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Rule 13f-2 Explained: What Asset Managers Need to Know

The recent adoption of Rule 13f-2 by the Securities and Exchange Commission brings new transparency to short selling practices. Our latest blog delves into the critical aspects of this new rule, underscoring the need for an effective compliance strategy.

 

Rule 13f-2 – the long and “short” of it

The recent adoption of Rule 13f-2 by the Securities and Exchange Commission (SEC) on October 13th, 2023, marks a significant step towards enhancing transparency in financial markets, particularly in the area of short selling. This rule mandates institutional investment managers meeting specific thresholds (detailed below) to report short position and activity data for equity securities on Form SHO. The SEC will then aggregate and publicly disseminate this data, supplementing existing short-sale data, in line with the Dodd-Frank Act of 2010’s directive to enhance the public availability of short-sale data​​​​.The new Rule 13f-2 and Form SHO will start 60 days after their official announcement. Firms need to follow these rules in 12 months, with public reporting based on these rules beginning 3 months later. Additionally, firms will have to report specific details when they engage in certain types of stock selling as part of their regular trading activities, starting in 18 months.

 

Disclosure Requirements and Thresholds

Managers must file a Form SHO if their gross short positions in equity securities of a reporting entity exceed $10 million or 2.5% of the shares outstanding. For nonreporting entities, the threshold is a gross short position value exceeding $500,000. These thresholds mandate managers to assess their filing requirements monthly based on their short positions​​.

 

Details of Form SHO Reporting

Managers required to report under Rule 13f-2 using Form SHO must complete a cover page and two informational tables. The cover page contains basic biographical information about the manager, including name, address, contact information, an employee contact for the filing and a non-lapsed Legal Entity Identifier (“LEI”), if they have one. Table 1 requires information such as the issuer’s identity, the type of security shorted, the number of shares representing the manager’s gross short position, and the corresponding dollar value. Table 2 requires information on daily activity affecting these positions, including net changes in short positions due to various activities like short sales, option trades, and purchase or sale of shares. Managers must correct any errors in Form SHO reports within 10 days of discovery​​.

Check out the SEC’s Rule 13f-2 Fact Sheet to find out more.

 

Confidentiality and Public Disclosure

While the information on Form SHO is subject to confidential treatment, the SEC will aggregate and publish this data for each equity security. This aggregated data encompasses the gross position, its dollar value, and net activity for each settlement date within a month. The intention is to reduce the risks of copycat trading and protect the proprietary strategies of managers while maintaining public transparency.

 

Ensuring Compliance Excellence in the Era of Rule 13f-2

With the recent enactment of Rule 13f-2 ushering in a new era of financial market transparency, precise compliance with Form SHO is now paramount for institutional investment managers. Just like with Form 13F, errors in adherence to SEC Rule 13f-2 can lead to regulatory penalties, legal entanglements, and reputational damage. At AQMetrics, we stand not only as a provider of award-winning technology but also as your compliance partner, offering innovative solutions to streamline the filing process. Leveraging our expertise in regulatory and compliance filings, combined with our outstanding technology, AQMetrics empowers firms to navigate the intricacies of Rule 13f-2 confidently. Discover tailored approaches to regulatory compliance with AQMetrics, maintaining the highest standards of accuracy and transparency in the ever-evolving financial landscape.

 

Take control of your 13f-2 reporting.

Ready to streamline your regulatory compliance process and navigate Rule 13f-2 with confidence? Explore AQMetrics’ innovative solutions and discover how our technology can empower your firm.

 

 

Contact us to today find out how AQMetrics can support you in your journey.

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