, the 

Commission believes there is no new 

ongoing burden associated with 

collecting or recording the information 

necessary to effectuate CAT reporting of 

this new element. 

c. Summary of Initial One-Time 

Burdens Relating to Proposal To Amend 

CAT 

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 5 130 $4,060.80 $101,520 

CAT: Reporting of Buy to cover Information for Orders—Insourcers.Third Party Disclosure.126 260 32,760 15,000 1,890,000 

CAT: Reporting of Buy to cover Information for Orders—Outsourcers.Third Party Disclosure.1,092 10 10,920 1,000 1,092,000 

CAT: Reporting of Bona Fide Market 

Making Exception—Insourcers.

Third Party Disclosure.60 260 15,600 15,000 900,000 

CAT: Reporting of Bona Fide Market 

Making Exception—Outsourcers.

Third Party Disclosure.44 10 440 1,000 44,000 


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E. Collection of Information Is 

Mandatory 

The proposed information collections 

are required under Proposed Rule 13f– 

2 and Proposed Form SHO for Managers 

that meet one of the Reporting 

Thresholds, Proposed Rule 205 for 

broker-dealers that effect purchase 

orders for accounts with open short 

positions in the equity securities being 

purchased, and the Proposal to Amend 

CAT for Plan Participants to collect and 

process new CAT reportable 

information and for CAT Industry 

Members that engage in certain short 

sale activity. 

F. Confidentiality 

As discussed above, Proposed Rule 

13f–2 would require certain Managers to 

file monthly in EDGAR, on Proposed 

Form SHO, certain short sale volume 

data and short interest position data. 

However, the Commission is proposing 

that the information reported by 

Managers on Proposed Form SHO be 

aggregated prior to publication so as to 

protect the identity of reporting 

Managers. 

The Commission would not typically 

receive confidential information as a 

result of Proposed Rule 205. 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 broker-dealer that 

relate to or arise from Proposed Rule 

205 that are not publicly available, such 

information would be kept confidential, 

subject to the provisions of applicable 

law. 

With respect to the Proposal to 

Amend CAT, Rule 613 and the CAT 

NMS Plan requires that the information 

to be collected and electronically 

provided to the Central Repository 

would 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 would receive 

confidential information pursuant to 

this collection of information, and such 

information will be kept confidential, 

subject to the provisions of applicable 

law. 

G. Request for Comments 

The Commission requests comment 

on whether the estimates for burden 

hours and costs are reasonable. Pursuant 

to 44 U.S.C. 3506(c)(2)(B), the 

Commission solicits comments to (1) 

evaluate whether the proposed 

collections of information are necessary 

for the proper performance of the 

functions of the Commission, including 

whether the information would have 

practical utility; (2) evaluate the 

accuracy of the Commission’s estimate 

of the burden of the proposed 

collections of information; (3) determine 

whether there are ways to enhance the 

quality, utility, and clarity of the 

information to be collected; and (4) 

determine whether there are ways to 

minimize the burden of the collections 

of information on those who are to 

respond, including through the use of 

automated collection techniques or 

other forms of information technology. 

While the Commission welcomes any 

public input on this topic, the 

Commission asks commenters to 

consider the following questions: 

• Q20: Has the Commission 

accurately estimated the paperwork 

burdens and costs to Managers 

associated with fulfilling the reporting 

requirements of Proposed Rule 13f–2? 

• Q21: Has the Commission 

accurately estimated the number of 

Managers (1,000) anticipated to be 

required to file Proposed Form SHO 

each month? If the estimate should be 

increased or decreased, please address 

by how much and why. 

• Q22: Has the Commission 

accurately estimated the amount of time 

(325 hours) needed for Managers to 

complete initial technology projects to 

facilitate fulfillment of the reporting 

requirements of Proposed Rule 13f–2? If 

the estimate should be increased or 

decreased, please address by how much 

and why. 

• Q23: Has the Commission 

accurately estimated the number of 

Managers each month (1,000) that will 

use a structured XML data language 

methodology, as opposed to the webfillable Proposed Form SHO directly on 

EDGAR, to file Proposed Form SHO? 

Has the Commission accurately 

estimated the number for Managers each 

month (35) that will use a structured 

XML data language methodology to file 

an amended Proposed Form SHO? 

• Q24: Has the Commission 

accurately estimated the additional 

paperwork burden (2 hours of work by 

a programmer) for Managers to file a 

Proposed Form SHO via the structured 

XML data language methodology? Is the 

additional burden (2 hours of work by 

a programmer) more accurately 

categorized as an ongoing per filing 

burden or an initial, one-time 

technological systems update burden? 

• Q25: Has the Commission 

accurately estimated that approximately 

3.5% of Proposed Form SHO filers 

would also file an amended Proposed 

Form SHO, resulting in additional 

burdens and costs for an estimated 35 

Managers each month? 

• Q26: Has the Commission 

accurately estimated the paperwork 

burdens and costs to broker-dealers 

associated with fulfilling the order 

marking requirements of Proposed Rule 

205? Has the Commission accurately 

estimated the number of broker-dealers 

(1,218) that will be required to update 

their order marking systems to 

incorporate the ‘‘buy to cover’’ order 

mark? 

• Q27: Has the Commission 

accurately estimated the total number of 

orders marked ‘‘buy to cover’’ by brokerdealers each year (62.25 billion)? If the 

estimate should be increased or 

decreased, please address by how much 

and why. 

• Q28: Is the Commission’s 

estimation that, over the course of a 

year, for every short position created by 

a ‘‘short’’ or ‘‘short exempt’’ sale order, 

there will be an equal and opposite 

number of ‘‘buy to cover’’ purchase 

orders placed in order to cover, and 

ultimately close out, those short 

positions, an accurate projection of how 

frequently ‘‘buy to cover’’ order marks 

will be used? If there is a more accurate 

means of estimating the volume of 

anticipated annual ‘‘buy to cover’’ order 

marks, please describe its structure and 

why it is more accurate. 

• Q29: Has the Commission 

accurately estimated the ratio of orders 

to trades (14.4:1) used to calculate the 

total number of anticipated ‘‘buy to 

cover’’ orders? If the estimate should be 

increased or decreased, please address 

by how much and why. 

• Q30: Has the Commission 

accurately estimated the time it takes 

(between .042 and .5 seconds) for a 

broker-dealer to properly mark a 

purchase order as ‘‘buy to cover’’ for an 

account that holds a gross short position 

in the security being purchased? If the 

estimate should be increased or 

decreased, or the range narrowed, please 

address by how much and why. 

• Q31: Has the Commission 

accurately estimated the cost to brokerdealers ($170,000) to update their order 

marking systems, or is such a cost likely 

to have decreased for reasons including 

technological advances? If the estimate 

should be increased or decreased, please 

address by how much and why. 

• Q32: Has the Commission 

accurately captured the market 

participants who would be subject to 


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179Exchange 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). 

180See infra Part VIII.D.1 (for additional 

discussion on potential abusive short selling 

practices). 

181See infra Part VIII.D.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. 

the burdens and costs under the 

Proposal to Amend CAT? 

• Q33: Has the Commission 

accurately estimated the number of 

Industry Members anticipated to be 

required to report new information to 

the CAT under the Proposal to Amend 

CAT? 

• Q34: Has the Commission 

accurately estimated the paperwork 

burdens and costs to market participants 

associated with the Proposal to Amend 

CAT? 

Persons wishing to submit comments 

on the collection of information 

requirements should direct the 

comments to the Office of Management 

and Budget, Attention: Desk Officer for 

the Securities and Exchange 

Commission, Office of Information and 

Regulatory Affairs, Washington, DC 

20503, and send a copy to Vanessa 

Countryman, Secretary, Securities and 

Exchange Commission, 100 F Street NE, 

Washington, DC 20549–1090, with 

reference to File No. S7–08–22. OMB is 

required to make a decision concerning 

the collection of information between 30 

and 60 days after publication of this 

release. Consequently, a comment to 

OMB is best assured of having its full 

effect if OMB receives it within 30 days 

of publication. Requests for materials 

submitted to OMB by the Commission 

with regard to these collections of 

information should be in writing, refer 

to File No. S7–08–22, and be submitted 

to the Securities and Exchange 

Commission, Office of FOIA Services, 

100 F Street NE, Washington, DC 

20549–2736. 

VIII. Economic Analysis 

A. Introduction 

The Commission is proposing new 

reporting requirements in connection 

with short sales. The Commission is 

mindful of the economic effects that 

may result from the proposed 

requirements, including the benefits, 

costs, and the effects on efficiency, 

competition, and capital formation.179

The Commission believes that, if 

adopted, Proposed Rule 13f–2 and 

Proposed Form SHO, Proposed Rule 

205, and the Proposal to Amend CAT 

would result in improved regulatory 

oversight, as the data that would 

become available to regulators would 

close informational gaps in the currently 

available data, which would in turn 

benefit market participants and help 

foster fair and orderly markets. More 

specifically, the Proposals would 

increase transparency and improve 

regulators’ examination of market 

behavior and recreation of significant 

market events. These improvements 

may, in turn, discourage abusive short 

selling.180 Proposed Rule 13f–2 would 

also increase transparency for market 

participants about short selling, which 

could help refine market participants’ 

understanding of the level of negative 

sentiment and the actions of short 

sellers. 

The Proposals may also lead to 

tradeoffs in market quality. A reduction 

in abusive short selling and improved 

regulatory oversight may have a positive 

impact on market quality. Furthermore, 

the Proposals would provide market 

participants improved transparency into 

short selling which could also improve 

price efficiency. However, Proposed 

Rule 13f–2 and Proposed Form SHO 

could chill short selling by increasing 

the costs and risks of implementing 

large short positions, which could 

reduce the positive effects of short 

selling on market quality. Furthermore, 

public disclosure of information 

resulting from Proposed Rule 13f–2 and 

Proposed Form SHO could facilitate 

short squeezes, which could reduce 

market quality for all.181

In addition to the indirect costs to 

market quality, Proposed Rule 13f–2, 

Proposed Form SHO, Proposed Rule 

205, and the Proposal to Amend CAT 

could impose significant compliance 

costs on market participants. The 

proposal to require Managers to report 

large positions and activity would likely 

impose significant initial and ongoing 

costs on Managers. Proposed Rule 205 

and the Proposal to Amend CAT could 

impose large initial costs and ongoing 

compliance costs on broker-dealers. 

The Commission has considered the 

economic effects of the Proposals and 

wherever possible, the Commission has 

quantified the likely economic effects of 

the Proposals. The Commission is 

providing both a qualitative assessment 

and quantified estimates of the potential 

economic effects of the Proposals where 

feasible. The Commission has 

incorporated data and other information 

to assist it in the analysis of the 

economic effects of the Proposals. 

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 less significant. 

The Commission requests that 

commenters provide relevant data and 

information to assist the Commission in 

quantifying the economic consequences 

of Proposed Rule 13f–2, Proposed Form 

SHO, Proposed Rule 205, and Proposal 

to Amend CAT. 

B. Economic Justification 

The Commission is proposing the 

required Manager reporting and 

disclosures, in part, to implement the 

specific statutory mandate of Section 

929X of the Dodd-Frank Act. 

Accordingly, many of the costs and 

benefits of Proposed Rule 13f–2 and 

Proposed Form SHO stem from the 

Commission’s response to the statutory 

mandate. In addition, the Commission is 

exercising discretion in its design and 

implementation of Proposed Rule 13f–2 

and Proposed Form SHO, and 

recognizes that this discretion has 

economic effects. Specifically, the 

Commission is using this discretion to 

ensure that the proposed disclosures are 

additive to currently available data and 

would be useful to both market 

participants and regulators, with a focus 

on addressing data limitations exposed 

by the market volatility in January 2021. 

Finally, Proposed Rule 205 and 

Proposal to Amend CAT address such 

data limitations outside of the context of 

the statutory mandate of Section 929X. 

CAT data, as well as other currently 

available data, can be used by regulators 

for surveillance, examinations, 

investigations, and other enforcement 


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182FINRA 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. 

183FINRA 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. 

184See also Exchange Act Section 3(a)(35) 

defining when a person exercises ‘‘investment 

discretion’’ with respect to an account. 

185See 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). 

186To the extent that a natural person exercising 

discretion over the account of another person has 

a short position exceeding the proposed thresholds, 

that natural person would be subject to the costs 

associated with Proposed Rule 13f–2 and the 

Proposed Form SHO. We expect such a natural 

person would likely use the fillable web form 

provided by EDGAR to input Proposed Form SHO 

disclosures. The Commission believes that few 

Managers that are natural persons would be likely 

to have short positions large enough to exceed the 

threshold. See infra Section VIII.D.7 for more 

information on Managers’ costs. 

187Peter Molk and Frank Partnoy, Institutional 

Investors as Short Sellers?, 99 B.U. L. Rev. 837, 839 

(2019), available at https://scholarship.law.ufl.edu/ 

cgi/viewcontent.cgi?article=1980&context=

facultypub. Molk and Partnoy’s paper ‘‘identif[ies] 

the regulatory and other barriers that keep key 

categories of institutions[, specifically, mutual 

funds, insurance companies, banks, sovereign 

functions, for the analysis and 

reconstruction of market events, and for 

more general market analysis and 

research. At times, these activities 

would benefit from information on 

customer or market participant 

positions and how those positions 

change over time. CAT was not 

designed to track such positions, and 

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 and also for informing 

members of the public and market 

participants. Specifically, current data 

(1) fails to distinguish economic short 

exposure from hedged positions or 

intraday trading, (2) fails to distinguish 

the type of trader short selling or 

identify individual short positions, even 

for regulatory use, and (3) fails to 

capture the various ways that short 

positions can change and the various 

ways to acquire short exposure. The 

Proposals are designed to address these 

data limitations. 

Existing data sources fail to accurately 

represent the economic short exposures 

of Managers due to several limitations. 

While existing data report aggregate 

short positions on a bi-monthly basis, 

they do not reflect the timing with 

which short positions expand or shrink 

in the two-week period between the two 

reporting dates.182 Some data sources 

report daily short sale volume 183

without distinguishing short sale 

transactions that affect economic short 

exposures from those meant for 

purposes such as liquidity provision or 

hedging of long positions. As such, the 

existing short volume data may not be 

combined with the bi-monthly short 

interest data to construct aggregate daily 

short positions. Existing securities 

lending data that may be considered 

indirect measures of short interest are 

expensive, incomprehensive, and 

biased—in particular, security loans 

may serve purposes other than covering 

short positions, e.g., cover failure to 

deliver or borrowing cash by the lender. 

No existing data identify short positions 

by individual traders. Even though some 

regulatory data identify short 

transactions of individual traders, they 

may not be utilized to reconstruct short 

positions because economic short 

exposure may change in the absence of 

any short sale transactions. 

These data limitations inhibit 

regulators from performing functions 

such as market surveillance and market 

reconstruction. For example, the 

Commission would 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 

cannot currently efficiently assess the 

risk that the positions impose on the 

market more broadly. Additionally, with 

existing data the Commission may have 

difficulty reconstructing significant 

market events—inhibiting the 

Commission in quickly understanding 

market events and providing efficient 

market oversight. 

The data limitations also prevent the 

market from more fulsome 

interpretations of existing short selling 

information. For example, existing data 

can show a short interest level, but little 

is known about how much of that short 

interest level is directional or hedged 

and the extent to which short positions 

change between short interest 

disclosures. 

C. Baseline 

1. Institutional Investment Managers 

The potential universe of persons who 

meet the definition of Manager is 

expansive. 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.’’ 184

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.’’ 185

As a result, Managers exercising 

discretion over the accounts of others 

could include but are not limited to 

investment advisors 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; corporations, including 

broker-dealers 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.186

Notwithstanding the broad statutory 

definition of Manager, it is the 

Commission’s understanding that only a 

fraction of Managers of are believed to 

engage in short selling and fewer still 

engage in any significant short selling. 

Market makers, for example, engage in 

short selling but, with the exception of 

option market makers, generally do not 

hold large positions overnight. We are 

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.187


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wealth funds, endowments, and foundations,] from 

acquiring significant short positions.’’ Id. at 843. 

188As of July 2021, there were 10,223 mutual 

funds (excluding money market funds) with 

approximately $18,588 billion in total net assets, 

2,320 ETFs organized as an open-end fund or as a 

share-class of an open-end fund with approximately 

$6,447 billion in total net assets, 736 registered 

closed-end funds with approximately $314 billion 

in total net assets, 722 unit investment trusts with 

approximately $2,456 billion in total net assets, and 

13 variable annuity separate accounts registered as 

management investment companies on Form N–3 

with $218 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, 2021. 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. 

189 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. 

190This is based on an analysis of data provided 

by registered investment companies to the 

Commission on Form N–PORT. 

191As of 2021 Q2, there are 1,124 hedge funds out 

of 6,083 Single-Strategy hedge funds (excluding 

fund-of-funds hedge funds) that employ short 

selling in an Equity Long/Short strategy (1,062), 

Equity Short-Biased strategy (18), or Fixed Income 

Convertible Arbitrage strategy (44). Assets under 

management (AUM) in these types of hedge funds 

total approximately $1.165 trillion. 2021 Q2 Private 

Fund Statistics, Division of Investment 

Management Analytics Office, available at https:// 

www.sec.gov/divisions/investment/private-fundsstatistics.shtml. Data includes both U.S. and nonU.S. domicile hedge funds managed by SECregistered investment advisers with at least $150 

million in private fund assets under management. 

The data does 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 non-U.S. domicile 

hedge funds with an equity short-bias strategy is not 

publicly available for 2021 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), available at https://

www.reuters.com/business/finance/global-hedgefund-industry-assets-top-4-trillion-first-time-2022- 

01-20/. 

192For 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 187 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. 

193See Enhanced Reporting of Proxy Votes by 

Registered Management Investment Companies; 

Reporting of Executive Compensation Votes by 

Institutional Investment Managers, Exchange Act 

Rel. No. 93169, (Oct. 15, 2021) available at https:// 

www.govinfo.gov/content/pkg/FR-2021-10-15/pdf/ 

2021-21549.pdf. 

194See supra section VII.B.2. for more 

information on the estimates of how many 

managers would have reporting obligations. 

195See Rule 200(a) of Regulation SHO, 17 CFR 

242.200(a). See also Regulation SHO Adopting 

Release, supra note 4. 

Using actual investment strategies 

employed by registered investment 

companies 188 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% of all 

funds were allowed to engage in short 

selling, only 5% of all funds actually 

did so.’’ 189 As of September 2021, there 

were 7,043 registered investment 

companies with total equity positions 

valued at approximately $17 trillion. Of 

those, 152 funds had short positions 

with a total short position value of 

approximately $17.5 billion. Of the 

funds with short positions of 

approximately $17.5 billion, only 37 

funds held positions equal to or greater 

than $10 million.190 Additionally, 

according to an analysis of publicly 

available Form PF data, a substantial 

minority of single-strategy hedge funds 

employ strategies involving short 

selling.191

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 proposed rule’s reporting 

requirement.192 The Commission 

believes one possible proxy for the 

number of Managers that could 

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 over the proposed rule’s 

thresholds. As of March 31, 2021, 7,550 

Managers with investment discretion 

over approximately $39.79 trillion 

reported holdings on Form 13F in 

Section 13(f) securities.193 The 

Commission also believes that registered 

investment advisers, particularly those 

managing hedge funds, are the primary 

Managers likely to be affected by the 

Proposed Rule. Though the Commission 

lacks data to quantify the number 

affected parties, the Commission 

estimates that the total number of 

Managers with reporting obligations 

will be between 346 and 1,000.194

2. Short Selling 

Short selling is a widely used market 

practice, which allows investors to 

profit if an asset declines in value or to 

hedge risks. Market participants can 

build an economic short positions 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. This information is 

based on the current state of research 

using existing data. 

i. 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.195 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. 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 investor will 

make money. 


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196See infra Part VIII.C.4.i (for a discussion of 

existing short interest data). 

197Regulation T specifies that in most situations 

margin requirements for equity short sales must be 

150%. See 12 CFR 220.12 (1998), available at 

https://www.ecfr.gov/current/title-12/chapter-II/ 

subchapter-A/part-220/section-220.12. 

198There have been recent efforts by industry 

members to shorten the settlement cycle to one 

business day. Furthermore, the Commission has 

proposed to shorten the settlement cycle. 

Shortening the Securities Transaction Settlement 

Cycle, Exch. Act Rel. No. 94196 (Feb. 9, 2022) 

available at https://www.sec.gov/rules/proposed/ 

2022/34-94196.pdf. See also SIFMA, ICI, DTCC and 

Deloitte, Accelerating the U.S. Securities Settlement 

Cycle to T+1 (Ver. 1.0) (Dec. 1, 2021), available at 

https://www.sifma.org/wp-content/uploads/2021/ 

12/Accelerating-the-U.S.-Securities-SettlementCycle-to-T1-December-1-2021.pdf. 

199See supra note 6, 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). 

200The Commission analyzed trading volume for 

common shares during the year 2019. This analysis 

revealed that the average common share during this 

period traded approximately five percent of shares 

outstanding each week, with approximately half of 

all trades involving short sellers. Consequently, 

total short selling volume amounts to 

approximately five percent of shares outstanding 

every two weeks for a typical stock. In contrast, 

from 2015–2019, 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 bi-monthly 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. 

201See infra Part V.4.iii (for a more detailed 

discussion of short selling and liquidity provision). 

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 detect 

temporary pricing anomalies. While 

short selling to trade on information or 

to hedge generally results in short 

positions that are held for some time, 

market makers 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.196

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%— 

including the proceeds of the short sale 

plus an additional 50% of the value of 

the short position.197 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.198 Consequently, a short seller (or 

their 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 they 

are 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. 

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% 

of trading volume, while only about 2% 

of shares outstanding are held short in 

the U.S. equity markets.199 This average 

volume of short selling tends to be 

much higher than the typical changes in 

short interest,200 suggesting that a 

significant fraction of short selling 

volume is reversed very quickly. Such 

short selling may be more indicative of 

the fact that short selling is a key 

component of modern market making 

strategies and technical algorithmic 

trading.201

BILLING CODE 8011–01–P 


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202See 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 

C. Strong, Back to the Futures: When Short Selling 

is Banned (2019), available at https://

papers.ssrn.com/sol3/papers.cfm?abstract_

id=3420275. 

BILLING CODE 8011–01–C 

ii. 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. Confirming 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.202

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 


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203On September 19, 2019 the Commission 

approved the ‘‘Recordkeeping and Reporting 

Requirements for Security-Based Swap Dealers, 

Major Security-based Swap Participants, and 

Broker-Dealers’’ which established a regulatory 

regime for security-based 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. 

204On July 9, 2012, the Commission approved 

rules and definitions of Security based swaps. See 

17 CFR 230, 240–241; Further Definition of ‘‘Swap,’’ 

‘‘Security-Based Swap,’’ and ‘‘Security-Based Swap 

Agreement’’; Mixed Swaps; Security-Based Swap 

Agreement Recordkeeping, Commodity Futures 

Trading Commission and Securities and Exchange 

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

rules/final/2012/33-9338.pdf. 

205See, e.g., Regulation SBSR—Reporting and 

Dissemination of Security-Based Swap Information, 

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

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

Adopting Release’’); 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, 

available at https://www.sec.gov/rules/other/2021/ 

34-91798.pdf. 

206See Regulation SHO Adopting Release, supra 

note 3. 

207 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’’). 

208Efficient 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 (October 28, 2003), 68 FR 62972 (November 

6, 2003), available at https://www.sec.gov/rules/ 

proposed/34-48709.htm#P179_15857. 

209Market 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 (October 28, 2003), 68 FR 62972 (November 

6, 2003), available at https://www.sec.gov/rules/ 

proposed/34-48709.htm#P179_15857. 

210As 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. 

211 In 2008, the Commission adopted 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. 

212 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. 

213Rule 10b–21 is an antifraud provision 

intended to supplement existing antifraud rules, 

including Rule 10b–5, and to further evidence the 

liability of short sellers. This includes brokerdealers 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 brokerdealers 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 12, Exchange Act Release No. 58774, available 

at https://www.sec.gov/rules/final/2008/34- 

58774.pdf. 

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.203 Security-based swaps 

include total-return 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 the its price.204

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.205

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 

Compliance with Regulation SHO 

began on January 3, 2005.206 The 

Commission adopted Regulation SHO 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.207

In adopting Regulation SHO, the 

Commission recognized that short sales 

can provide important pricing 

information 208 and liquidity to the 

market.209 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,210 strengthened those 

same close-out requirements by 

adopting Rule 204,211 and reintroduced 

a short sale price test restriction by 

adopting Rule 201.212 In addition, the 

Commission adopted a targeted 

antifraud rule, Rule 10b–21, to further 

address failures to deliver in securities 

that have been associated with ‘‘naked’’ 

short selling.213


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214See supra Part VI.B (Reliance on Bona Fide 

Market Making Exception, for more information on 

the inefficiencies of not having a systematic way of 

capturing bona fide market making activities). 

215See supra note 6, DERA 417(a)(2) Study at 17– 

18. 

216See 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. 

217 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.’’). 

218FINRA Rule 4560 excludes short sales in 

‘‘restricted equity securities,’’ as defined in 

Securities Act Rule 144, from the reporting 

requirement. 

219See FINRA Rule 4560(b)(1). 

220See 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. 

221See supra note 6, DERA 417(a)(2) Study at 17– 

18. 

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’s four general 

requirements are summarized below: 

• Rule 200—Marking Requirement. 

Rule 200(g) requires that a broker-dealer 

mark all sell orders of any 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 

would be in the physical possession or 

control of the broker or dealer no later 

than the settlement of the transaction. 

The ‘‘short exempt’’ marking 

requirement applies only with respect to 

the Rule 201 short sale price test circuit 

breaker noted below. 

• Rule 203(b)(1) and (2)—‘‘Locate’’ 

Requirement. Rule 203(b)(1) 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 has 

borrowed the security, entered into a 

bona-fide arrangement to borrow the 

security, or has reasonable grounds to 

believe that the security can be 

borrowed so that it can be delivered on 

the date delivery is due. Rule 203(b)(2) 

provides an exception to the locate 

requirement for short sales effected by a 

market maker in connection with ‘‘bonafide’’ market making activities. 

• Rule 204—Close out Requirement. 

Rule 204 requires a participant of a 

registered clearing agency (i.e., a 

clearing member) to deliver securities to 

a registered clearing agency for 

clearance and settlement on a long or 

short sale transaction in any equity 

security by settlement date, or to 

immediately close out a failure to 

deliver by borrowing or purchasing 

securities of like kind and quantity by 

the applicable close out date. For a short 

sale, a participant must close out a 

failure to deliver by no later than the 

beginning of regular trading hours on 

T+3. For a long sale, or for activity that 

is attributable to ‘‘bona-fide’’ market 

making activities, a participant must 

close out a failure to deliver by no later 

than the beginning of regular trading 

hours on T+5. 

• Rule 201—Short Sale Price Test 

Circuit Breaker. Rule 201 generally 

prevents short selling, including 

potentially manipulative or abusive 

short selling, from driving down further 

the price of a security that has already 

experienced a significant intraday price 

decline, and facilitates the ability of 

long sellers to sell first upon such a 

decline. Rule 201 contains a short sale 

circuit breaker that, when triggered by a 

price decline of 10% or more from a 

covered security’s prior closing price, 

imposes a restriction on the price at 

which the covered security may be sold 

short (i.e., must be above the current 

national best bid). Once triggered, the 

price restriction would apply to short 

sale orders in that security for the 

remainder of the day and the following 

day, unless an exception applies. 

In addition, Rule 105 of Regulation M 

generally prohibits participation in 

secondary offerings by persons who 

have sold short during the restricted 

period before the offering. 

Regulation SHO imposes certain 

recordkeeping obligations on brokerdealers. However, the Commission does 

not have any 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 broker-dealer by brokerdealer basis.214

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 

exposure 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 estimating short positions 

using these data would be significantly 

inaccurate and inefficient. 

i. Bi-Monthly Short Interest Data 

One of the primary data sources for 

aggregate short selling data is the bimonthly short interest data collected by 

FINRA.215 FINRA collects aggregate 

short interest information in individual 

securities on a bi-monthly 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.216 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.217 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.218 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.219

Member firms must report their short 

positions to FINRA regardless of 

position size.220 The process of 

gathering and validating short interest 

data takes approximately two weeks.221

Thus the data is available with 

approximately a two week lag. 

These short interest data are widely 

available and are used by academics and 


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222See supra note 182 (FINRA and the listing 

exchanges make these data publicly available with 

bi-weekly updates). 

223See, e.g., Peter N. Dixon and Eric K. Kelley, 

Business Cycle Variation in Short Selling Strategies: 

Picking During Expansions and Timing During 

Recessions, J. of Fin. and Quantitative Analysis 

(Forthcoming); 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). 

224See supra note 33. 

225See 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 183. 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. 

226See 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 183; See also Short Sale Volume and 

Transaction Data, available at https://www.sec.gov/ 

answers/shortsalevolume.htm. Additional 

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 (Jun. 

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. 

227See, 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://

www.cboe.com/us/equities/market_statistics/short_

sale/. 

228Each 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/. 

229See Rule 200(g) of Regulation SHO specifies 

when an order can be marked as long. See also Part 

III.B; note 4 Regulation SHO Adopting Release. 

230See 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. 

231Several commercial entities sell data on 

securities lending to clients. See, e.g., 2011 Letter 

from Data Explorers (‘‘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 

other market participants.222 These 

short interest data are found to predict 

future stock and market returns over the 

monthly and annual horizons, 

suggesting that the bi-monthly short 

interest data capture the economic short 

selling based on fundamental 

research.223 However, these data face 

two major limitations.224 First, the 

information content 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 of the 

positions. Second, given that short 

interest is aggregated at the securitylevel, the aggregation prevents the 

Commission and the public from 

understanding certain aspects of the 

underlying short selling activity. For 

example, the data cannot inform on 

whether short sentiment is broadly or 

narrowly held or the extent to which 

existing short interest is hedging in 

nature or based on short sentiment. 

ii. 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 225 and publication 

of short sale transaction information on 

no more than a two-month delay.226

Some SROs make the historical daily 

short volume data available to market 

participants for a fee.227 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, FINRA 

provides intraday short sale transaction 

information for the orders that execute 

and information from FINRA’s Trade 

Reporting Facility (‘‘TRF’’) and 

Alternative Display Facility (‘‘ADF’’) 228

(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 bi-monthly short interest 

observations discussed earlier. 

Despite offering higher granularity, 

these existing short volume data 

provided by the SROs and FINRA have 

a number of limitations. First, the data 

does 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 and 

FINRA to separate trading volume 

associated with market makers, 

algorithmic traders, investment 

managers, or other trader types. 

Additionally, the data does not 

provide insight into activities that may 

reduce short exposure, thus using these 

data to estimate investor sentiment is 

fraught. For example, 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, convert bonds to 

stock, or redeem ETF shares containing 

the equity. As a result of this, 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 put out 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 is released with a one 

month lag—implying that some short 

selling transactions data are not 

available for two months. 

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.229 If a market participant is unclear 

whether their trade would meet all the 

requirements at settlement to be marked 

a long sale, then they 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.230

iii. Securities Lending 

Securities lending data provides 

information on stock loan volume, 

lending costs, and the percentage of 

available stock out on loan, which some 

market participants use as measures of 

short selling.231 The securities lending 


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417(a)(2)), available at https://www.sec.gov/ 

comments/4-627/4627-152.pdf. As some 

commenters have noted, stock lending facilitates 

short selling. See, e.g., Speech by Chester Spatt, 

former Chief Economist of the SEC (April 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. This data offers indirect evidence of short 

selling, and some 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.oliverwyman.com/our-expertise/insights/ 

2010/feb/the-effects-of-short-selling-publicdisclosure-regimes-on-equity.html. 

232See supra note 6, DERA 417(a)(2) Study at 22– 

23. 

233See supra note 6, DERA 417(a)(2) Study at 23. 

The Commission has recently proposed a new rule, 

Rule 10c–1, and if adopted as proposed, the 

Commission and market participants would have 

access to comprehensive securities lending data 

market data that would significantly improve 

current securities lending based short selling 

estimates. See Reporting of Securities Loans, 

Exchange Act Release No. 93613, available at 

https://www.sec.gov/rules/proposed/2021/34- 

93613.pdf. 

234 It is important to note that only regulators 

have access to CAT data. 

235See supra note 6, DERA 417(a)(2) Study at 18. 

236With 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 10a3–T. 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). 

237See Exchange Act Release No. 58591 (Sept. 18, 

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

industry appears to use securities 

lending data widely, though it is 

generally available only by 

subscription.232

The use of security lending data as 

proxy for economic short interest is 

associated with at least two major 

setbacks. First, commercial vendors of 

the securities lending data often impose 

access restrictions via high nominal 

subscription fees or give-to-get models. 

In this setting, the entities contributing 

data are mindful of whether other 

entities can access to 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 the data collected 

by each vendor. The market for these 

data is dominated by three major 

vendors, making it difficult for a given 

market participants to obtain access to 

comprehensive security lending in 

formation from one source. To this end, 

the existing data accessible by an 

individual market participant may not 

accurately proxy short selling activity. 

Second, while securities lending may be 

correlated with short selling, it is not a 

perfect measure of short selling. In 

practice, securities lending may be used 

for purposes other than short sales such 

as to cover failure to deliver or to 

borrow cash. In addition, short selling 

that is covered within the trading day 

does not require any loans, and vendors 

of commercial securities lending data do 

not have complete information. For 

example, they have less than 100% of 

the negotiated loans and no information 

on borrowing from margin accounts.233

iv. CAT Data 

Regulators can also extract short sale 

information from CAT data, which 

provides order lifecycle information for 

stocks and options.234 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’ 

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 in several circumstances. 

First, CAT data do not include 

information on the long or short 

positions held in each account at the 

time that Industry Members started 

reporting, so 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 

CAT reportable events, for example: 

Secondary offering transactions; option 

assignments; option exercises; 

conversions; or ETF creations and 

redemptions. Additionally, until the 

Customer Account Information System 

(CAIS) system goes live, which is 

expected in July 2022, there is no easy 

way to match Firm Designated ID 

(FDIDs) in CAT to individual Managers. 

Thus it is not currently feasible to 

identify the subset of CAT data 

pertaining to Managers. However, once 

the CAIS system goes live it would be 

possible for regulators to identify 

individuals in CAT, even if those 

individuals use multiple broker-dealers. 

CAT is not designed to track 

positions. However, when focused on 

one or few accounts, estimating 

positions, though potentially inaccurate, 

can be manageable. 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 tremendous 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. 

Finally, even though CAT data 

identifies short selling by market 

makers, the data do not provide 

information as to whether a brokerdealer is claiming use of the Regulation 

SHO exceptions for bona fide market 

making. 

There are 24 national securities 

exchanges and one national securities 

association (FINRA) that are CAT Plan 

Participants. There are also 3,734 

broker-dealers who have reporting 

obligations to CAT, as Industry 

Members. These Industry Members 

often us third-party reporting agents 

such as service bureaus for CAT 

reporting. 

v. Exchange Act Form SH 

For a ten-month period in 2008 and 

2009,235 the Commission required 

certain institutional investment 

managers to submit confidential weekly 

reports of their short positions in 

Section 13(f) securities, other than 

options, on Exchange Act Form SH, 

through Temporary Rule 10a3–T.236 De 

minimis short positions of less than 

0.25% of the class of shares with a fair 

market value of less than $10 million 

were not required to be reported.237

Additionally, only Managers that 


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238See Exchange Act Release No. 58785, 73 FR 

at 61678. 239 Id. 240See supra note 80 (information on the 

methodology and caveats of using Form SH data). 241See supra Part VIII.C.1. 

242This 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). 

243The securities lending market is large and 

complex. See Part VI.B. (the proposing release for 

proposed Rule 10c–1 for a more detailed 

description of this market and players), available at 

https://www.sec.gov/rules/proposed/2021/34- 

93613.pdf. 

244See CAT proposing release Part VII.A, 

available at https://www.sec.gov/rules/proposed/ 

2010/34-62174.pdf. 

245 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 Section 

VIII.C.1. 

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,238

a more frequent disclosure interval than 

the quarterly public reporting of long 

positions required on Exchange Act 

Form 13F.239

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 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, which make the 

data difficult to work with.240

5. Competition 

Many Managers operate in the 

investment management industry.241 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 don’t in that a security owner 

can more cheaply trade on 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’ve 

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.242

Investment managers, like other 

investors that could be subject to 

Proposed 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 try to mimic 

the Managers’ strategy, potentially 

competing away the profitability of the 

strategy or other traders could anticipate 

when the Managers 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.243

Additionally, there are 3,734 brokerdealers. These broker-dealers also 

compete with each other for order flow. 

The broker-dealer industry is a highly 

competitive industry with reasonably 

low barriers to entry. 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.244 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. 

D. Economic Effects 245

1. Investor Protection and Market 

Manipulation 

The Proposals could lead to better 

investor protection by improving 

regulators’ reconstruction of significant 

market events. They may also assist 

regulators in identifying manipulative 

short selling strategies. Improved 

identification of manipulative short 

selling strategies may also serve as a 

deterrent to would be manipulators and 

thus may help prevent manipulation. 

They would also improve the 

Commission’s observation of systemic 

risk. However, to the extent that 

Managers may still be holding their 

short positions when the data becomes 

public, the Commission believes that 

Proposed Rule 13f–2 and Proposed 

Form SHO also could in some cases 

facilitate potentially manipulative 

strategies, such as certain short 

squeezes. The Commission also believes 

that Proposed Rule 205 and the Proposal 

to Amend CAT would improve 

regulators’ oversight of markets. 

The Commission believes that the 

Proposals would enhance the 

Commission’s and SRO’s 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 the buy to cover 

information that would be provided by 

Proposed Rule 205 and data from 

Proposed Form SHO to reconstruct 

market events and better understand the 

link between short sellers exiting their 

positions 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 


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246 It is currently not straightforward to map CAT 

transactions to individual traders as the Firm 

Designated ID (FDID) assigned to each account are 

broker-dealer specific. Thus to map a trade reported 

in CAT to an individual trader would require 

requesting the specific FDID for a given trader. This 

lack in functionality is expected to change when the 

CAIS becomes operational. This system would 

allow regulators to map individual traders to their 

FDID’s and thus pull CAT information specifically 

for individual traders. Thus, while technically 

feasible, pulling data from CAT for specific traders 

is difficult, but will become much less so when the 

CAIS system becomes operational. The CAIS system 

is expected to go live in July 2022. See Timeline, 

Consolidated Audit Trail, available at https://

www.catnmsplan.com/timeline. Additionally, some 

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-reportequity-options-market-struction-conditions-early2021.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. 

247Two 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+5), rather than 

the settlement day following the settlement date 

(T+2). See 17 CFR 242.204(a)(3). 

248See, e.g., Comment letters submitted with 

regards to Short Sale Reporting Study Required by 

Dodd-Frank Act Section 417(a)(2); See letters from 

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 

Continued 

period of heightened volatility it may 

have been the case that large short 

sellers were acting differently. 

The data that would be provided in 

Proposed Form SHO would have 

provided information the Commission 

could have used after the fact to 

examine separately short selling 

behavior of large short sellers. 

Additionally, because short positions 

often take some time to create, the 

Commission could have attempted to 

quickly identify individual short sellers 

with large short positions in the various 

meme stocks in January 2021 based on 

the most recent reports; then the 

Commission could have used the 

enhanced CAT data to understand how 

these short sellers traded during the 

heightened volatility.246

Additionally, the activity data 

provided in Proposed Form SHO would 

allow the Commission to observe how 

large short sellers responded to the 

heightened volatility, albeit with a time 

lag due to the filing deadline. 

Specifically, the Commission would be 

able to observe more precisely which 

days reporting short sellers were most 

actively increasing or decreasing their 

short positions and correlate that 

activity to market conditions on those 

days. The ‘‘activity categories’’ reported 

in Proposed Form SHO would allow 

regulators to identify the specific means 

by which large short sellers alter their 

economic short exposure on high 

volatility days. For example, economic 

short exposure may increase due to 

increased number of shared sold, 

issuing call options, exercising put 

options, as well as other activities that 

could raise the Manger’s short position. 

In contrast, economic short exposure 

may decrease due to purchase of shares 

to cover short positions, exercising call 

options, issuing put options, obtaining 

shares through secondary offerings or 

tendered conversions, and other 

activities that reduce short exposure. 

Receiving data about each of these 

categories separately would facilitate 

more efficient oversight by regulators. 

Analysis of the data during periods of 

high volatility could help the 

Commission maintain fair and orderly 

markets by highlighting key economic 

channels and mechanisms through 

which short selling could affect periods 

of volatility or how periods of volatility 

affect short selling. This information 

can, in turn, allow the Commission to 

more specifically tailor responses to 

similar or related events in the future. 

While the CAT data provided by 

Proposed Rule 205 and the CAT 

amendment data would be provided 

relatively quickly, the Proposed Form 

SHO data would not be available for up 

to a one-month lag. Consequently, while 

the Proposed Form SHO data would be 

useful in recreating a significant market 

event after the fact, it would not provide 

the Commission tools to examine an 

immediate crisis. 

The ‘‘bona fide market making’’ 

information from the Proposal to 

Amend CAT would facilitate regulatory 

analysis of the use of the bona fide 

market making exceptions to Regulation 

SHO.247 The bona fide market making 

information from the Proposal to 

Amend CAT would provide regulators 

investigating potential Regulation SHO 

violations with more regular access to 

clearer evidence of whether a market 

maker was relying on a bona fide market 

making exception. This could save a 

significant amount of time during an 

investigation. Having regular access to 

these data would provide the 

Commission with insight into whether 

the exceptions for bona fide market 

making in Regulation SHO Rules 203 

and 204 are being used appropriately, 

which should assist in assessing 

compliance with, and thus the benefits 

of, Regulation SHO. 

The ‘‘bona fide market making’’ 

information and hedge information 

could 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 would 

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. Because 

such short selling is more likely to be in 

response to customer demand, the 

shorts are less likely to signify that the 

short seller anticipates a price decline 

than if the short seller was trading 

directionally. Likewise, the hedging 

information on Proposed Form SHO 

would provide information on whether 

a Manager’s position is fully or partially 

hedged at the end of the month. From 

this, regulators could assess, for 

example, that the activity reported on 

Proposed Form SHO during the month 

was likely not related to hedging 

activity if the end of month position is 

not hedged, particularly if the previous 

month’s position was not hedged. 

Additionally, the data provided by 

Proposed Rule 13f–2 and Proposal to 

Amend CAT would allow the 

Commission to detect certain types of 

fraud in a timelier manner. The data 

provided by Proposed Rule 13f–2 would 

improve the timeliness of fraud 

detection because the Proposed Form 

SHO data would provide the 

Commission quick flags that may signal 

potential fraud. Additionally, the 

enhanced CAT data would 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. 

Improved detection of fraud may also 

help deter fraud, improving 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.248 In 


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20, 2011); Kevin Rentzsch (May 24, 2011); Lynn C. 

Jasper (May 27, 2011); Donald L. Eddy (May 28, 

2011); Al S. (Jun. 10, 2011); Jeffrey D. Morgan, 

President and CEO, National Investor Relations 

Institute, at 3 (Jun. 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). See all 

letters are available at https://www.sec.gov/ 

comments/4-627/4-627.shtml. 

249 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. 

250See, e.g., Y. T. F. Wong and W. Zhao, PostApocalyptic: The Real Consequences of Activist 

Short-Selling. (Working Paper) (2017), available at 

https://papers.ssrn.com/sol3/papers.cfm?abstract_

id=2941015. 

251Academic research has found that the average 

short interest in stocks targeted by activist short 

sellers is about ten percent, while it is only four 

percent for non-targeted 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. 

252See I. Goldstein and A. Guembel, 

Manipulation and the Allocational Role of Prices, 

75 (1) The Rev. of Econ. Studies 133–164 (2008). 

253See Markus K. Brunnermeier and Martin 

Oehmke, Predatory Short Selling, 18 (6) Rev. of Fin. 

2153–2195 (2014). Similarly, some have also 

asserted 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). 

254See 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. 

255Based on analysis of Form SH data. See supra 

note 80 (for information on the methodology and 

caveats of using Form SH data). 

256 In many cases identifying which publicly 

released reports had only one Manager reporting 

may not be difficult. For example, if the total short 

positions reported in security with a market 

capitalization greater than $400 Million (where the 

$10 Million dollar threshold is hit before the 

percent of shares outstanding threshold) are less 

than $20 million then market participants may be 

able to reasonably presume that there is only one 

Manager reporting a position. 

257 Identifying the market participants involved in 

fraud solely from CAT data is currently difficult, 

but would become less so when the CAIS system 

becomes fully operational. 

‘‘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.249 If a ‘‘short and distort’’ 

campaign is suspected, then detecting 

this behavior via the activity and 

positions data in Proposed Form SHO 

would be easier than it would be using 

current data. Short and distort 

campaigns are more likely to occur in 

stocks with lower market capitalizations 

with less public information.250

Consequently, among these stocks it 

may not, in dollar terms, take a very 

large short position to reach the 2.5% 

threshold in securities of smaller 

reporting issuers or the $500,000 

threshold in securities of non-reporting 

issuers to report Proposed Form SHO. 

251 As a result, it is likely that an entity 

engaging in such a practice would be 

required to report Proposed Form SHO 

data. Consequently, if ‘‘short and 

distort’’ type behavior were to be 

suspected, then the Commission would 

be more likely to identify individuals 

with large short positions and could 

thus quickly focus any inquiries on 

entities in an economic position to 

potentially profit from manipulation. 

Then regulators could match 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. 

Regulators could then use CAT data to 

investigate further the trading activity of 

the alleged manipulator. 

There are other manipulations, which 

the data from the Proposals would help 

regulators identify. For example, one 

theoretical study suggests that if 

managers’ decision-making is 

influenced by shifts in stock prices, then 

short sellers could potentially 

negatively affect managerial decisions 

by depressing stock prices when 

profitable projects are announced, 

which may lead managers to believe 

that their project is not good and to 

abandon it. 252 Doing so may lead to 

worse managerial decision making and 

lower stock prices. Another theoretical 

study argues that due to high levels of 

leverage and interconnectedness in the 

finance industry, if short sellers are 

successful at causing even small 

declines in stock price, then this can 

ripple through the financial system with 

large effects. 253 While the Commission 

notes that there is currently no 

empirical evidence that these types of 

manipulation occur or are widespread, 

should they be suspected, these types of 

manipulation could better be identified 

with the positions and activity data. The 

positions data would allow the 

Commission to quickly identify 

individuals with large short positions 

and then use the activity and CAT data 

to investigate their trading behavior to 

look for signs of manipulation. 

Improved detection capacity may also 

lead to decreased fraud as would be 

manipulators choose not to engage in 

manipulative behavior due to increased 

fear of detection.254

Publicly releasing aggregated 

information about large short positions 

may, in some instances, increase the 

risk of trading behavior harmful to short 

sellers, namely short squeezes, though 

the Commission’s improved detection of 

such potential manipulation could help 

deter it. The Commission estimates that 

32% of stocks reported on Proposed 

Form SHO would only have one 

Manager above the reporting Threshold 

A.255 If market participants can 

ascertain which positions belong to only 

one Manager,256 then market 

participants may seek to orchestrate a 

short squeeze targeting that particular 

manager. Mitigating this risk is the fact 

that the data provided by Proposed Rule 

13f–2, Proposed Form SHO and the 

Proposal to Amend CAT, particularly 

the activity data provided in Proposed 

Form SHO may allow the Commission 

to more quickly determine if a short 

squeeze occurred. The Commission 

could correlate buy-to-cover activity in 

Proposed Form SHO with price 

increases to look for signs of a squeeze. 

If it appears that a short squeeze may 

have occurred, the Commission could 

perform further analysis using the 

information in the Proposal to Amend 

CAT to attempt to determine the market 

participants involved in the squeeze.257

Increased risk of detection may deter 

some market participants from seeking 

to orchestrate a short squeeze. The 

Reporting Threshold, aggregating the 

data by security prior to releasing it to 

the public, and the delay in releasing 

the data to the public are all designed 

to help mitigate this effect. Only 

Managers whose positions surpass the 

threshold would be required to report— 

limiting the number of Managers whose 

information would be aggregated and 

made public. 

Despite not releasing Managers’ 

identities to the public, the nature and 

the position size thresholds that 

underlie publicly released information 

may lead to the risk of Managers being 

identified by the public. Focusing on 

stocks in which market participants can 

ascertain that only one Manager filed, 

combined with a Manager’s posts on 

social media, or other means, such as 

information discovered by a private 

investigator, market participants may be 

able to identify which Manager holds 


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258For 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 

investors. See G. Weiss, The Secret World of ShortSellers, Business Week, 62a (August 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). 

259Analysis 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 note 80 (for 

information on the methodology and caveats of 

using Form SH data). 

260See infra note 265 (for a discussion on the 

Commission’s estimates on how long Managers 

hold short positions). See also infra note 269 (for 

more information on short sellers that do hold their 

positions for long periods of time). 

261 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 (2) The J. of Fin. 

551–584 (2002). See also, e.g., Andrei Shleifer and 

Robert W. Vishny, The Limits of Arbitrage, 52 (1) 

The J. of Fin. 35–55 (1997) and Denis Gromb and 

Dimitri Vayanos, Limits of Arbitrage, 2 (1) Annu. 

Rev. Fin. Econ. 251–275 (2010) (citations therein). 

262See infra Part VIII.E.1 (for additional 

discussion of the effect of the Proposals on 

efficiency). 

263See supra Part III.C (for more information on 

the delay of public dissemination of Proposed Form 

SHO data). 

the short position.258 As such, the 

limited number of reporters potentially 

risks shining a spotlight on the few 

managers with large short positions. 

However, the delay before publicly 

releasing the data means that the 

information would not be as fresh and 

thus may not as accurately reflect 

current short positions.259 Thus, if 

market participants sought to 

orchestrate a short squeeze based on the 

aggregated information made public 

based on the Proposed Form SHO data 

that the squeeze could fail if the short 

positions that are the target of the 

squeeze no longer exist. This may 

reduce the likelihood that market 

participants seek to orchestrate squeezes 

based on the publicly released Proposed 

Form SHO data which may help protect 

short sellers who maintain short 

positions for a longer horizon and thus 

may still hold the positions reported on 

the aggregated Proposed Form SHO 

data. Based on analysis using Form SH 

data, the Commission expects that most, 

but not all, of the short positions leading 

to reporting on Proposed Form SHO 

would be closed by the time that the 

aggregated Proposed Form SHO data is 

released.260

Having detailed information about 

which Managers currently hold large 

and unhedged short positions may 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 a long transaction, short selling 

places an investor at risk of losing 

significantly more than their 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 positon 

liquidations if capital requirements 

cannot be met.261 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. 

Manager level short position data of 

individuals with large short positions 

could allow the Commission to better 

observe these positions and more 

appropriately respond to any market 

events that arise. For example, in the 

context of the meme stock phenomenon 

in January 2021, if the Commission had 

the Proposed Form SHO data at the time 

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 were at 

greatest risk of suffering significant 

harm from a short squeeze. 

All the effects, positive and negative, 

associated with the data collected by 

Proposed Rule 13f–2 discussed in this 

section would be limited by several 

factors. First, upon filing Proposed Form 

SHO would 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 would 

reduce the utility of the data. However, 

the amendment process would require 

Managers to amend filings when they 

discover errors, thus promoting the 

accuracy of the information. The 

Commission also recognizes that there 

are limitations to Proposed Rule 205. 

For example, broker-dealers would be 

required to mark transactions as buy to 

cover based only on information that 

they currently have access to and they 

would not be required to net such 

activity across the same customer’s 

accounts at that broker-dealer. This may 

miss some buy to cover trades that may 

occur if a Manager uses a broker to 

execute transactions and a prime broker 

(or prime brokers) to manage positions. 

In this case, the broker-dealer managing 

the purchase of shares would not 

necessarily know that the buy is 

actually a buy to cover and would thus 

not mark the trade as such. The current 

proposal may also miss transactions that 

may occur if a Manager uses multiple 

accounts at the same broker-dealer to 

trade. 

2. Effects on Stock Price Efficiency 

The Commission believes that the 

Proposals may have uncertain effects on 

stock price efficiency.262 The uncertain 

effects on price efficiency come because 

increased transparency generally 

increases efficiency whereas increased 

transparency could also discourage 

investors from gathering information— 

which harms price efficiency. This 

section discusses both the concept of 

price efficiency and the positive and 

negative impacts that the Proposals may 

have on price efficiency. 

The publicly released aggregated data 

from Proposed Form SHO would 

provide new information to market 

participants about the aggregate 

activities of some short sellers—with a 

planned lag of approximately fourteen 

days from the end of the filing 

deadline.263 Existing short selling data, 

such as the FINRA short interest data, 

is timelier than the potential data from 

the Proposed Rule 13f–2 and Proposed 

Form SHO, and it includes short interest 

for all short sales known to clearing 

broker-dealers but does not provide the 

Commission or the public daily 

information about short sellers’ 

activities. 

There is likely significant overlap 

between the information about stock 

fundamentals contained in FINRA short 

interest data and in the data that would 

be aggregated from Proposed Form SHO 

filings. However, the information in 

Proposed Form SHO filings focuses on 

Managers and indicates whether 

positions are fully or partially hedged, 

and provides daily net changes in 

positions. Thus, the Proposed Rule 13f– 

2 and Proposed Form SHO would 

increase the information available to 

investors about bearish sentiment in the 

market. For example, the information on 

the proportion of short interest made up 

of Managers with substantial positions, 

how much of those positions are fully 

or partially hedged, and the activity 

information would allow market 


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264See, e.g., Eugene Fama, Efficient Capital 

Markets II, 46(5) J. Fin. 1575–1617 (1991). 

265The 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 positon is 

held above the threshold is 9.85 (suggesting that the 

majority of positions will be closed. Some are held 

longer than the delay in reporting). 

266See, e.g., A. Senchack and L. Starks, ShortSale Restrictions and Market Reaction to ShortInterest Announcements, J. of Fin. and Quantitative 

Analysis 177–194 (1993). 

267See, e.g., supra note 242. See Dixon (2021). 

See Edward Miller, Risk, Uncertainty, and 

Divergence of Opinion, 32 (4) The J. of Fin. (1977). 

See Robert F. Stambaugh, Jianfeng Yu, and Yu 

Yuan, The Short of It: Investor Sentiment and 

Anomalies, 104 (2) J. of Fin. Econ. 288–302 (2012). 

268See infra Part VIII.E.2 (for a discussion of how 

these direct costs may affect investors in funds that 

employ short selling). 

269See 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’’), available at 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, 25% of positions were 

held above the proposed Threshold A for at least 

a month. See supra note 80. 

270See supra Part VIII.D.1 (for a discussion of 

how market participants may be able to uncover 

individual identities). 

271Consistent 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-ofshort-sale-position-disclosures. 

participants an enhanced view of short 

interest and provide insight on changes 

in short interest between short interest 

reports. Further, the use of the last 

settlement day of the month as the 

reference month for the Proposed Form 

SHO reports would allow for a direct 

comparison of the Proposed Form SHO 

data to the FINRA short interest data. 

With FINRA short interest as a reference 

point, the activity data may then 

provide insight to market participants 

about changes in total short interest 

from FINRA short interest report to 

FINRA short interest report. For 

example, market participants could 

potentially use the data on positions’ 

changes to correlate periods of 

significant increases or decreases in 

short positions 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 final short interest 

tally at the end of the month. 

Increased information may increase 

price efficiency. As such, the proposed 

publication of the aggregated Proposed 

Form SHO data represents new 

information that market participants 

could use to value stocks—increasing 

stock price efficiency. Price efficiency 

(also known as market efficiency) refers 

to how accurately prices reflect 

available information relevant to the 

value of the asset.264 For example, this 

information may allow market 

participants to more effectively make 

trading decisions and manage risk— 

increasing price efficiency. Although, 

the majority of Managers’ short 

positions would be closed by the time 

the aggregated data from Proposed Form 

SHO would be made public due to the 

lag in reporting and public 

dissemination, a portion of the short 

positions would still be open.265 While 

the market reacts to unexpected short 

interest changes,266 the ability to 

understand short interest and short 

interest changes should be additive 

information that would be reflected in 

prices upon publication. However, the 

increase in price efficiency from the 

publication of aggregated Proposed 

Form SHO data is likely to be limited 

due to the delay in publication. 

The Proposals may also improve price 

efficiency if they mitigate fraud as 

discussed in Part VIII.D.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 Proposed Form SHO, the Proposed 

Rule 13f–2 would result in improved 

price efficiency. 

On the other hand, Proposed Rule 

13f–2 may harm price efficiency by 

increasing the cost of short selling. 

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 

difficult, and because costly short 

selling dissuades investors from 

collecting information in the first 

place.267

Proposed Rule 13f–2 affects the value 

of short selling in four ways: 

Compliance costs, revealing short 

sellers’ information, potentially 

revealing short sellers trading strategies, 

and increasing the threat of retaliation. 

First, the compliance costs associated 

with reporting large short positions are 

a direct increase in the cost of short 

selling.268 As many Managers have 

underlying investors, these costs would 

likely be passed on to end consumers in 

the form of lower returns due to limiting 

the strategies that Managers could 

profitably employ. 

Second, publicly releasing the 

aggregated Proposed Form SHO data has 

the potential to reveal some of the 

information that short sellers may have 

acquired through fundamental research. 

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 the 

information and providing less 

incentive to produce fundamental 

research. Thus, the publication of 

Proposed Form SHO data represents an 

additional cost to short selling in the 

form of potentially lower profitability 

for trading on negative information. 

That the data is aggregated and released 

on a lag mitigates this cost somewhat 

but does not eliminate it. 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.269 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.270

Additionally, the threshold may protect 

short sellers with smaller short 

positions from having the information 

in their trades revealed. In contrast, the 

Proposed Rule 13f–2 may highlight very 

large positions potentially increasing 

the likelihood that some of the 

information contained in the trades of 

large short sellers would be acted on by 

other market participants before the 

short seller could acquire their optimal 

position. Thus, the Commission expects 

that publication of aggregated Proposed 

Form SHO data would still represent a 

cost to short selling.271 Relatedly, 

Managers who build short positions that 

exceed the threshold may choose to 


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272See supra note 269; see also Kyle (1985). 

273See, e.g., Albert S. Kyle and Anna A. 

Obizhaeva, Large Bets and Stock Market Crashes 

(March 22, 2019), available at https://ssrn.com/ 

abstract=2023776 or https://dx.doi.org/10.2139/ 

ssrn.2023776. 

274See 2011 MFA Letter, supra note 49; 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 (November 2021), 

available at https://ssrn.com/abstract=3849581 or 

http://dx.doi.org/10.2139/ssrn.3849581. 

275See 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. 

276See supra note 274, Stice-Lawrence, Wong, 

and Zhao (2021) and Lamont (2021). 

277See Owen A. Lamont, Go Down Fighting: 

Short Sellers vs. Firms, 2 (1) The Rev. of Asset 

Pricing Studies 1–30 (2012). 

278 Id. 

279See Lamont (2012) supra note 258; Game 

Stopped Hearing, supra note 269 (CEO of Melvin 

Capital LP stated that after his short positions were 

made known, Reddit users made posts and sent 

personal text messages that were laced with antiSemitic slurs and threats of physical harm to him 

and others.). 

280See, e.g., supra note 269; Kyle (1985). 

281See, e.g., supra note 267, Miller (1977); Letters 

on the Short Sale Reporting Study Required by 

Dodd-Frank Act Section 417(a)(2) from Investment 

Company Institute (hereafter ‘‘ICI Letter’’) available 

at https://www.sec.gov/comments/4-627/4627- 

Continued 

execute the positions that are beyond 

the threshold at a pace that is faster than 

what they would have done otherwise 

to attempt to build their optimal 

position before information is disclosed 

and copy-cat 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.272

Additionally, trading faster than is 

optimal may harm price efficiency by 

leading prices to over-react to the 

aggressive trading.273

Third, the Proposed Form SHO data 

may provide information about the 

specific trading strategies of certain 

short sellers. For example, in the case 

where there is only one filer and market 

participants know this, then market 

participants could attempt to use the 

activity data to extract information 

about the specific trading strategies that 

short sellers use to implement their 

trades. Market participants could then 

try to identify similar patterns in the 

live 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. While the Commission 

acknowledges this risk, it believes that 

the proposed design of the published 

activity data would significantly limit 

this risk. In particular, the proposed 

netting of short selling activity across 

increases and decreases in short 

position along with showing only one 

number per day per security would 

mask much of the trading behavior of 

individual short sellers while still 

providing information about changes in 

bearish sentiment in the market. For 

example, Managers may build or reduce 

a short position using complex trading 

strategies potentially involving 

transactions on both sides of the market. 

By netting trading activity and 

aggregating across Form SHO filers, 

market participants viewing the 

publicly reported Form SHO data would 

still get a view of changes in bearish 

sentiment while keeping Manager 

specific trading strategies hidden. 

The public disclosure requirements 

may also expose Managers to retaliation 

by other market participants.274

Although aggregating the data before 

releasing it to the public on a delay 

would 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, one could 

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. However, 

the Commission believes that on 

balance aggregating the data prior to 

publishing it provides appropriate 

protection of short sellers’ identities and 

trading strategies. 

If specific Managers are identified, 

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.275 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.276 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.277

Some issuers have even been known to 

hire private investigators in an attempt 

to uncover the identities of individuals 

short selling their stock.278 Some short 

sellers have also expressed that they 

have experienced threats to their 

personal safety after their short 

positions were revealed.279

Lastly, even if the identities of the 

individuals reporting short selling data 

remain unknown, publicly disclosing 

that Managers 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.D.1. 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. 

Because reporting information on 

Proposed Form SHO increases the costs 

of short selling, it is possible that short 

sellers may strategically select short 

positions to have an average short 

position just below the threshold that 

requires reporting. However, the risk of 

this is mitigated by the way in which 

the threshold is constructed, which 

could make trading around the 

threshold more costly. For example, 

because the threshold is not based on 

the position at the end of the month, 

Managers would not be able to simply 

reduce their positions at the end of the 

month to avoid reporting. Instead, 

Managers would need to maintain a 

position below the Reporting 

Thresholds throughout the month 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.280

Consequently, to the extent that 

Managers may choose to select 

otherwise sub-optimal short positions to 

avoid reaching the reporting threshold, 

Proposed Rule 13f–2 and Proposed 

Form SHO could 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.281


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141.pdf; Data Explorers Letter; SIFMA Letter 

available at https://www.sec.gov/comments/4-627/ 

4627-143.pdf (about transaction marking leading to 

less short selling). 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). The Commission does not believe that this 

effect is the 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. See also OTC Markets, 

Provable Markets, SIFMA, and Chester Spatt letters 

(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 that 

absent disagreement, costly short selling can help 

correct over-pricing by preventing the uninformed 

(but not informed traders) from transacting. This 

skews the distribution of traders in the market 

towards being more informed meaning that markets 

learn more from each trade and prices adjust more 

quickly when uninformed traders do not trade. See 

Douglas Diamond and Robert E. Verrecchia, 

Constraints On Short-Selling And Asset Price 

Adjustment To Private Information, 18 (2) J. of Fin. 

Econ. 277–311 (1987). 282See infra Part VIII.D.3. Research has found a 

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. See also David 

Easley, Maureen O’hara, and Pulle Subrahmanya 

Srinivas, Option Volume and Stock Prices: 

Evidence on Where Informed Traders Trade, 52 (2), 

THE JOURNAL OF FINANCE 431–465 (1998). 

283See, 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). 

284See, 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), available at 

https://www.wsj.com/articles/ 

SB1004916006978550640, retrieved from Factiva 

database. Cf. Nessim Mezrahi, Stephen Sigrist, and 

Carolina Doherty, More Securities Class Actions 

May Rely on Short-Seller Data, Portfolio Media 

(January 10, 2022) (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.’’), 

available at https://www.law360.com/articles/ 

1453499/more-securities-class-actions-may-rely-onshort-seller-data. 

For these reasons, the Commission 

believes that the Proposals may increase 

the costs of short selling and potentially 

dissuade investors from engaging in 

fundamental research and the total 

amount of short selling may decrease, 

though the Commission has designed 

the Proposals to mitigate these risks. To 

the extent that fundamental research 

decreases, price efficiency could be 

harmed as prices would not necessarily 

reflect all available relevant 

information, only that portion that had 

been discovered by investors performing 

fundamental research. Additionally, 

Proposed Rule 13f–2 could dissuade 

options market makers from holding 

large short positions and providing 

liquidity in options markets and, thus, 

could harm price efficiency in equity 

markets.282

As with the discussion in Part 

VIII.D.1, many of the economic effects 

articulated in this section relating to the 

reporting of Proposed Form SHO could 

be limited to the extent that the data 

reported in Proposed Form SHO 

contains factual errors. The EDGAR 

system would check the data for 

technical errors, however the accuracy 

of the data is dependent on accurate and 

complete data entry by filers. Thus, the 

data reported in Proposed Form SHO 

could 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 

proposed delay in the publication of the 

data. Furthermore, the proposed data 

would only be available for those 

securities with Managers who have 

short positions over the threshold, 

which in some cases 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 Proposals on 

liquidity is uncertain. Part V.4.ii, 

discusses the possibility that Proposed 

Rule 13f–2 and Proposed Form SHO 

may harm price efficiency by dissuading 

investors from pursuing fundamental 

research and that Proposed Rule 13f–2 

and Proposed Form SHO along with 

Proposed Rule 205 and the Proposal to 

Amend CAT may help price efficiency 

by increasing transparency with respect 

to the actions of large short sellers. To 

the extent that the Proposals improve 

price efficiency, this could also 

indirectly improve liquidity because 

market makers would be subject to less 

mispricing risk. However to the extent 

that Proposed Rule 13f–2 and Proposed 

Form SHO harm price efficiency, the 

opposite may be true. 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 

if the rule harms price efficiency it may 

also harm liquidity. The opposite is also 

true. To the extent that the Proposals 

enhance market efficiency they may also 

enhance liquidity by mitigating 

mispricing risk. 

Additionally, in the event that an 

options market maker might have a 

short position close to the Reporting 

Thresholds, the Proposed Rule 13f–2 

could dissuade the option market maker 

from increasing their short position, 

which may harm their willingness to 

provide liquidity in options markets. 

Alternatively, Proposed Rule 13f–2 

might not result in option market 

makers who exceed the Reporting 

Thresholds changing their positons, in 

which case the costs of filing Form 13f– 

2 (and other compliance costs) could 

result in wider spreads if the 

compliance costs are large enough. 

4. Effect on Corporate Decision Making 

The Commission believes that 

Proposed Rule 13f–2 and Proposed 

Form SHO could have mixed effects on 

corporate decision making. On the one 

hand, research suggests that corporate 

managers learn from market reactions to 

announcements.283 Consequently, 

Proposed Rule 13f–2 and Proposed 

Form SHO may provide corporate 

managers with additional feedback on 

their decisions. For instance, projects 

often take some time to design and 

implement after announcement, 

consequently, even with the lag in the 

reporting time for the Proposed Form 

SHO data, a corporate manager could 

review the data around significant 

announcements to better understand 

how the market may view a particular 

project or announcement. If large short 

positions are built shortly after a 

corporate announcement, then this may 

give the signal to corporate management 

that the market views that 

announcement negatively which may 

help a manager modify or reverse poor 

decisions. From this perspective the 

Proposals may enhance corporate 

manager decision making. 

In contrast, 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 

wrong-doing, 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, through 

doing research, uncovered fraudulent 

behavior.284 Academic research has also 

shown that even the threat of short 


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285See, 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). 

286See, 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.). 

287See supra Part III.B.4. 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 

Proposed 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 Proposed 

Form SHO-specific XML). To complete the filing, 

the filer would need to correct the error and re-file. 288See infra Part VIII.D.7. 

289See supra note 232. 

290Commenters 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. 

selling serves to discipline managers.285

As discussed in Parts V.4.i and V.4.ii, 

Proposed Rule 13f–2 may discourage 

Managers from performing fundamental 

research. If less fundamental research is 

performed by short sellers, then their 

role as monitors of the firm diminishes. 

Less monitoring could lead to higher 

incidences of fraud as managers feel that 

the likelihood of being caught goes 

down.286 Thus, to the extent that 

Proposed Rule 13f–2 and Proposed 

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 frauds that are discovered by 

investors. 

5. Effect of Certain Electronic Filing and 

Dissemination Requirements 

Proposed Rule 13f–2 and Proposed 

Form SHO would require the short 

position and activity disclosures to be 

filed on the Commission’s EDGAR 

system using a structured, machinereadable data language. In particular, 

the rule and Form would require 

Proposed Form SHO to be filed on 

EDGAR in a custom XML-based data 

language specific to that Form (‘‘custom 

XML,’’ here ‘‘Proposed Form SHOspecific XML’’). The XML Schema for 

Proposed Form SHO-specific XML 

would incorporate validations of certain 

data fields on the Form to help ensure 

consistent formatting and 

completeness.287 While the field 

validations would act as an automated 

form completeness check when a 

Manager files a Proposed Form SHO, the 

field validations would not be designed 

to verify the accuracy of the information 

filed in Proposed Form SHO filings. 

EDGAR would subsequently aggregate 

the reported information at the equity 

security level and release the aggregated 

data to the public, either on EDGAR or 

on the Commission’s website. 

The Commission believes these 

requirements would incrementally 

augment the various effects of the short 

position and activity disclosures 

discussed herein by enhancing the 

accessibility, usability, and quality of 

the Proposed 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 

Proposed Form SHO, the Commission 

would be able to access and download 

large volumes of Proposed Form SHO 

disclosures in an efficient manner. 

Similarly, the provision of the 

aggregated security-level information at 

a centralized, publicly accessible 

location in a structured, machinereadable data language, would enable 

investors and other public data users to 

download the aggregated information 

directly, and the data could then be 

analyzed using various tools and 

applications. If the security-level 

information were not available at a 

centralized location in a structured, 

machine-readable language, 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. 

The Commission believes requiring 

the short position and activity 

disclosures to be filed in Proposed Form 

SHO-specific XML 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— 

which may also serve as a deterrent to 

would be manipulators and thus may 

help prevent manipulation—and 

observe systemic risk. The Commission 

believes that this outcome would benefit 

investors by facilitating the 

Commission’s observation of short 

selling and would thus help protect 

investors and ensure the sufficiency of 

information related to short selling in 

the market. 

The proposed requirement for short 

sale disclosures to be filed on EDGAR in 

Proposed Form SHO-specific XML 

would result in additional incremental 

compliance costs on filing Managers. 

These direct compliance costs are 

detailed in a subsequent section.288

Moreover, to the extent these 

incremental compliance costs further 

chill the incidence of short-selling, the 

EDGAR and Proposed Form SHOspecific XML requirements would 

increase the likelihood of the indirect 

costs that are discussed elsewhere in 

this section. 

6. Effect on the Securities Lending 

Market 

As discussed in parts V.4.i and V.4 ii, 

the Proposals would increase the cost of 

short selling, particularly large short 

positions—potentially leading to less 

overall short selling. As discussed in 

Part V.3.i, short sellers must borrow 

shares to open a short position. When 

investors 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.289 Consequently, to 

the extent that the Proposals discourage 

short selling they may also lower overall 

portfolio returns, including for 

institutional investors that engage in 

securities lending.290

7. Direct Compliance Costs 

The Commission believes that there 

would be direct costs associated with 

Proposed Rule 13f–2, Proposed Form 

SHO, Proposed Rule 205, and the 

Proposal to Amend CAT. These costs 

include: Managers reporting position 

and activity data; broker-dealers 

updating CAT reporting processes; 

amendments to Regulation SHO; and 

the Commission processing and 

releasing the Manager reports through 

EDGAR. 

The Commission’s estimates for 

Managers’ collective direct compliance 

costs to capture and report the 

information required for Proposed Form 

SHO range from $54,083,087 to 

$156,309,500. This range reflects 

estimates for the number of managers 

that would be subject to the rule’s 

reporting requirement, their data 

capture costs, and their reporting costs. 

The Commission estimates that between 

346 and 1,000 managers would be 

required to file Proposed Form SHO. We 

based our lower estimate on the number 

of Form SH filers above Threshold A. 

The actual number of reporting 

Managers would likely be higher than 


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291See Table I. See also note 80 (for more 

information on the methodology and caveats of 

using Form SH data). 292 Disclosure of Short Sales and Short Positions 

by Institutional Investment Managers, 73 FR at 

61686. (This estimate is similar to the estimate 

provided). Proposed Form SHO filers filed weekly 

reports. As a result, each reporting manager would 

file fewer reports because Form SH would be filed 

monthly. See supra note 124 (for more information 

on 1,000 Managers was estimated). However, fewer 

Managers actually filed Form SH. 

293See supra PRA Table 2 and note 133. The 

lower range was calculated using 346 Managers. 20 

hours per submission × 346 submissions by 

Managers each month × 12 months × $217.55 = 

$18,065,352. The Commission estimates that 346 

Managers would have been required to file Form SH 

had Form SH be subject to the same $10 million 

and 2.5% threshold. 

294See supra PRA Table 1 and note 143. The 

lower range was calculated using 346 Managers. 

295 Depending on what amendments are needed 

the Commission believes that each amendment 

could take up to the original 20 hours to complete, 

at a cost of $217.55 per hour = $4,351. Id. See also 

Form SHO, Special Instructions at 4. 

296See Form SHO, Special Instructions at 6. 

297See Form SHO, Special Instructions at 7. See 

also PRA Table 2 in Part VI (for an estimate of these 

burden hours). 

298Based on the number of registered investment 

companies reporting short positions and the 

number of hedge funds engaged in a strategy 

including short selling, we preliminary believe that 

only a small fraction of Managers would be likely 

to have monitoring responsibilities pursuant to the 

proposed rule and, given the proposed reporting 

thresholds, an even smaller fraction would be likely 

to have reporting obligations. 

299See supra Section VIII.C.2 and supra note 185 

(for a discussion on why certain types of managers 

are more likely to have reporting requirements). 

300See supra Table I. See also supra note 77 (for 

more information on Form SH data). 

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,291

and lower than our high estimate.292

Based on this estimated range, the 

Commission estimates that the 

collective cost for updating systems to 

capture the required information would 

be between $36,017,735 and 

$104,097,500 293 and the annual total 

cost for reporting managers would be 

between $18,065,352 and 

$52,212,000.294 Costs could 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 Proposed 

Form SHO on a monthly basis would 

still incur the initial costs. Furthermore, 

because Manager short positions are 

fluid, some Managers would not be 

required to file a report every month 

when they fall below 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 would 

also vary by Manager. And initial costs 

could also be higher for some Managers 

who do not currently report to EDGAR. 

The Commission believes that there 

could be costs in addition to the 

previously stated costs. The 

Commission estimates that filing 

amendments to Proposed Form SHO 

may take as long to file as the initial 

filing, therefore Managers could also 

incur additional costs up to $4,351 to 

file amendments to Proposed Form 

SHO.295 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 Proposed 

Form SHO. As part of the filing of 

Proposed Form SHO, Managers would 

need to ensure that there is not 

duplicative reporting.296 The burden to 

ensure that there is not duplicative 

reporting would likely vary by Manager, 

as larger Managers with multiple 

accounts may be more likely to have 

duplication issues. As part of updating 

systems to comply with the reporting 

requirements of Proposed Rule 13f–2, 

Managers must calculate the market 

value of the trade using the official 

closing price as of the close of regular 

trading hours for the trade settlement 

date in question, which may not be the 

fair market value at the time in which 

the trade occurred.297 However, the 

Commission believes that in most cases 

this would be a small burden on 

Managers as the data needed for the 

calculation would be publicly available 

and the Commission believes that 

Managers may already track the end of 

day fair market value of short sales. 

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 would 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 

would be readily available to the 

Manager. 

The Commission also believes that 

there would be costs associated with 

tracking short positions in relation to 

the threshold.298 Particularly, Managers 

must track their average short positions 

over the month to be aware if the 

maximum position exceeds $10 million 

as well as if it exceeds the 2.5% 

threshold, or in the case of equity 

securities of a non-reporting company 

issuer, if it exceeds the $500,000 

threshold. However, the Commission 

believes that the proposed Reporting 

Thresholds would generally lower the 

burden on Managers as fewer Managers 

would be required to report than if the 

Commission did not propose a reporting 

threshold. For example, the Commission 

believes that certain types of Managers 

would not meet a Reporting 

Threshold.299 However, the Commission 

believes that the costs associated with 

Proposed Rule 13f–2 and Proposed 

Form SHO would not be dependent on 

the type of Manager, with the exception 

that Managers who do not currently 

report to EDGAR may have increased 

costs associated with complying with 

Rule 13f–2. Additionally, certain types 

of Managers may be less likely to trigger 

the threshold, resulting in lower overall 

costs for these Managers. Using Form 

SH data, the Commission estimates that 

an average of 442 Managers would have 

been required to file Proposed Form 

SHO each month under the threshold in 

place during temporary rule 10a–3T. 

However, only 346 Managers would be 

required to file under the proposed 

Threshold A.300

The Commission understands that the 

cost of tracking short positions could be 

higher for certain types of securities. For 

example, tracking the short position in 

an exchange traded fund as a percent of 

shares outstanding would 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 a the Manager traded even 

though the price may be stale. The 

Commission also believes that the cost 

to track and report activities information 

may vary across activity categories. 

Short selling and buy to cover activities 

would likely be the most common forms 

of reported activities and would 

therefore account for the majority of the 

costs. However, other categories of 

reportable activity, such as option 

exercises and assignments, tender 

conversions, and seasoned market 

purchases that reduce or close a short 

position would be reported less 

frequently and may require more 

attention to file as Managers would have 

less experience with reporting such 

activities. 

Requiring Proposed Form SHO to be 

filed on EDGAR in Proposed Form SHOspecific XML would not impose 


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301See EDGAR Filer Manual (Volume II) version 

60 (December 2021), 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. 

302See supra PRA Table 2 (estimating the ongoing 

burden for the Proposed Form SHO-specific XML 

requirement at two hours per Manager per filing 

and two hours per amended filing). Assuming 1,000 

Managers filing 12 filings per year would equal 

12,000 filings per year, resulting in 24,000 total 

annual industry burden hours (12 filings × 1,000 

Managers × 2 hours = 24,000) and $6,480,000 in 

industry costs for filings per year (24,000 hours * 

$270 per hour for a programmer = $6,480,000) 

attributable to the Proposed Form SHO-specific 

XML requirement. In addition, based on an estimate 

of 420 amended filings per year, the total industry 

cost for the Proposed Form SHO-specific XML 

would be $226,800 for amended filings (420 

amended filings × 2 hours per amended filing × 

$270 per hour = $226,800). As such, the total 

annual industry cost attributable to the Proposed 

Form SHO-specific XML requirement (including 

amended filings) is $6,706,800 ($6,480,000 for 

filings + $226,800 for amended filings = 

$6,706,800). 

303See 17 CFR 240.13f–1(a). 304For example, registered brokers or dealers that 

are subject to the reporting requirements set forth 

in 17 CFR 240.17h–2T must file Form 17H either 

electronically or in paper. Those that choose to file 

electronically must file Form 17H 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. 

305See 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). 306See Temporary Rule 10a3–T 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). 

307See supra 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 end 

user when filed making the data hard to work with. 

308See supra note 306 (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. 

309Rule 10a–3T required 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, 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 supra note 80 for more 

information on short volume in Form SH data. 

significant incremental costs on 

Managers. We expect most Managers 

who would be required to file Proposed 

Form SHO would likely have 

experience filing EDGAR forms that use 

similar EDGAR Form-specific XML data 

languages, such as Form 13F. In that 

regard, we note the process for filing 

Proposed Form SHO, as well as the 

XML-based data language used for 

Proposed Form SHO, would be similar 

to the filing process and data language 

used for Form 13F.301 We expect that 

Managers with such experience that 

choose to file Proposed Form SHO 

directly in Proposed Form SHO-specific 

XML would incur some compliance 

costs associated with doing so.302

In addition, Managers would be given 

the alternate option of filing Proposed 

Form SHO using a fillable web form that 

would render into Proposed Form SHOspecific XML in EDGAR, rather than 

filing directly in Proposed Form SHOspecific 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 would likely 

choose this option. In that regard, we 

note that Managers (i.e., certain 

‘‘institutional investment managers’’ as 

defined by Section 13(f)(6)(A) of the 

Exchange Act, which may include 

entities such as investment advisers, 

banks, insurance companies, brokerdealers, corporations, and pension 

funds) 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.303

Of Managers that do not have 

experience filing Form 13F, only a 

subset are subject to other EDGAR 

Form-specific XML filing 

requirements.304 For any Managers that 

choose to file Proposed Form SHO using 

a fillable web form, whether or not they 

have prior experience with filing forms 

in EDGAR Form-specific XML, we do 

not believe the Proposed Form SHOspecific 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) would impose any 

additional compliance costs.305

The Commission is cognizant of the 

burdens Managers experienced of 

submitting Form SH in compliance with 

temporary Rule 10a–3T and has 

designed Proposed Rule 13f–2 and 

Proposed Form SHO to attempt to 

reduce those burdens. First, commenters 

on the temporary Rule 10a–3T stated 

that the 0.25% threshold was too 

low.306 The two-pronged threshold in 

Proposed 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 41% of 

positions reported under Rule 10a–3T 

would be required to report given the 

higher threshold in Proposed Rule 13f– 

2 and Proposed Form SHO, while still 

collecting 89% of the dollar value.307

Additionally the proposed threshold 

could 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. Second, many commenters 

believed that weekly reporting was 

overly burdensome.308 The short selling 

information required by Proposed Rule 

13f–2 and Proposed Form SHO would 

be reported less frequently (monthly 

rather than weekly) and would involve 

reporting end of month positions rather 

than daily positions. Third, Managers 

would have more time to compile and 

file the Proposed Form SHO reports 

than they had to compile Form SH. 

Notwithstanding these cost-reducing 

differences, the Commission does 

recognize that other differences could 

offset some or all of these cost 

reductions. In particular, Proposed Rule 

13f–2 and Proposed Form SHO would 

require reporting additional information 

such as information on buy-to-cover 

activity and other activity that changes 

short positions. In addition, Proposed 

Rule 13f–2 and Proposed Form SHO 

would require that the information on 

activity include daily records and not be 

subject to its own threshold.309 Also, 

unlike the Form SH required under Rule 

10a–3T, the Proposed Form SHO that 

would be required by Proposed Rule 

13f–2 would feature an XML Schema 

that would incorporate technical 

validations of certain data fields on the 

Form, and would flag technical errors 

and require the filer to correct the 

technical errors before successful 

submission on EDGAR. However, 

because the field validations 

contemplated by Proposed Rule 13f–2 

and Proposed Form SHO would be 

limited to technical errors (e.g., letters 


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310See supra PRA Table 4. 

311See supra PRA Table 3. 

312According to an industry performance 

evaluations for server processors, computing speed 

has increased by at least 12 times since 2007 (the 

earliest year in the data). The Commission believes 

that computing performance has increased by a 

greater amount since 2003. The Commission reestimated the processing burden using a factor of 

12 (as a conservative estimate of improvements in 

processing speed). Dividing the estimated burden 

per broker-dealer of 7,107 hours by 12 yields a 

burden per broker-dealer of approximately 592 

hours per broker-dealer and a total burden of 

721,063 hours. See Year on Year Performance (for 

server processors), PassMark Software Pty. Ltd., 

available at https://www.cpubenchmark.net/yearon-year.html. 

313See supra note 143. 

314See supra Part VII.D.4.a (for more information 

on costs for CAT Plan Participants). 

315See supra Part VII.C.1 (for a discussion of the 

PRA burdens associated with the Proposal to 

Amend CAT). 

316See supra note 172. 

317See supra Part VI.D.4.c (for a breakdown of 

PRA costs related to the Proposal to Amend CAT). 

318 Id. 

319 Id. 

320 Id. 

instead of numbers in a field requiring 

only numbers) that we believe would be 

straightforward to resolve, we do not 

believe such resubmission costs would 

be significant. Finally, the rule could 

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. 

In connection with Proposed Rule 

205, the Commission estimates that 

broker-dealers would have an initial 

technology cost to update order marking 

systems of $170,000 for each of the 

1,218 broker-dealers with a total 

maximum initial cost to all brokerdealers of $207,060,000. This estimate 

likely significantly overstates the actual 

costs as many broker-dealers use third 

party order management systems.310 In 

this case the operator of the third party 

order manager system would update 

their system and then apply it to all 

customers reducing the cost 

significantly. The Commission estimates 

that all but 126 of the broker-dealers use 

third party order management systems. 

In this case the direct compliance costs 

for these 126 broker-dealers would be 

$12,420,000. The remaining brokerdealers would likely incur costs in the 

form of higher fees from the third party 

order management firms to account for 

their additional costs. However, these 

would be significantly lower than the 

costs to adjust a system from scratch as 

the costs would be divided among all 

clients of the third party order 

management firm. Additionally, the 

Commission believes that that some 

broker-dealers already track their 

customer’s buy to cover orders. 

Therefore, the initial cost from the rule 

are likely to be lower than the upper 

bound estimate. 

Additionally, the Commission 

estimates an upper bound that each 

instance of marking an order ‘‘buy to 

cover’’ would take approximately 0.5 

seconds, assuming that this takes as 

long as a short sale mark took in 2003, 

which would lead to an ongoing annual 

burden of 7,107 hours per broker-dealer 

and a total burden of 8,652,750 

hours.311 This figure is likely an 

overestimate in light of technological 

advancements since 2003. Therefore, 

the Commission estimates a lower 

bound for this burden of 721,000 hours 

or 592 hours per broker-dealer, 

assuming that computing speed has 

increased by at least 12 times since 

2007.312 Further, to the extent that some 

broker-dealers already track their 

customer’s buy to cover orders, the ongoing costs of this requirement would be 

low. 

The 25 Plan Participants would face 

costs associated with the Proposal to 

Amend CAT, as they would 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 $3,904 per 

participant or $101,520 total to 

compensate the Plan Processor for staff 

time required to make the initial 

necessary programming and systems 

changes.313 However, these initial costs 

could 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 Proposal to Amend CAT would not 

impose additional ongoing cost to 

participants beyond those costs already 

accounted for in existing Paperwork 

Reduction Act estimates that apply for 

Rule 613 and the CAT NMS Plan 

approval order.314

The Commission believes that the 

proposed Proposal to Amend CAT 

would impose a one-time cost to 

Industry Members.315 These costs 

would depend on whether 

implementing Proposed rules 

6.4(d)(ii)(D) and (E) would involve 

creating additional fields in the order 

origination report, or if it is 

implemented within existing fields. 

The Commission recognizes that costs 

would 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,316 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. The Commission 

estimates that the 126 insourcing 

Industry members would incur an 

aggregate one-time cost of $1,890,000 or 

$15,000 individually to update software 

and hardware to facilitate reporting the 

new buy to cover elements to CAT.317

Additionally, 60 insourcing Industry 

members would incur an aggregate cost 

of $900,000 or $15,000 individually to 

update systems to facilitate reporting 

the new bona fide market making 

exception elements to CAT.318 However, 

these cost could be lower if the 

Commission is overestimating the 

number of insourcing industry 

members, in particular, the additional 

cost could drive some insourcing 

industry members to begin to outsource. 

The Commission believes that ongoing 

costs associated with reporting the 

newly required information to CAT 

would 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 would 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 would be far 

lower because the service bureaus that 

provide them with order handling 

systems and regulatory data reporting 

services would adapt those systems on 

their customers’ behalf. The 

Commission estimates that the 1,092 

outsourcing Industry Members would 

incur a onetime-aggregate expense of 

$1,092,000 or $1,000 individually to 

update hardware and software to 

facilitate reporting the new buy to cover 

elements to CAT.319 Additionally, 44 

outsourcing industry members would 

incur an aggregate one-time cost of 

$44,000 or $1,000 individually to 

update systems to facilitate reporting 

the new bona fide market making 

exception elements to CAT.320 However, 

these costs could be higher if some 


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321See supra note 101. See also supra Parts VII.C, 

VII.D.4.b, and VII.4.c. 

322See supra Part V.A (for more discussion on the 

original CAT NMS Plan proposal that would have 

included an ‘‘open/close indicator’’). 

323See supra note 104. 

324One commenter on the CAT NMS Plan Notice 

stated that including an ‘‘open/close indicator’’ 

indicator for equities would require ‘‘involve 

parties other than CAT Reporters, such as buy-side 

clients, OMS/EMS vendors, and others.’’ See supra 

note 101. 

325See supra note 202, R. Battalio, and P. Schultz, 

(2011), Grundy, Lim, and Verwijmeren (2012). 

326See supra note 202, Jiang, Shimizu, and Strong 

(2019). 

327Recently proposed rule 10B–1 would require 

reporting of swap positions above a certain 

threshold. 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; available at 

https://www.sec.gov/rules/proposed/2021/34- 

93784.pdf. There is no reporting requirement for 

large options positions or other derivatives. 

328See supra note 202. 

329See Eugene F. Fama, Efficient Capital Markets 

a Review of Theory and Empirical Work, The Fama 

Portfolio 76–121 (2021). 

330See supra note 281. 

331See supra Parts VIII.C.5.iv and VIII.F.1.i (for 

further analysis of the use of CAT data to estimate 

buy to cover transactions). 

332See supra Parts V.B and Part VIII.C.4 (for a 

further discussion of the inefficiencies of existing 

data with regards to oversight and enforcement of 

rules relating to bona fide market making). 

current insourcing industry members 

begin to outsource as a result of the 

increased costs, which would 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 would be passed 

to their Industry Member customers. 

Although, the Proposed Rule 205 and 

the Proposal to Amend CAT to add buy 

to cover would impose costs on brokerdealers who are CAT Reporters, the 

Commission believes they would be less 

costly than previous related proposals, 

such as the ‘‘open/close indicator’’ in 

the original CAT NMS plan proposal.321

The originally proposed CAT NMS Plan 

would have included an ‘‘open/close 

indicator,’’ which could be used to 

identify orders buying to cover short 

positions. However, several commenters 

stated that an ‘‘open/close indicator’’ 

would be overly burdensome, with one 

commenter stating that such burdens 

would be, in part, the result of ‘‘the lack 

of a clear definition of the term [open/ 

close] for equity transactions,’’ and the 

indicator was not adopted.322 By 

contrast, Proposed Rule 205 includes a 

clear definition of when a ‘‘buy to 

cover’’ indicator would be required to 

be reported.323 In addition, reporting 

buy to cover on some buy orders is a 

narrower requirement than reporting an 

‘‘open/close indicator’’ on all buy and 

sell orders. Specifically, aside from 

focusing only on some buy orders, 

Proposed Rule 205 is designed to rely 

solely on information within the brokerdealer 324 and the Proposal to Amend 

CAT would require reporting on order 

receipt and order origination reports 

only. 

8. Risk of Circumvention Through 

Derivatives 

The Commission believes that the risk 

that Managers may attempt to 

circumvent the reporting requirement 

by trading derivatives may be high, 

particularly for stocks with liquid 

options.325 The risk may also increase if 

a robust single-stock futures market 

develops over time.326 Indeed, Proposed 

Rule 13f–2 and Proposed Form SHO 

could be a catalyst for growth in 

derivatives markets as short sellers look 

for new avenues to take the economic 

equivalent of short positions while 

avoiding these proposed disclosures. 

The Reporting Thresholds in 

Proposed Rule 13f–2 are on a Manager’s 

gross short position in the equity 

security itself, and does not included 

the calculation of derivative positions. 

Consequently a Manager seeking to 

build a large short position while 

avoiding reporting their positions on 

Proposed Form SHO could hold a short 

position just below a Reporting 

Threshold and use derivatives to take 

positions above that threshold.327 Using 

derivatives to circumvent the short 

selling reporting 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 Proposed Form SHO 

information articulated in Part V.4.i and 

V.4.ii 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 

non-existent options, the threat of 

circumvention through options may be 

minimal. However, academic research 

has shown that investors have used 

options to circumvent other short 

selling restrictions, thus there is a 

significant risk that there would be 

some attempt to circumvent the rule 

using derivatives, particularly in stocks 

with liquid options markets.328

E. 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.329 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.330 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 to profit from that information. As 

discussed in Part V.4.ii, more 

transparency in short selling would 

improve the amount of information that 

investors have to value a stock— 

increasing price efficiency. However, it 

could also disincentivize fundamental 

research which would harm price 

efficiency by limiting the amount of 

total information has been discovered. 

Overall the impact of the Proposals on 

price efficiency is uncertain. 

Additionally, Rule 205 and the CAT 

amendment would increase the 

efficiency with which the Commission 

accesses and performs analysis relating 

to bona-fide market making data or buy 

to cover data for regulatory or 

enforcement purposes. Currently, the 

Commission does not have an efficient 

means to determine buy to cover 

transactions. The Commission could, in 

theory, estimate buy to cover 

information using existing CAT data. 

However, constructing positions for a 

broad set of traders from CAT is 

inefficient and due to CAT lacking all 

information relative to an investor’s 

position—e.g., options assignments— 

could result in incomplete results.331

Additionally, the amendment to CAT 

would 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.332

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, then investors owning the asset 

have an advantage in gathering 

information due to the reduced cost of 

acting on whatever information that 


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333See Dixon (2021), supra note 242. 

334See supra Part VIII.D.7 (for a discussion of 

direct compliance costs). 

335See also supra note 244, CAT Proposing 

Release (where the Commission discusses the 

implementation of CAT and its effect on brokerdealer competition). 

336A firm’s external cost of finance is known as 

the weighted average cost of capital (WACC). It is 

simply the weighted average of the firm’s cost of 

equity and the firm’s cost of debt. Cost of equity 

(COE) is simply the return required by investors to 

assume the risks of owning the stock, computed as 

COE = (dividends per share/market cap) plus 

dividend growth rate. In this computation, market 

cap is simply the number of shares outstanding 

multiplied by the current stock price. If the stock 

price decreases, then mechanically the firm’s COE 

would go up. See, e.g., R.A. Brealey, S.C. Myers, F. 

Allen, and P. Mohanty, Principles of Corporate 

Finance, Tata McGraw-Hill Education (2012). 

337See supra note 267, Miller (1977). 

338See I. Goldstein and A. Guembel, 

Manipulation and the Allocational Role of Prices, 

75 (1) The Rev. of Econ. Studies 133–164 (2008). 

339See, 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). 

340See NASDAQ, OTC Markets, and CFA 

Institute letters (in response to FINRA’s short 

selling proposal) available at https://www.finra.org/ 

rules-guidance/notices/21-19#comments. 

341See Exchange Act Release No. 61595 (Feb. 26, 

2010), 75 FR 11232, at 297 (Mar. 10, 2010), 

available at http://www.sec.gov/rules/final/2010/ 

34-61595fr.pdf. 

they gather.333 By increasing the cost of 

short selling for managers above the 

Reporting thresholds, as discussed in 

Part VIII.D.1 and VIII.D.2, the rule may 

increase the advantage that investors 

who own the asset have over those who 

do not in terms of gathering information 

with the overall result being that 

investors not owning the asset may 

experience lower returns relative to 

those owning the asset due to increased 

cost of acting on negative information. 

Relatedly, fund performance is a key 

determinate of investor flows. The 

Commission believes that the proposal 

could harm competition for fund flows 

among 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. Thus Managers 

specializing in uncovering overpriced 

stocks may find themselves at a 

competitive disadvantage relative to 

managers who do not use short selling 

in terms of their ability to compete for 

fund flows. 

The Commission believes that 

Proposed Rule 205 and the Proposal to 

Amend CAT would not alter 

significantly the competitive landscape 

for broker-dealer services. For smaller 

broker-dealers the direct costs 

associated with complying with Rule 

205 and the CAT amendment would 

likely be borne by the larger entity that 

they contract with for the relevant 

services. Since many of the compliance 

costs are fixed, the increased expense to 

any one smaller broker-dealer would 

likely be relatively small and come in 

the form if increased costs for services 

from the entity that they contract 

with.334 Because larger broker-dealers 

enjoy economies of scale, they should 

be able to absorb the costs associated 

with compliance more easily. 

Consequently, the Commission believes 

that the effect of Rule 205 and the CAT 

amendment would have minor impacts 

on broker-dealer competition.335

3. Capital Formation 

One of the primary roles of the 

securities markets is to allocate capital 

(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.336

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 

ensures an optimal allocation of capital 

across firms. Thus, to the extent that the 

Proposals discourage short selling, as 

discussed in Part VIII.D.1 and VIII.D.2, 

it may lead to the overpricing of some 

stocks and the underpricing of others.337

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.338 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 proposed capital 

investments—particularly low value 

projects as the Proposals my dampen 

the market’s ability to respond to 

negative information. 

The costs associated with Managers 

monitoring their short positions for 

compliance with reporting Proposed 

Form SHO along with the negative 

economic effects detailed in Part 

VIII.D.1, VIII.D.2, and VIII.D.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 13f–2.339

Thus, to the extent that the costs 

associated with Proposed 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, the Proposals may have a 

positive influence on capital formation 

if they limit short selling based fraud. 

Specifically, in one type of fraud, 

investors holding convertible debt 

would short sell a stock in an attempt 

to drive down the price and then 

convert their debt to equity to cover 

their short positions at the 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 would engage 

in this sort of fraud. 

Proposed Rule 13f–2 may also affect 

capital formation through investor 

confidence. Some Commenters have 

suggested that short selling, and in 

particular a lack of short selling 

disclosure leads some investors to have 

less confidence in financial markets,340

although the results may be mixed. The 

Commission believes that improving 

short selling transparency would 

strengthen investor confidence which 

could help make investors more willing 

to invest, resulting in the promotion of 

capital formation.341


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342This alternative presumes that the Customer 

and Account Information System ‘‘CAIS’’ system in 

CAT is operational, thus allowing the Commission 

to track trades of individual traders. 343 In this alternative, however, CAT would not 

contain the information on option expirations or 

assignments. 

344FINRA’s process of gathering and validating 

short interest data takes approximately two weeks. 

See supra note 221. 345This contrasts with the Proposed Rule 13f–2 

which requires reporting based on the settlement 

date which is normally two business days after the 

transaction day. 346This 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. 

F. Reasonable Alternatives 

1. Alternative Approaches 

i. Releasing Aggregated CAT Data 

As an alternative to collecting, 

aggregating, and publishing Proposed 

Form SHO, the Commission could 

amend the CAT NMS Plan to collect 

additional information so that the 

Commission or the Plan Processor could 

aggregate and publish CAT Data.342

Specifically, the Commission could 

retain proposed Rule 205 and the 

amendment to the CAT NMS plan 

requiring the reporting of bona fide 

market making and buy to cover 

information to CAT and then use CAT 

data to have either the Commission or 

the Plan Processor provide short selling 

information to the public. This 

alternative would effectively eliminate 

the thresholds for reporting. This 

alternative could not be implemented 

until the CAIS system in CAT is fully 

operational. Currently it would be 

extremely difficult to map Firm 

Designated IDs ‘‘FDIDs’’—which are 

currently broker-dealer specific—to 

individual Managers on a large scale. 

However this functionality is 

anticipated once the CAIS system is 

fully operational. 

CAT data currently contains a short 

sale mark and also provides the 

identities of the individuals transacting. 

Consequently the Commission or the 

Plan Processor could aggregate 

information on the number of short 

sales that Managers engage in from CAT 

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 positions, such as 

purchasing a put option, or writing a 

call option.343 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 marketwide 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 exercises and 

assignments. This inaccuracy could also 

result in the market-wide short position 

estimate being less accurate than current 

short interest data.344

The alternative would result in lower 

benefits than Proposed Rule 13f–2 and 

Proposed Form SHO. For each trading 

day, the alternative would involve 

publishing the net change in short sale 

positions engaged in by Managers.345

The data published under this 

alternative would have significant 

overlap with the data that would be 

published under Proposed Rule 13f–2 

and Proposed Form SHO. One 

difference between this alternative and 

the current data proposed to be 

collected in Proposed Form SHO and 

published by the Commission is that 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,346 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. 

In addition, the alternative would not 

permit the publication of information on 

the percentage of positions that are fully 

or partially hedged. 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 

Proposed Rule 13f–2 and Proposed 

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. 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 

would be less additive than under 

Proposed Rule 13f–2 and Proposed 

Form SHO. 

This alternative would also mitigate 

some of the concerns associated with 

Managers being exposed to increased 

risk of short squeezes or other 

retaliation as discussed in Part VIII.D.1 

and VIII.D.2. This reduced risk would 

come because 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 

the proposal with regard to less overall 

short selling or fundamental research 

that are described in Part VIII.D.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. While it would 

result in the same costs for Industry 

Member reporting as those associated 

with Proposed Rule 205 and the 

Proposal to Amend CAT, 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. 

As previously stated, the drawback to 

this alternative relative to the existing 

proposal is that 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 lack 


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347Once again, this variation and the following 

variation presume that the CAIS system is fully 

operational. 

348Analysis 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. 

349See MFA Letter, supra note 306 (p. 3 for 10a– 

3T). 

350The 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. 

transactions outside of the purview of 

CAT that may affect short positions. 

Thus the data provided by this rule 

would always be estimates of total short 

positions, which could be quite 

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. 

The Commission could also consider 

two variations of this alternative. The 

first, which can be referred to as the 

minimalist approach, would not include 

Proposed Rule 205 and the Proposal to 

Amend CAT and instead would provide 

Manager short selling statistics based on 

existing CAT data.347 The advantage to 

this variation is that it would provide 

additional information about the short 

selling activity and positions of 

Managers, compared to what is 

currently available, while requiring no 

additional resources from Industry 

Members except, perhaps, those passed 

on from an increase in resources for the 

Plan Processor to build out processing 

capacity—if the Plan Processor is 

chosen to aggregate reports and if it 

currently lacks such capacity. An 

additional drawback to this variation 

relative to the alternative above is that 

it would further limit the data that 

regulators have access to. Thus the 

benefits to having bona fide market 

making and buy to cover information 

described throughout Part VIII.D would 

not occur. 

Lastly, a larger expansion of CAT 

could achieve at least the same data 

value as in Proposed Rule 13f–2 and 

Proposed Form SHO. For example, CAT 

could expand to require the reporting of 

all the information currently proposed 

to be collected in Proposed Form SHO. 

Specifically, the Commission could 

expand CAT to include data on account 

positions, including short selling 

positions as well as hedging information 

associated with those positions. In 

addition, CAT could be expanded to 

capture information on changes in those 

positions, options assignments, options 

exercises, secondary offering purchases, 

conversions, and other position 

changes. Under this approach, 

regulators would have access to the 

same data as if Managers filed Proposed 

Form SHO but for all short sellers, not 

only the subset of Managers reporting 

on Proposed Form SHO. This approach 

would also result in additional 

information available to regulators not 

collected in the Proposed 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 lot of new 

information on CAT report types that 

don’t exist today and for Participants 

who would have to implement changes 

and work out technical specifications 

for new types of CAT reports. Further, 

more Industry Members would report 

this information to CAT compared to 

Managers require to report information 

on Proposed Form SHO. It would be a 

major undertaking for both the Plan 

Processor as well as for 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 Proposed 

Rule 13f–2 and Proposed Form SHO. 

Further, if the Commission were to 

expand CAT to collect additional 

information beyond what would be 

captured by the Proposal to Amend CAT 

and Proposed Rule 205, such as position 

information, then these additional 

expansions would incur significant 

direct costs. 

ii. 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 their existing process to ensure 

that in continues in perpetuity. This 

alternative would have no additional 

costs to market participants, but would 

substitute a Commission mandate for 

the publication of the short interest 

data. 

Similarly, the Commission could 

require FINRA to publish a version of 

their short interest information that 

specifically identifies the aggregate 

short interest of Managers—separate 

from other short interest. To accomplish 

this, reporting broker-dealers would 

separately report in their reports to 

FINRA the short positions that originate 

from Managers. FINRA would then 

compile both total short interest, as they 

currently do, as well as a Manager 

specific short interest. Because brokerdealers 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 may be less expensive than 

the existing proposal as it would only 

require a modification of an existing 

process. This alternative would not 

provide the Commission with the 

positions of any identified Managers or 

any Manager-specific activity data, nor 

would it provide information on which 

positions are fully or partially hedged, 

thus the benefits and risks associated 

with these data articulated throughout 

Part VIII.D would decline. 

The Commission also expects that 

data on Manager short interest in 

addition to total short interest would 

likely not provide 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.348

Thus, while the alternative that requires 

FINRA to produce separate short 

interest data for Managers would reduce 

costs to market participants relative to 

the existing proposal, it also may not 

provide the market or regulators a 

significant incremental benefit relative 

to existing short selling data. 

iii. Broker-Dealer Reporting to EDGAR 

on Behalf of Managers 

The Commission could modify the 

existing proposal to allow brokerdealers to file Proposed Form SHO 

reports with the Commission on behalf 

of Managers. This alternative may 

reduce costs as it could concentrate 

reporting with broker-dealers that have 

significant experience collecting and 

providing such information—increasing 

operational efficiency.349 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 prime broker would 

either need to report based on its 

limited information, which may lead to 

less complete data, or to gather 

additional information from the 

Manager about potential activity 

associated with another prime broker.350

Reporting only information known by 

one prime broker could also result in 

less information if a Manager that 


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351See European Parliament and the Council of 

the European Union, Regulation No. 236/2012 (Mar. 

24, 2012), available at https://eur-lex.europa.eu/ 

LexUriServ/LexUriServ.do?uri=OJ:L:2012:

086:0001:0024:en:PDF (The SSR was adopted by the 

European Parliament and the Council of the 

European Union on March 14, 2012 and became 

effective on November 1, 2012.). 

352 Id. (at Article 5(2)). 

353The threshold was temporarily lowered in 

March 2020 in response to the COVID–19 

pandemic. In October 2021, the change became 

permanent. See European Union, Commission 

Delegated Regulation No. 236/2012, Register of 

Commission Documents, available at https://

ec.europa.eu/transparency/documents-register/ 

detail?ref=C(2021)6815&lang=en&utm_

source=Cleverreach&utm_medium=email&utm_

campaign=Update%20Shareholder%20

Activism&utm_content=Mailing_13052681. 

354 Id. (at Article 9(2)). 

355 Id. (at Article 9(4)). 

356 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. 

357For 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). 

358See supra Part VIII.F.1.iv (discussion in 

section). 

otherwise would have exceeded the 

threshold for reporting does not exceed 

the threshold at one or more prime 

brokers. Requiring additional data 

collection may increase complexity and 

costs as Managers and broker-dealers 

would need to develop systems by 

which a Manager provides information 

about their activity with other prime 

brokers to their reporting broker. Or, the 

Commission could allow 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. 

iv. Harmonization With European 

Disclosure Requirements 

The Commission could also explicitly 

craft Proposed Rule 13f–2 and Proposed 

Form SHO to be consistent with 

European disclosure requirements. 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.351

Under the SSR, the trading entity 

reports to the regulator when their net 

short position reaches the initial 

threshold of 0.2% of the share capital of 

the company, and in 0.1% up and down 

increments thereafter.352 The threshold 

for reporting to the regulator recently 

was lowered to 0.1%.353 Net short 

positions are computed taking into 

account relevant derivative positions 

such as options. If the net short position 

reaches 0.5% of the share capital of the 

company, then the reported short 

position is made public with the 

identity of the short seller revealed. 

New filings are required to be made 

whenever the short position increases or 

decreases by 0.1% of the share capital 

of the firm. In the EU, trading entities 

must submit their data to the regulator 

by 3:30 p.m. on the following trading 

day.354 Trading entities accomplish 

public disclosure via a central website 

operated or supervised by the relevant 

competent authority.355

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, when short sale information is 

made public, and when new reports 

have been issued. The advantage to this 

alternative would be that managers who 

engage in short selling in both the 

United States and in Europe would face 

similar regulations in both places— 

which may decrease the cost of 

compliance with both regulations.356

The EU structure whereby individual 

short sellers’ names are made public 

may raise the risk that investors may 

gather less fundamental information 

relative to the existing proposal as the 

risk of retaliation towards short 

individual sellers may increase, as well 

as the ability for market participants to 

engage in copy-cat strategies that 

decrease the profitability of gathering 

information.357

The EU data is more timely than what 

is considered in this proposal as the 

forms are posted publicly immediately 

after receipt by the regulator, potentially 

facilitating greater price discovery but at 

the cost of lowering the value of 

gathering information. Further, the EU 

guidelines do not provide activity data. 

Thus, market participants could not 

learn from an analysis of how short 

selling positions change over time. For 

instance, firm managers could only see 

the size of net short positions and thus 

may be hindered in their ability to learn 

from when short sellers built their 

positions and whether the building of a 

short position was in response to a 

specific manager action or firm 

announcement. 

2. Data Modifications 

i. Release Proposed Form SHO Data in 

Alternative Formats 

The Commission could release the 

information included in Proposed Form 

SHO in a different manner. This 

alternative could take one of several 

forms. For example, the Commission 

could release each Proposed 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 stripped. 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 Proposed Form SHO report, 

such as, for example, publish the 

number of entities underlying the 

aggregated data, publish aggregations of 

the various categories of changes in 

short positions, or publish increases in 

short positions separate from decreases. 

In the first alternative, the 

Commission could release Proposed 

Form SHO as filed, allowing all market 

participants to know the identities of 

short sellers—similar to the EU 

regulation discussed above. This would 

increase the information that market 

participants have to evaluate sentiment 

in the market. For example, 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.358 In addition, all the detailed 

information on daily short activities 

across the various activity categories 

could reveal trading strategies, 

particularly if the Manager is identified. 

This information would also allow 

market participants to better manage 

risk by allowing them to manage their 

exposure to Managers with large short 

positions. Additionally, releasing the 

names of large short sellers would 

further increase the likelihood that the 

short seller would be the victim of a 

short squeezes or other retaliatory 

actions as described in Part VIII.D.1. 

Similarly, the Commission could 

publicly release individual Proposed 

Form SHO filings with identification 

information stripped from the released 

data. This alternative would allow 

market participants a clearer view into 

the activities of large short sellers, 

potentially improving their ability to 

learn from the actions of large short 


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359 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 258. 

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 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. 

360See supra note 80 (for more information on 

methodologies and caveats for using Form SH data). 

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 Proposed Rule 13f–2, improving price 

efficiency. 

However, the indirect costs of this 

alternative would be greater than for 

Proposed Rule 13f–2 and Proposed 

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 

may increase the risk of copycat trading 

which eats into the profits of acquiring 

information. It may 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 thus 

increasing this risk to short sellers. 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 the current proposal, 

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.359 If market 

participants were able to back out the 

identities of individual short sellers, 

then the risk of retaliation or short 

squeezes would increase relative to 

Proposed Rule 13f–2 and Proposed 

Form SHO. 

Alternatively, the Commission could 

release the data as specified in the 

current proposal but also include the 

number of entities whose Proposed 

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. 

Adding this information may also 

increase the risk of short squeezes or 

other retaliatory actions in the case 

where there were very few reporters of 

Proposed Form SHO. In the Form SH 

data collected under Temporary Rule 

10a–3T, 32% of stocks had only one 

Manager reporting a position per 

month.360 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 squeeze. 

The Commission could collect 

Proposed Form SHO data as proposed 

but in the data made public, the 

Commission could aggregate at the 

issuer level as opposed to the security 

level. Aggregating at the issuer level 

would allow users of the data a simpler 

view into overall short selling for the 

whole firm. However, computing this 

aggregation introduces complexity, as 

different share issues sometimes have 

different prices or voting rights, thus it 

may not make economic sense to 

aggregate all short selling data across all 

share classes for the same issuer. This 

effect would decrease the information 

content of the data with respect to 

bearish sentiment, which decreases 

what market participants could learn 

from the data, but also would make it 

more difficult for market participants to 

copycat short selling strategies. 

As another alternative, the 

Commission could release statistics on 

the Proposed Form SHO filings 

aggregated across Managers but not 

netted across the various activity 

categories. This would allow market 

participants to not only see the extent of 

the position changes of large short 

sellers but also how they achieve their 

position changes, including whether 

they create or cover positions in the 

equities market or by options exercises, 

for example. The Commission believes 

that such information could risk 

revealing trading strategies, even if 

aggregated across Managers, particular if 

Managers have correlated strategies. As 

a result, this would be more costly to 

Managers than Proposed Rule 13f–2 and 

would dissuade fundamental research 

more. On the other hand, while such 

information is of more regulatory value, 

by publicly releasing more detailed 

activity data, some market participants 

may benefit from learning the various 

ways that short sellers change their 

positions. 

Similarly, the Commission could 

collect Proposed Form SHO data as 

proposed but publicly release the daily 

aggregate increases in short positions 

separately from the daily aggregate 

decreases in short positions as opposed 

to daily net changes to short positions 

as currently proposed. 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. 

ii. 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 Proposed 

Form SHO to also disclose their 

derivatives positions on underlying 

equity securities in derivatives such as 

options and total-return swaps as an 

alternative to the existing proposal 

which does not directly collect 

information on derivatives. 

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. 

Consequently, the information would 

aid market participants in gauging 

bearish sentiment in a security relative 

to Proposed Rule 13f–2 and Proposed 

Form SHO. 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 Proposed Form SHO would increase 

the compliance costs to Managers of 

reporting on Proposed Form SHO. 

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. 


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361See Exchange Act Release No. 93784 (Dec. 15, 

2021), available at https://www.sec.gov/rules/ 

proposed/2021/34-93784.pdf. 

362 Delta is a ratio that measures the change in the 

value of short position when the value of the long 

position changes. For example, a delta of one means 

that a $1 increase in value of the short position 

results in a $1 decline in value of the long position. 

363See supra note 79 (for links to specific 

comment letters). 

364See supra Table I. See also supra note 81. 

365 Id. 

366See supra notes 271 and 353 (for research 

documenting this behavior in Europe). 

367See supra notes 257 and 278 (with 

accompanying text for more information on risks of 

identifying individual short sellers). 

Requiring derivative position 

information may also be duplicative of 

other derivatives reporting 

requirements. For instance, recently 

proposed Rule 10B–1 requires 

individuals, or groups of individuals, 

who own security-based swaps that 

exceed a certain threshold to report 

certain information to the SEC, which 

information would be made publicly 

available.361

iii. Report Net Short Positions Instead of 

the Gross Position With Hedging 

Information 

The Commission could require 

managers reporting Proposed Form SHO 

data to report net short positions instead 

of gross short positions. Net short 

positions would take into account any 

hedging the Manager engages in. For 

instance, a Manager that has a large long 

position in options that is largely 

hedged using short sales in equities is 

not taking an economically significant 

short position in the security. Fully 

hedged short positions are less likely to 

be manipulative in nature, or to pose 

systemic risk. Consequently, the 

Commission could limit reporting to 

only Managers whose economic short 

positions surpass the thresholds. Doing 

so would limit the amount of data 

collected by the Commission and would 

thus reduce the cost of the alternative 

relative to Proposed Rule 13f–2 but also 

reduce somewhat the value of the data 

in terms of using it to reconstruct 

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 

may have previously appeared to have 

been hedged, and thus low risk, may no 

longer be as hedged as previously 

supposed, and in this case, large short 

positions that were initially hedged may 

become systemically important as the 

hedge breaks down due to unforeseen 

extreme market events. In this case, it 

would be useful for the Commission to 

have information on large hedged short 

positions largely to aid in reconstruction 

of market events. This alternative would 

limit what the public and the 

Commission could learn from large 

hedged positions relative to the 

Proposed Rule 13f–2 and Proposed 

Form SHO. For instance, the alternative 

would preclude a comparison of total 

short interest with reported large 

hedged short positions, which may 

provide additional information to the 

market about the activities of large, 

though perhaps non-information based, 

traders. 

Additionally, the Commission could 

require Managers to report the delta 

value of their hedged positions rather 

than providing an indicator for whether 

a position is fully or partially hedged.362

This alternative could have some of the 

same advantages as the other 

alternatives in this section. If the 

Commission published this information 

aggregated across Managers, then market 

participants would have a clearer view 

into economic—i.e. unhedged—short 

positions than is provided by the 

Proposed Rule 13f–2 and Proposed 

Form SHO. The cost of this alternative 

is an increased reporting burden for 

Managers as they would be required to 

compute for the report delta value of 

their hedge. However, knowing 

information about the delta of short 

seller’s hedge can provide information 

about how vulnerable a short seller, or 

short sellers, may be to a short squeeze. 

If this information was not made public 

by the Commission, however, it would 

allow the Commission an improved 

view into individual short sellers with 

potentially risky short positions without 

raising those concerns. 

3. Threshold Modifications 

As an alternative to Threshold A’s 

two-pronged threshold, the Commission 

could require reporting Proposed Form 

SHO at either higher or lower 

thresholds—or no threshold. When 

soliciting comments for Temporary Rule 

10a3–T, commenters suggested 

thresholds ranging from 1% to 5%.363

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 Proposed Rule 13f–2 or an 

alternative that would not contain a 

threshold would produce more data as 

more entities would be required to 

report. In the Form SH data collected 

under Temporary Rule 10a–3T, the 

threshold of $10 million or 2.5% would 

collect 89% of the dollar value of the 

short positions required to be 

reported.364 Therefore, the increase in 

coverage from a lower threshold would 

be low relative to the coverage in the 

proposed Threshold A. Notwithstanding 

the low potential for an increase in 

coverage, the Commission recognizes 

that this increased coverage could 

increase benefits. For example, this 

additional data from the alternative 

would enhance the benefits to the 

Proposed Form SHO data articulated 

above relative to Proposed Rule 13f–2 

and Proposed Form SHO. Specifically, it 

would provide market participants with 

a clearer view of Manager bearish 

sentiment than the current proposal 

provides for as more managers would be 

required to report the data, making the 

data more comprehensive. A lower 

threshold would also allow the 

Commission to more easily reconstruct 

significant market events where short 

selling is involved and enhance 

Commission oversight of short selling— 

again because the data would be more 

comprehensive. 

A lower or no threshold would 

increase the cost of reporting Proposed 

Form SHO data in terms of direct costs 

associated with Managers compiling 

and submitting the required data 

thorough EDGAR and in the indirect 

costs associated with revealing short 

sellers’ information. In the Form SH 

data collected under temporary Rule 

10a–3T, the number of reporting 

Managers for the de minimis threshold 

of 0.25% of shares outstanding or $10 

million was 442, compared to 346 for 

the $10 million or 2.5% threshold in 

Threshold A of the proposed rule.365

Additionally, Managers would likely be 

required to file reports for more 

securities, which would also increase 

compliance costs. Indirect costs include 

increased risk of copycat short selling 

strategies, which lead to herding and 

increased volatility, and short sellers 

engaging in strategic behavior to short 

sell just underneath Threshold A, which 

leads to lower price efficiency.366 In 

some cases a lower threshold would 

decrease the indirect costs associated 

with the proposed rule because it would 

be harder to identify individual short 

positions from aggregate reporting if 

there are many entities reporting, thus 

lowering the chances that a given 

security would only have one Manager 

reporting a short position.367 This effect 

may not be universally true, however. In 

particular, at thresholds just lower than 

proposed Threshold A, the number of 

securities where only one entity 


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368According to Form SH data, 32% of securities 

would have only one Manager reporting at or above 

the currently proposed threshold of $10 Million and 

2.5%. If the percent threshold was reduced to 1% 

along with the $10 million threshold the number of 

securities with only one Manager reporting would 

increase to 35%. See also supra note 81. 

369See SIFMA letter (discussing Temporary Rule 

10a3–T). See also supra Table I. See also supra note 

81. 

370See note 80 (for more information on 

methodologies and caveats for using Form SH data). 

371See supra Table II (analysis within table). 

372See, e.g., Carole Comerton-Forde, Ta ̄lis J. 

Putnin ̧sˇ, Stock Price Manipulation: Prevalence and 

Determinants, 18 (1) Rev. of Fin. January 2014, 

Pages 23–66, available at https://doi.org/10.1093/ 

rof/rfs040 (for evidence on small and less liquid 

stocks higher exposure to manipulative behavior by 

investors). 

373See supra Part VIII.D.8. 

374See supra Part VIII.D.1 (for further discussion 

on strategic trading around the threshold and how 

the rule is designed to reduce it). 

375 Industry practices may change with regard to 

security-based swaps in the case of the adoption of 

proposed Rule 10B–1, which would require persons 

with large positions in security-based swaps to 

track all related securities. See Exchange Act 

Release No. 93784 at 23 (stating that ‘‘proposed 

Rule 10B–1 would require public reporting of, 

among other things: (1) Certain large positions in 

security-based swaps; (2) positions in any security 

or loan underlying the security-based swap 

position; and (3) positions in any other instrument 

relating to the underlying security or loan or group 

or index of securities or loans’’) available at https:// 

www.sec.gov/rules/proposed/2021/34-93784.pdf. 

reported Form SH increases.368 This 

result implies that there are a number of 

securities for which only one short 

seller held a significant short position at 

a level lower than the current cutoff. In 

these cases, lowering the threshold may 

increase the risk of identifying 

individual short sellers. 

Conversely, raising the proposed 

Threshold A lowers many of the costs 

associated with providing Proposed 

Form SHO data as fewer entities would 

be required to report. It also limits 

somewhat the value of the data—again 

as the reported data would reflect a 

smaller portion of overall short 

positions. For example, in the Form SH 

data, a threshold of 5% or $25 million 

suggested in comment letters reduce the 

coverage to 71% of dollar value of short 

positions compared to 89% in the 

proposed rule.369 Higher thresholds may 

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 for Form SH data 41% of 

reported securities would reflect one 

Manager with a short position at a 

threshold of $25 million and 5% 

compared to 24% of reported securities 

for the proposed Threshold A.370

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 lower 

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% to 8.76%.371 Similarly, 

under the same assumptions, lowering 

the threshold to $50,000 would increase 

the number of short positions captured 

to 48.08%. 

As another alternative to the proposed 

Threshold A, the Commission could 

establish a threshold based on one of the 

thresholds in Proposed Rule 13f–2— 

short position as a percent of shares 

outstanding or the dollar value of the 

short position. The advantage of this 

alternative is that it may reduce 

compliance costs by simplifying 

reporting requirements. Additionally it 

would lower overall compliance costs 

due to fewer entities being required to 

report as entities that may meet one 

threshold may not meet another and 

thus may not be required to report. An 

alternative including only the 2.5% 

threshold would have a bigger impact 

than an alternative including only the 

$10 million threshold. Commission 

analysis based on Form SH data 

suggests that 342 Managers would meet 

the $10 million threshold and 160 

Managers would meet the 2.5% 

threshold, compared to 346 in Proposed 

Rule 13f–2. 

The alternative of requiring a 

threshold based only on short positions 

as a percent of shares outstanding 

would largely eliminate reporting in 

larger securities. Short sellers will hit 

the 2.5% threshold in stocks with 

market capitalization below $400 

million before they hit the $10 million 

dollar threshold. For stocks with market 

capitalization above $400 million, short 

sellers will hit a $10 million dollar 

threshold before hitting the 2.5% 

threshold. Consequently, if the 

Commission required reporting based 

only on the percent of shares 

outstanding, then there would be fewer 

reports of Proposed Form SHO 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, generally because larger 

market capitalization stocks tend to be 

more well-established and harder to 

manipulate.372 Conversely, if the 

Commission required reporting based 

only on the dollar threshold, then there 

would be fewer reports among stocks 

with lower market capitalizations. 

Smaller market capitalization stocks 

tend to be easier to manipulate and less 

stable. Thus, less visibility into the 

actions of short sellers among smaller 

market capitalization stocks may 

mitigate somewhat the benefits of 

reduced manipulative behavior among 

these stocks articulated in Part VIII.D.1. 

As another alternative, the 

Commission could structure the 

Reporting Thresholds to include the 

nominal economic value of short 

derivative positions. Specifically, 

reporting on Proposed 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. 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 Proposed Form SHO.373 Making it 

more difficult to circumvent the 

reporting requirements using derivatives 

may also decrease strategic, and suboptimal, trading around the Reporting 

Thresholds which leads to lower price 

efficiency.374 However, increasing the 

amount of information that is provided 

in Proposed Form SHO may increase 

copycat activity that leads to herding 

and increased volatility. Conversely, 

increasing the reports may dilute the 

information and reduce the amount of 

herding. This alternative could also 

result in some 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.375

Additionally, while valuing short 

positions in most equities is fairly 

straight forward, 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 

Managers short exposure in derivatives 

would be significantly more 


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376See supra Table I. 

377For example, a Manager’s position could 

exceed the $10 million threshold on the 7th of the 

month but be below $10 million and 2.5% on the 

last settlement day of the month. 

complicated than Proposed Rule 13f–2 

and Proposed Form SHO. 

An alternative could also involve 

requiring the thresholds to be based on 

activity and not just positions. 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 may 

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 may 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 may be concentrated enough in 

time to not trigger a Reporting 

Threshold based on average position 

over the prior month as is currently 

stipulated in the proposal. While this 

activity information may be helpful in 

flagging unusual short selling activity as 

the Commission could conceivably 

build reports based on existing CAT 

data that would be more effective at 

detecting such behavior and Proposed 

Rule 13f–2 would identify these 

activities if the market participant 

exceeds the Reporting Thresholds. 

The Commission could measure the 

thresholds as of the last settlement day 

of the month rather than on any day of 

the month, as in the $10 million prong, 

or as the average position over the 

month, as in the 2.5% prong for 

Threshold A and the $500,000 threshold 

in Threshold B. This alternative would 

have the advantage of simplifying 

compliance with Proposed Rule 13f–2 

and Proposed Form SHO and thus may 

reduce compliance costs. In the Form 

SH data, end of month thresholds 

reduced the number of reporting 

Managers for the $10 million threshold 

from 342 to 247, and for the 2.5% 

threshold from 160 to 127.376 It would 

also line the Reporting Thresholds up 

with the positions reported in Proposed 

Form SHO whereas a Manager’s 

reported information on Proposed Form 

SHO under Proposed Rule 13f–2 could 

be below the Reporting Thresholds.377

This alternative may also invite more 

strategic trading around the end of the 

month than the proposal, which is 

structured to prevent trading around the 

threshold. For 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 two 

prong, $10 million maximum position 

or 2.5% average position, reporting 

threshold for short positions in an 

equity security of a non-reporting 

company issuer that is required for 

equity securities of reporting company 

issuers. This approach may 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 

to the size of the issue to ensure 

capturing positions that are relatively 

large whereas the proposed Threshold B 

imposes a flat threshold that could 

result in some relatively large positions 

not being filed on Proposed Form SHO. 

However, this alternative would 

increase the burden for Managers as 

information for non-reporting issuers 

can be hard to find, making threshold 

calculations difficult. In particular, 

information for the number of shares 

outstanding can be difficult to obtain for 

non-reporting issuers and when it is 

available it is often stale and inaccurate. 

This could lead to problems with the 

calculations for the 2.5% threshold. 

Because the alterative would require 

knowing shares outstanding of such 

securities each day, this alternative 

would effectively impose new 

recordkeeping costs on Managers as 

Managers would need to track daily 

changes in shares outstanding in order 

to assess the 2.5% threshold. Further, 

there are multiple sources from which 

Managers can obtain shares outstanding 

for securities in non-reporting 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. 

Additionally, the Commission could 

enhance record keeping requirements 

associated with the alternative where 

Threshold A applies to all securities to 

require Managers to record and report 

on Form SHO the source of data used 

to calculate shares outstanding in 

relation to determining compliance with 

Threshold A. This could improve the 

quality of the information reported in 

the Proposed 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 may 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 impose 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 

proposed by the rule. Specifically, the 

Commission could require reporting at 

frequencies that are shorter than a 

month. For example, the Commission 

could require reporting daily, weekly, 

bi-weekly, 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 


jspears on DSK121TN23PROD with PROPOSALS2
15010 Federal Register / Vol. 87, No. 51 / Wednesday, March 16, 2022 / Proposed Rules 

378Many Commenters on temporary Rule 10a–3T 

stated that weekly reporting was overly 

burdensome. See supra note 306. 379See Seward & Kissel LLP letter (discussing 

Temporary Rule 10a3–T) at 5, available at https:// 

www.sec.gov/comments/s7-31-08/s73108-43.pdf. 

for the prior period (e.g. week, or two 

weeks). 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, 

but also improve price efficiency. An 

additional difference to the data may 

come from Managers who for a short 

time have short positions that are 

subject to Threshold A and are above 

the 2.5% threshold but below the $10 

million threshold, but do not maintain 

an average short position over 2.5% 

over the month. These Managers may be 

required to report with more frequent 

disclosures.378

The Commission could also consider 

different reporting windows for 

Managers who meet the threshold short 

positions to report Proposed Form SHO. 

The current proposal requires Managers 

to report Proposed 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 submit the 

data on Proposed Form SHO and may 

need to build costlier procedures to 

ensure compliance with the reporting 

requirement.379 A mitigating factor is 

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. 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. 

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. 

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. Requiring Information From 

Customers for Proposed Rule 205 

To enhance the value of the buy to 

cover mark in CAT, the Commission 

could also modify components of 

Regulation SHO whereby broker-dealers 

would be required to gather information 

from customers regarding whether a 

purchase meets the definition of buy to 

cover. In Proposed Rule 205, brokerdealers would be required to mark 

transactions a buy to cover based only 

on information to which they currently 

have access and they would not be 

required to net such activity across the 

same customer’s accounts at that brokerdealer. This may miss some buy to cover 

trades that may occur if a Manager uses 

a broker to execute short sales and a 

prime broker (or prime brokers) for 

other long positions. In this case, the 

broker-dealer managing the purchase of 

shares would not know that the buy is 

actually a buy to cover and would thus 

not mark the trade as such. The current 

proposal may also miss some 

transactions that may occur if a Manager 

uses multiple accounts at the same 

broker-dealer to trade. 

To close this gap in buy to cover data, 

the Commission could require brokerdealers to collect information from 

customers concerning whether a given 

buy trade is a buy to cover trade, when 

considering positions held at other 

broker-dealers. This alternative would 

increase the accuracy of the buy to cover 

information collected via Proposed Rule 

205, which would enhance the benefits 

discussed in Part VIII.D. However, this 

alternative would impose significant 

costs on broker-dealers that do not 

already collect such information relative 

to the current proposal as it would 

require broker-dealers to alter their 

systems to collect this additional 

information from customers. It would 

also impose costs on customers who 

would likewise need to alter their own 

systems and to report such information 

to their broker-dealer. The number of 

customers incurring those costs would 

be limited to the number of customers 

employing multiple broker-dealers to 

execute trades and maintain positions. 

For customers with only one brokerdealer, this alternative would not 

impose any additional costs as in this 

case their only broker-dealer would 

have a comprehensive view of the 

customer’s positions from which to 

determine whether a trade was buy to 

cover or not. 

The Commission could also require 

broker-dealers to aggregate trades across 

all accounts by the same purchaser at 

the same broker-dealer when 

determining buy to cover status of an 

order under Proposed Rule 205. This 

alternative would include short 

positions held in any account other than 

the purchasing account, as well as 

offsetting long positions held by the 

purchaser in the purchasing account or 

any other account for purposes of the 

broker-dealer’s ‘‘buy to cover’’ order 

marking determination. This alternative 

could create more comprehensive buy to 

cover marks in CAT but would also 

come with additional compliance costs 

for broker-dealers as they would need to 

build out systems to track the net 

positions of customers across all 

accounts in real time to determine 

whether a given order qualified as a buy 

to cover transaction. 

c. Report Proposed Form SHO in Inline 

XBRL 

The proposal would require Proposed 

Form SHO to be filed in Proposed Form 

SHO-specific XML, a structured, 

machine-readable data language. As an 

alternative, the Commission might 

require Proposed 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. Compared to the proposal, the 

Inline XBRL alternative for Proposed 

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 Proposed 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 proposal, this alternative would 

impose greater initial implementation 

costs (e.g., licensing Inline XBRL filing 

preparation software) upon reporting 

persons that have no prior experience 


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380See 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). 

structuring data in Inline XBRL.380 By 

contrast, because many Managers that 

would be Proposed Form SHO filers 

would likely have experience 

structuring filings in a similar EDGAR 

Form-specific XML data language, such 

as in the context of submitting Form 

13F, the Proposed Form SHO-specific 

XML requirement would likely impose 

lower implementation compliance costs 

on Proposed Form SHO filers than an 

Inline XBRL requirement would impose. 

G. Request for Comments 

The Commission requests comment 

on all aspects of this Economic 

Analysis, including whether the 

analysis has: (1) Identified all benefits 

and costs, including all effects on 

efficiency, competition, and capital 

formation; (2) given due consideration 

to each benefit and cost, including each 

effect on efficiency, competition, and 

capital formation; and (3) identified and 

considered reasonable alternatives to 

the proposed new rules and rule 

amendments. We request and encourage 

any interested person to submit 

comments regarding the proposed rules, 

our analysis of the potential effects of 

the proposed rules and proposed 

amendments, and other matters that 

may have an effect on the proposed 

rules. We request that commenters 

identify sources of data and information 

as well as provide data and information 

to assist us in analyzing the economic 

consequences of the proposed rules and 

proposed amendments. We also are 

interested in comments on the 

qualitative benefits and costs we have 

identified and any benefits and costs we 

may have overlooked. In addition to our 

general request for comments on the 

Economic Analysis associated with the 

proposed rules and proposed 

amendments, we request specific 

comment on certain aspect of the 

proposal: 

• Q35: Short Selling Data. The 

Economic Analysis discusses several 

existing sources of short selling data and 

the limitations of each. 

Æ Are the Commission’s descriptions 

of existing short selling data accurate? 

Why or why not? Please explain. Are 

there other relevant existing data 

sources that the Commission should 

consider as a part of the baseline? If so, 

please describe them. 

Æ Are the Commission’s descriptions 

of the various limitations in existing 

short selling data accurate? Please 

explain. Are there limitations that the 

Commission has not discussed? If so, 

please describe these limitations. 

• Q36: Additive Information in 

Proposed Rule 13f–2 and Proposed 

Form SHO, Proposed Rule 205, and the 

Proposal to Amend CAT. These 

Proposed Rules would require the 

reporting of short sale information to 

EDGAR or to CAT. 

Æ Would Proposed Rule 13f–2 and 

Proposed Form SHO provide 

information to the public that is 

additive to what the public can already 

access? Would these proposals solve 

some or all of the data limitations 

discussed in the Economic Analysis? 

Why or why not? 

Æ Would Proposed Rule 205 and the 

Proposal to Amend CAT solve the data 

limitations discussed in the Economic 

Analysis? Why or why not? Are there 

significant limitations, beyond those 

discussed above, in the design of the 

data for the public in Proposed Rule 

13f–2 and Proposed Form SHO that 

limits the utility of the data to the 

public? 

Æ Are there significant limitations, 

beyond those discussed above, in the 

design of the data available to regulators 

in Proposed Rule 13f–2 and Proposed 

Form SHO, Proposed Rule 205, and the 

Proposal to Amend CAT? 

• Q37: Market Oversight and Investor 

Protection. The Economic Analysis 

describes how the information from the 

Proposed Rules could be used to, for 

example, strengthen regulatory 

oversight of short selling and facilitate 

market reconstructions. 

Æ Would the Proposed Rule 13f–2 

and Proposed Form SHO help to 

strengthen regulatory oversight and 

facilitate market reconstructions? Please 

explain. What would the role of each of 

the components of Proposed Form SHO 

to these regulatory activities? Are there 

any other regulatory activities facilitated 

by these proposed rules? If so, please 

describe. 

Æ Would Proposed Rule 205 and the 

Proposal to Amend CAT help to 

strengthen regulatory oversight and 

facilitate market reconstructions? Please 

explain. Are there any other regulatory 

activities facilitated by these proposed 

rules? If so, please describe. 

Æ Would the additional regulatory 

oversight of short selling from the 

Proposed Rules help deter manipulative 

short selling behavior? Why or why not? 

What are some other potential benefits 

to investors of the regulatory activities 

facilitated by the Proposed Rules? 

• Q38: Market Quality. The Economic 

Analysis describes both potential 

improvements to market quality and 

potential harms to market quality that 

could result from the published data 

from Proposed Rule 13f–2 and Proposed 

Form SHO. In addition, the Economic 

Analysis describes potential 

improvements to market quality that 

could result from Proposed Rule 205 

and Proposed Amendments to CAT. 

Æ Overall, would the Proposed Rules, 

on net, improve or harm market quality? 

Please explain. Please discuss the 

extent, if any, to which each proposed 

rule contributes to the overall effect on 

market quality. 

Æ Would the information published 

from Proposed Rule 13f–2 and Proposed 

Form SHO be useful to market 

participants and provide information 

that is not already reflected in prices? 

Please explain. For example, would the 

published data help market participants 

better understand existing short interest 

information by lining up the position 

information with a short interest 

settlement date, by identifying the 

aggregate positions held by reporting 

Managers, by identifying the extent to 

which reporting Manager positions are 

fully or partially hedged, or by revealing 

the daily changes in reporting Manager 

short positions? Please explain. As a 

result, would such information improve 

price efficiency and market liquidity? 

Please explain. 

Æ Would the regulatory activities 

facilitated by Proposed Rule 13f–2 and 

Proposed Form SHO, Proposed Rule 

205, and the Proposal to Amend CAT 

improve price efficiency and market 

liquidity? Please explain. 

Æ Would the compliance costs 

associated with Proposed Rule 13f–2 

and Proposed Form SHO lead to a 

reduction in shorting significant enough 

to negatively affect price efficiency and/ 

or market liquidity? Why or why not? 

Æ Would the published data from 

Proposed Rule 13f–2 and Proposed 

Form SHO result in short selling 

Managers being more vulnerable to 

fundamental information leakage, the 

revelation of trading strategies, or short 

squeezes and other forms of retaliation? 

Please explain. Would any of these 

effects be significant enough to 

negatively affect price efficiency and/or 

market liquidity? Why or why not? For 

example, would these effects 

significantly reduce the incentive of 

Managers to engage in fundamental 

research? Please explain and identify 

the particular part of elements of the 

published data that would result in such 

effects. 

Æ Would Managers seek to reduce 

their short positions to avoid exceeding 


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a Reporting Threshold or to report a 

lower short position than the Manager 

typical holds? Please explain. What 

would be the effect of such behavior on 

price efficiency and market liquidity? 

Please explain. 

Æ To what degree does the structure 

of the data, such as the level of 

aggregation, threshold structure and 

delayed publication help to mitigate any 

potential negative effects of Proposed 

Rule 13f–2 and Proposed Form SHO? 

Please explain. 

Æ Despite these mitigating factors, 

could market participants identify the 

particular Managers and their reported 

positions and activity? If so, what are 

the additional risks and costs faced by 

such Managers? Please explain. 

Æ Are option market makers likely to 

exceed the Reporting Thresholds? If so, 

what would be the effect on price 

efficiency and market liquidity of such 

inclusion? Please explain. 

• Q39: XML Requirement. 

Æ Would requiring the proposed short 

sale disclosures to be filed on EDGAR in 

Proposed Form SHO-specific XML 

increase the economic effects of the 

disclosure requirement by making the 

reported data more useful to users? Why 

or why not? 

Æ How would the costs and benefits 

of an Inline XBRL requirement compare 

to the Proposed Form SHO-specific 

XML requirement for the proposed short 

sale disclosures? 

Æ Would requiring short sale 

disclosures be filed in Proposed Form 

SHO-specific XML facilitate more 

efficient review and analysis of the 

reported short sale disclosures by the 

Commission? Why or why not? 

Æ Would the costs of the XML 

requirement vary by the type of Manager 

likely to file Proposed Form SHO? If so, 

please explain which Managers would 

incur higher or lower costs. 

• Q40: Compliance Costs. 

Æ Has the Commission appropriately 

evaluated the compliance costs 

associated with the Proposed Rules? 

Please explain. What are the primary 

cost drivers of the Proposed Rules? 

Æ Would Proposed Rule 13f–2 and 

Proposed Form SHO have lower 

compliance costs than former Rule 

10a3–T? Please explain. 

Æ Would the Proposed to Amend 

CAT to add information on buy to cover 

and bona fide market making require an 

additional field or fields to CAT? If so, 

what would the estimated cost be to add 

said fields? 

Æ Would Proposed Rule 205 and 

Proposal to Amend CAT to include buyto-cover information be less costly than 

the ‘‘open/close’’ indicator that was not 

included the CAT NMS Plan? Please 

explain. 

Æ Would the Reporting Thresholds 

impose a significant burden on 

Managers who do not meet the 

threshold but must track their positions 

to know if they at some point exceed the 

threshold? Please Explain. 

Æ Would the compliance costs 

associated with the Proposals vary by 

the various type of Manager? Would the 

costs of the XML requirement vary by 

the type of Manager likely to file 

Proposed Form SHO? If so, please 

explain which Managers would incur 

higher or lower costs. 

Æ Do Managers other than registered 

investment advisers and option market 

makers hold large short positions such 

that they would exceed the Reporting 

Thresholds in Proposed Rule 13f–2? If 

so, which types of Managers are likely 

to hold such short positions? Would the 

effects of including such Managers in 

Proposed Rule 13f–2 be any different 

than those described herein? Please 

explain. 

• Q41: Other Economic Effects. 

Æ Has the Commission appropriately 

evaluated the potential impact of the 

Proposals on corporate managerial 

decision making? Why or why not? 

Æ Would the Proposals result in less 

securities lending and potentially lower 

returns for investors in mutual funds, 

pension plans, and other securities 

lenders? 

Æ Please discuss whether and how 

the adoption of the Proposals would 

impact securities lending market. 

Æ Are there any economic effects not 

discussed in the Economic Analysis? If 

so, please describe them. 

• Q42: Potential Circumvention. 

Æ Has the Commission accurately 

characterized economic short disclosure 

in equity versus in derivatives markets? 

Why or why not? 

Æ Would market participants 

circumvent reporting requirements by 

trading derivatives? Why or why not? 

Æ How costly would it be to include 

reporting regarding securities other than 

equities, such as options and security 

based swaps, in Proposed Form SHO? 

Æ What additional benefit would 

there be to requiring reporting in 

Proposed Form SHO of short positions 

arising from securities other than 

equities, such as options and security 

based swaps, in Proposed Form SHO? 

• Q43: Efficiency, Competition, and 

Capital Formation. 

Æ Has the Commission appropriately 

evaluated the potential impact of the 

Proposals on efficiency, competition, 

and capital formation? Please explain. 

Æ Would the Proposed Rules have 

any effect on efficiency other than the 

potential effects on price efficiency? 

Æ Would Proposed Rule 13f–2 and 

Proposed Form SHO alter the 

competitive landscape in the market to 

attract investor flows by disadvantaging 

Managers who sell short relative to 

Managers who do not sell short? Please 

explain. 

Æ Would the overall effect on price 

efficiency of the Proposed Rules be 

significant enough to affect capital 

formation? Please explain. Would 

additional information on short selling 

help corporate managers make better 

investment decisions, thereby 

improving capital formation? Please 

explain. Would the Proposed Rules 

reduce capital formation by 

discouraging investment in convertible 

securities by raising the cost to hedge? 

Please explain. Would the Proposed 

Rules promote capital formation 

through enhanced investor confidence? 

Please explain. 

• Q44: Alternatives, Generally. 

Æ Are the Commission’s descriptions 

and analyses of potential alternatives to 

the Proposed Rules accurate? Why or 

why not? Are there any other 

alternatives? If so, please describe the 

alternative(s) including how the benefits 

and costs of the alternative(s) compare 

to the benefits and costs of the Proposed 

Rules. 

• Q45: Alternative Approaches. 

Æ Has the Commission appropriately 

evaluated the alternative whereby short 

selling information would be collected 

using CAT, including bona fide market 

making and buy to cover information, 

then aggregated and published? Why or 

why not? Would this alternative raise 

any security issues associated with 

CAT, either in the collection of such 

new information or in the publication of 

aggregated CAT data? Please explain. 

Æ Has the Commission appropriately 

evaluated the alternative whereby the 

bi-monthly short interest collected by 

FINRA would be codified, FINRA 

would be required to publish a version 

of its short interest information that 

specifically identifies the aggregate 

short interest of Managers, and/or nonFINRA Managers would be required to 

report to FINRA? Why or why not? 

Æ Has the Commission appropriately 

evaluated the alternative whereby 

broker-dealers would file Proposed 

Form SHO reports with the Commission 

on behalf of Managers? Why or why 

not? 

Æ Has the Commission appropriately 

evaluated the alternative whereby 

Proposed Rule 13f–2 and Proposed 

Form SHO would be explicitly crafted 

to be consistent with European 

disclosure requirements, including 

reporting thresholds? Why or why not? 


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381 5 U.S.C. 601 et seq. 

382 17 CFR 240.0–10 (‘‘Rule 0–10’’). 

383 17 CFR 275.0–7(a) (‘‘Rule 0–7(a)’’). 

384 15 U.S.C. 80b–1 et seq. 

• Q46: Data Modification 

Alternatives. 

Æ Has the Commission appropriately 

evaluated the alternative whereby the 

information included in Proposed Form 

SHO would be released in a different 

manner, including releasing Proposed 

Form SHO reports exactly as they are 

filed, identifying the Managers, 

releasing Proposed Form SHO as filed 

but stripped of Manager identities, 

releasing the number of entities whose 

Proposed Form SHO reports were filed, 

aggregating at the issuer level as 

opposed to the security level, releasing 

aggregations of the various categories of 

changes in short positions, and/or 

releasing the daily aggregate increases in 

short positions separately from the daily 

aggregate decreases in short positions? 

Why or why not? 

Æ Has the Commission appropriately 

evaluated the alternative whereby 

Managers who report Proposed Form 

SHO would also be required to disclose 

their derivatives positions on 

underlying equity securities? Why or 

why not? 

Æ Has the Commission appropriately 

evaluated the alternative whereby 

Managers would report net short 

positions instead of gross short 

positions, taking into account any 

hedging that the Manager engages in, 

and/or the delta value of their hedged 

positions? Why or why not? 

Æ Has the Commission appropriately 

evaluated the alternative whereby 

Managers would report data sources on 

Proposed Form SHO? Why or why not? 

• Q47: Threshold Modifications. 

Æ Has the Commission appropriately 

evaluated the alternative whereby the 

Reporting Thresholds would be 

modified compared to Thresholds A and 

B in Proposed Rule 13f–2, including a 

higher or lower or no threshold, a 

threshold based on short position as a 

percent of shares outstanding or dollar 

value of the short positions, including 

the nominal economic value of short 

derivative positions, a threshold based 

on activity, and/or measuring the 

threshold as of the last settlement day 

of the month? Why or why not? 

Æ Would decreasing the threshold to 

include more Managers improve the 

quality of the data provided? Would 

increasing or decreasing the threshold 

increase the risk of copycat trading 

strategies? Would increasing or 

decreasing the threshold to include 

more Managers’ positions in the 

aggregated reports reduce the risk of 

identifying individual investment 

Managers? Please explain. 

Æ Would including the nominal 

economic value of short derivative 

positions as a consideration for the 

threshold increase, decrease or have no 

impact on the risk copycat trading? 

Please explain. Including the nominal 

economic value of short derivative 

positions as a consideration for the 

threshold may require some Managers to 

report short positions that are part of 

hedges of large long positions. Would 

this information be beneficial? Please 

explain. 

Æ Has the Commission appropriately 

evaluated the alternative of including a 

threshold based on short selling 

activity? If not, please describe the costs 

or benefits of this alternative relative to 

the proposal. Would a short selling 

activity threshold provide additional 

beneficial information? Please explain. 

Would a short selling activity threshold 

be more burdensome on Managers? 

Please explain. If the Commission were 

to adopt a threshold based on short 

selling activity, what should the level of 

the threshold be? 

Æ Has the Commission appropriately 

evaluated the alternative of calculating 

the threshold based on positions on the 

last day of the month? If not, please 

describe the costs or benefits of this 

alternative relative to the proposal. 

Would such a threshold provide data 

that is as beneficial as the current 

proposal? Would calculating the 

threshold based on the last day of 

month lead to Managers strategically 

lowering their short positions to avoid 

reporting? Please explain. 

Æ Has the Commission appropriately 

evaluated the alternative of using the 

two prong threshold for short positions 

in an equity security of a non-reporting 

company issuer? If not, please describe 

the cost or benefits of this alternative 

relative to the proposal. Is reliable 

shares outstanding information 

available for non-reporting issuers? 

Please explain. 

• Q48: Other Alternatives. 

Æ Has the Commission appropriately 

evaluated the alternative whereby 

reporting would be required at a 

different frequency, a different reporting 

window, and/or releasing aggregated 

data at a different horizon than in 

Proposed Rule 13f–2? Why or why not? 

Æ Has the Commission appropriately 

evaluated the alternative whereby 

Regulation SHO would be modified, 

including requiring broker-dealers to 

collect information from customers 

concerning whether a given buy trade is 

a buy to cover trade when considering 

positions held at other broker-dealers, 

and/or requiring broker-dealers to 

aggregate all accounts at the same 

broker-dealer when determining buy to 

cover status of an order? Why or why 

not? 

Æ How costly it would be to have 

Mangers who use prime brokers inform 

their introducing brokers when buyingto-cover? 

Æ Has the Commission appropriately 

evaluated the alternative whereby 

Proposed Form SHO information would 

be submitted in Inline XBRL? Why or 

why not? 

IX. Regulatory Flexibility Act 

Certification 

The Regulatory Flexibility Act 

(‘‘RFA’’) 381 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 

regulatory flexibility analysis of all 

proposed rules, or proposed rule 

amendments, to determine the impact of 

such rulemaking on ‘‘small businesses’’ 

unless the Commission certifies that the 

rule, if adopted, would not have a 

significant economic impact on a 

substantial number of ‘‘small entities.’’ 

Certification for Proposed Rule 13f–2 

and New Proposed 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 Rule 0– 

10 382 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 Proposed Rule 13f–2 and 

related Proposed Form SHO, therefore, 

the Commission has determined that the 

definition of the term ‘‘small business’’ 

found in Rule 0–7(a) 383 under the 

Investment Advisers Act of 1940 384 is 

more appropriate to the functions of 

institutional managers such as the 

Managers with reporting obligations 

under Proposed Rule 13f–2. The 

Commission believes that the proposed 

definition would help ensure that all 

persons or entities that might be 

Managers subject to reporting 

requirements under Proposed Rule 13f– 

2 will be included within a category 

addressed by the Rule 0–7(a) definition. 

Therefore, for purposes of this 

rulemaking 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 


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385Rule 0–7(a), supra note 384. See generally 

Reporting Threshold for Institutional Investment 

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).’’). 

386See Molk and Partnoy, supra note 187 

(describing impediments that have kept different 

types of institutional investment managers from 

engaging in short selling). 

387 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.’’). 

388A small entity, with less than $25M in assets 

under management, would not be 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 

U.S. equities. See also Stock Market Size Categories 

(2021), available at https://stockmarketmba.com/ 

sizecategories.php (calculating approximately three 

percent (3%) of the U.S. stock market consists of 

common stocks of companies with less than $2B in 

market capitalization (i.e., small-cap and micro-cap 

stocks) and noting that micro-cap companies are 

generally too small for even most large institutional 

investment managers to invest in). 

389An analysis by Commission of the daily 

dataset of the Center for Research in Security Prices 

(‘‘CRSP’’) showed that for the month of October 

2021, on average, the number of companies with 

less than $1B in market capitalization (2,293) 

constituted 1.51% of the overall market 

capitalization. 

390See Molk and Partnoy, supra note 187, at 846. 

391See 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/. 

392See 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). 

393See supra Part VII.C.2. While recognizing that 

not all broker-dealers will necessarily enter 

purchase orders in securities in a manner that will 

subject them to the marking requirements of 

Proposed Rule 205, the Commission estimates, for 

purposes of the PRA, that all of the 3,551 brokerdealers registered with the Commission as of 

December 31, 2020, will do so. 

394Exchange Act Rule 0–10(c). 

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.385 The 

Commission requests comments on the 

use of this definition from Rule 0–7(a) 

under the Investment Advisers Act of 

1940. 

Under Proposed Rule 13f–2, Managers 

are not required to report on Proposed 

Form SHO unless they meet or exceed 

a specified Reporting Threshold. 

Managers with short interest positions 

in equity securities of a reporting 

company issuer would be subject to a 

two-pronged short reporting threshold 

structure—a short position in an equity 

security with a U.S. dollar value of 

$10M or more, or a monthly average 

short position as a percentage of shares 

outstanding of the equity security of at 

least 2.5% (Threshold A). Managers 

with short interest positions in equity 

securities of a non-reporting company 

issuer would be subject to a singlepronged short reporting threshold 

structure—a short position in an 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 Proposed 

Rule 13f–2 relate to the number and 

dollar value of shares of short positions, 

rather than assets under management, 

the Commission nevertheless believes 

that application of the Reporting 

Thresholds would result in Proposed 

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, the $10M trigger would 

represent forty (40) 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% of their 

respective assets under management in 

a short position in a single security. 

Further, many types of institutional 

investment 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 would deter small entities 

(with less than $25M of assets under 

management) from investing over $10M 

(greater than 40%) of their assets in a 

single short position, and therefore 

prevent them from triggering the first 

prong of Threshold A.386

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 derivative and similar transactions 

that create economically 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 Proposed Rule 13f– 

2 has been met.387 Further, the 

Commission estimates, based on an 

analysis of U.S. common stocks,388 that 

Managers that qualify as small entities 

under Rule 0–7(a) would not meet the 

2.5% reporting threshold for securities 

representing over ninety-eight percent 

(98%) of the overall market value.389

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,390 less than twenty-five 

(25) percent have less than $50M in 

assets under management.391 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.392

For these reasons, the Commission 

certifies 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 

requests written comments regarding 

this certification. The Commission 

requests that commenters describe the 

nature of any impact on small 

businesses and provide empirical data 

to support the extent of the impact. 

Certification for Proposed Rule 205. 

As discussed in the PRA section above, 

the Commission believes that all brokerdealers whose accounts or whose 

customers’ accounts could hold a gross 

short position are potentially in scope 

for the requirements of Proposed Rule 

205.393 A broker-dealer 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 § 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.394

Based on a review of data relating to 

the broker-dealers potentially in scope 

for Proposed Rule 205, the Commission 

does not believe that any of those 

broker-dealers would qualify as small 

entities under the above definition 

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. It is possible that 

in the future a small entity may come 

within the scope of Proposed Rule 205. 

Based on experience with broker-dealers 

that engage in short selling, however, 

the Commission believes that this 

scenario will be unlikely because firms 

that enter that market are likely to 

exceed $500,000 in total capital or be 


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395See 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). 

396See 13 CFR 121.201. 

397See supra note 395, and accompanying text. 

affiliated with a person that is not a 

small entity. 

For the foregoing reasons, the 

Commission certifies that Proposed Rule 

205 would not have a significant 

economic impact on a substantial 

number of small entities for purposes of 

the RFA. The Commission encourages 

written comments regarding this 

certification, and requests that 

commenters describe the nature of any 

impact on small entities and provide 

empirical data to illustrate the extent of 

the impact. 

Certification for the Proposal to 

Amend CAT. The proposed 

amendments to the CAT NMS Plan 

would 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), brokerdealers which are in scope for the 

requirements of Proposed Rule 205 and 

have the obligation to report order 

receipt and origination reports to the 

CAT, 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 to the 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.395 None of the national 

securities exchanges registered under 

Section 6 of the Exchange Act that 

would be subject to the proposed 

amendments are ‘‘small entities’’ for 

purposes of the RFA. In addition, 

FINRA is not a ‘‘small entity.’’ 396 With 

respect to broker-dealers which are in 

scope for the requirements of Proposed 

Rule 205 and have CAT reporting 

obligations, as discussed above, the 

Commission does not believe that any of 

those broker-dealers would qualify as 

small entities pursuant to Exchange Act 

Rule 0–10(c).397 Similarly, based on 

Commission knowledge and experience 

with broker-dealers that identify as 

market makers, the Commission does 

not believe that any broker-dealer that 

effects short sales utilizing the bona-fide 

market making exception pursuant to 

Rule 203(b)(2)(iii) of Regulation SHO 

and reports to the CAT would 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. The 

Commission believes that it is possible, 

but unlikely, that in the future a small 

entity may come within scope of the 

Proposal to Amend CAT, because firms 

that enter either market 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 Proposal 

to Amend CAT would not have a 

significant economic impact on a 

substantial number of small entities for 

purposes of the RFA. The Commission 

encourages written comments regarding 

this certification, and requests that 

commenters describe the nature of any 

impact on small entities and provide 

empirical data to illustrate the extent of 

the impact. 

X. Consideration of Impact on the 

Economy 

For purposes of the Small Business 

Regulatory Enforcement Fairness Act of 

1996, the Commission is also requesting 

information regarding the potential 

impact of Proposed Rule 13f–2, 

Proposed Rule 205, and the Proposal to 

Amend CAT on the economy on an 

annual basis. In particular, comments 

should address whether the proposals, if 

adopted, would have a $100,000,000 

annual effect on the economy, cause a 

major increase in costs or prices, or have 

a significant adverse effect on 

competition, investment, or 

innovations. Commenters are requested 

to provide empirical data and other 

factual support for their views to the 

extent possible. 

Statutory Authority and Text of 

Proposed Rules 13f–2 and 205, and 

Form SHO 

List of Subjects 

17 CFR Parts 240 and 249 

Reporting and recordkeeping 

requirements, Securities. 

17 CFR Part 242 

Brokers, Reporting and recordkeeping 

requirements, securities. 

Text of Proposed Rule Amendments 

In accordance with the foregoing, the 

Commission is proposing to amend 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 general authority citation for 

part 240 continues to read as follows, 

and the sectional authority for 

§ 240.13f–2(T) is removed. 

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, 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, and 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; 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 

(cite to be added), 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 of an issuer 

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 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 collectively have either: 

(i) 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 

(ii) A monthly average gross short 

position as a percentage of shares 

outstanding in the equity security of 

2.5% or more; and 

(2) Each equity security of an issuer 

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 

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 collectively have 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 


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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 Regulation S–T. 

Certain information regarding each 

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. 

(b) For the purposes of this rule: 

(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 Rule 3a11–1 

thereunder. 

(3) The term ‘‘investment discretion’’ 

has the same meaning as in Rule 13f– 

1(b) under the Exchange Act. 

(4) The term ‘‘gross short position’’ 

means the number of shares of the 

equity security that are held short, 

without inclusion of any offsetting 

economic positions, including shares of 

the equity security or derivatives of 

such equity security. 

(5) The term ‘‘regular trading hours’’ 

has the same meaning as in Rule 

600(b)(77) under the Exchange Act. 

PART 242—REGULATIONS M, SHO, 

ATS, AC, NMS AND SBSR AND 

CUSTOMER MARGIN REQUIREMENTS 

FOR SECURITY FUTURES 

■ 3. The authority citation for part 242 

continues to read in part as follows: 

Authority: 15 U.S.C. 77g, 77q(a), 77s(a), 

78b, 78c, 78g(c)(2), 78i(a), 78j, 78k–1(c), 78l, 

78m, 78n, 78o(b), 78o(c), 78o(g), 78q(a), 

78q(b), 78q(h), 78w(a), 78dd–1, 78mm, 80a– 

23, 80a–29, and 80a–37. 

■ 4. Add § 242.205 to read as follows: 

§ 242.205 Purchase Order Marking for Data 

Collection Purposes. 

(a) A broker-dealer must mark an 

order to purchase an equity security for 

an account as ‘‘buy to cover’’ if the 

person purchasing the equity security 

has any gross short position in the 

equity security in the same account. The 

‘‘buy to cover’’ mark applies to 

purchases made by the broker-dealer for 

its own account, or to purchases made 

by the broker-dealer on behalf of 

another person through the person’s 

account held at that broker-dealer. 

(b) Reserved 

PART 249—FORMS, SECURITIES 

EXCHANGE ACT OF 1934 

■ 5. 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. 

■ 6. Add § 249.333 to read as follows: 

§ 249.333 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 Rule 13f–2 thereunder 

(§ 240.13f–2 of this chapter)). 

Note: The text of Form SHO will not 

appear in the Code of Federal Regulations. 

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 of an issuer 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 over 

which the Manager and all accounts 

over which the Manager (or any person 

under the Manager’s control) has 

investment discretion collectively have 

either (A) 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 (B) 

a monthly average gross short position 

as a percentage of shares outstanding in 

the equity security of 2.5% or more; and 

(2) each equity security of an issuer 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 collectively have 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 that would reveal the 

identity of a Manager filing a Form SHO 

report with the Commission, or the 

identity of any Other Manager listed on 

the Cover Page of a Form SHO report, 

is deemed subject to a confidential 

treatment request under 17 CFR 

240.24b–2. 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. Support for 

questions regarding non-technical issues 

related to Form SHO reporting is 

available through the Office of 

Interpretation and Guidance of the 


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Division of Trading and Markets (‘‘TM 

OIG’’) at TradingAndMarkets@sec.gov. 

Instructions for Calculating Reporting 

Threshold 

A Manager shall file a report on Form 

SHO: 

• With regard to each equity security 

of an issuer 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 which the Manager meets or 

exceeds under 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, collectively 

have 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) the 

Manager, and all accounts over which 

the Manager, or any person under the 

Manager’s control, has investment 

discretion, collectively have a monthly 

average gross short position as a 

percentage of shares outstanding in the 

equity security of 2.5% or more 

(‘‘Threshold A’’). 

• With regard to any equity security 

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’’). 

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 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 

settlement date. 

To determine whether the dollar 

value threshold described in Threshold 

B above is met, a Manager shall 

determine its end of day gross short 

position in the equity security 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) 

identify its gross short position (as 

defined in Rule 13f–2) 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, and (b) add up the daily 

percentages during the calendar month 

as determined in (a) and divide that 

total by the number of settlement dates 

during the calendar month of the 

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., 2022). 

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 

12 calendar months) is/are affected by 

the Amendment and Restatement. 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. 

b. If the 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. 

c. If a revision reported in an 

Amendment and Restatement changes a 

data point reported in the Form SHO 

being amended by twenty-five percent 

(25%) or more, the Manager must notify 

the Commission staff via TM OIG at 

TradingAndMarkets@sec.gov within two 

(2) business days after filing the 

Amendment and Restatement. 

4. 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 active Legal 

Entity Identifier (‘‘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 active 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 Active 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 active 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. 


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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 and report 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 

Information: 

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 active 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 US 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. 

i. Column 9. Extent of Hedge for Short 

Position Identified in Column 7. Enter 

in Column 9 whether the identified 

position is fully hedged (‘‘F’’), partially 

hedged (‘‘P’’), or not hedged (‘‘0’’). A 

Manager shall 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. A Manager shall 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. 

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 active 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. Number of Shares Sold 

Short. For the settlement date set forth 

in Column 1, enter the number of shares 

of the security for which information is 

being reported that resulted from short 

sales and settled on that date. 

h. Column 8. Number of Shares 

Purchased to Cover an Existing Short 

Position. For the settlement date set 

forth in Column 1, 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 and settled on 

that date. 

i. Column 9. Number of Shares 

Purchased in Exercised Call Option 

Contracts. For the settlement date set 

forth in Column 1, 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. 

j. Column 10. Number of Shares Sold 

in Exercised Put Option Contracts. For 

the settlement date set forth in Column 

1, enter the number of shares of the 

security for which information is being 

reported that are sold in a put option 

exercise that creates or increases a short 

position on that security and settled on 

that date. 

k. Column 11. Number of Shares Sold 

in Assigned Call Option Contracts. For 

the settlement date set forth in Column 

1, enter the number of shares of the 

security for which information is being 

reported that are sold in a call option 

assignment that creates or increases a 

short position on that security and 

settled on that date. 


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l. Column 12. Number of Shares 

Purchased in Assigned Put Option 

Contracts. For the settlement date set 

forth in Column 1, enter the number of 

shares of the security for which 

information is being reported that are 

acquired in a put option assignment that 

reduces or closes a short position on 

that security and settled on that date. 

m. Column 13. Number of Shares 

Resulting from Tendered Conversions. 

For the settlement date set forth in 

Column 1, enter the number of shares of 

the security for which information is 

being reported that are acquired as a 

result of the tendered conversions that 

reduces or closes a short position on 

that security and settled on that date. 

n. Column 14. Number of Shares 

Obtained through Secondary Offering 

Transactions. For the settlement date set 

forth in Column 1, 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. 

o. Column 15. Other Activity that 

Creates or Increases a Manager’s Short 

Position. For the settlement date set 

forth in Column 1, enter the number of 

shares of the security for which 

information is being reported 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. 

Other activity to be reported includes, 

but is not limited to, shares resulting 

from ETF creation or redemption 

activity. 

p. Column 16. Other Activity that 

Reduces or Closes a Manager’s Short 

Position. For the settlement date set 

forth in Column 1, enter the number of 

shares of the security for which 

information is being reported that 

resulted from other activity not 

previously reported on this form 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. 

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. 

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: lllllllllllllll

Mailing Address: llllllllll

Business Telephone and Facsimile 

Number: llllllllllllll

Active Legal Entity Identifier (‘‘LEI’’): l

Contact Employee: 

Name and Title: lllllllllll

Telephone Number: lllllllll

Facsimile Number: lllllllll

Date Filed: lllllllllllll

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 Active LEI of each of the 

Other Manager(s) Reporting for this 

Manager: [If there are no entries in this 

list, omit this section.] 

Name: lllllllllllllll

Active LEI: lllllllllllll

[Repeat as necessary.] 

INFORMATION TABLE 1—MANAGER’S GROSS SHORT POSITION INFORMATION

Column 1 Column 2 Column 3 Column 4 Column 5 Column 6 Column 7 Column 8 Column 9 

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).

Extent of Hedge 

for Position 

Identified in 

Column 7. 

(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 Column 8 Column 9 Column 10 

Settlement 

Date.

Issuer Name Issuer LEI ... Title of 

Class.

CUSIP 

Number.

FIGI ............ Number of 

Shares 

Sold Short.

Number of 

Shares Purchased to 

Cover an Existing Short Position.

Number of 

Shares Purchased in Exercised Call Option Contracts.

Number of 

Shares Sold in 

Exercised Put 

Option Contracts. 


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15020 Federal Register / Vol. 87, No. 51 / Wednesday, March 16, 2022 / Proposed Rules 

Column 11 Column 12 Column 13 Column 14 Column 15 Column 16 

Number of Shares Sold in 

Assigned Call Option 

Contracts.

Number of Shares Purchased in Assigned 

Put Option Contracts.

Number of Shares Resulting from Tendered 

Conversions.

Number of Shares Obtained Through Secondary Offering Transactions.Other Activity that Creates or Increases Manager’s Short Position.Other Activity that Reduces or Closes Manager’s Short Position. 

(Repeat as Necessary). 

Dated: February 25, 2022. By the Commission. 

Eduardo A. Aleman, 

Deputy Secretary. 

[FR Doc. 2022–04670 Filed 3–15–22; 8:45 am] 

BILLING CODE 8011–01–P 


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