Rule 13f-2 and Form SHO Reporting Obligations for 2025

Introduction of Rule 13f-2 and Form SHO

Rule 13f-2 will require institutional investment managers to report gross short positions on a monthly basis, aligning with the broader SEC efforts to increase transparency in the markets. This applies to both U.S. and certain foreign securities transactions, expanding the scope for global managers who participate in U.S. markets.

Mandatory Reporting Thresholds

The reporting thresholds will be triggered based on two different criteria, depending on the type of issuer:

• Reporting Company Issuers: A gross short position of $10 million or more, or a short position exceeding 2.5% of the issuer’s outstanding shares.
• Non-Reporting Company Issuers: A gross short position of $500,000 or more as of the close of any settlement day.
• Managers need to closely monitor positions that meet these thresholds to ensure compliance.

Focus on Data Accuracy

Ensuring the accuracy of data related to outstanding shares, issuer classifications, and daily settled short positions is critical. The settlement date-based tracking is essential for aligning with the SEC’s daily monitoring requirements, as outlined under Rule 13f-2.

Key Data Points for Compliance with Rule 13f-2

To maintain compliance, critical data points include:

• Settlement Date Data: Tracking positions based on settlement date is one of the core requirements of the new rule. For some managers, this will be a challenge considering many OMS and shadow accounting platforms have gravitated towards Trade Date reporting over the last several years.
• Transaction Activity Data:  While end-of-day positions provide a snapshot, managers are also required to capture intra-day transactions to distinguish between days with no activity and those where transactions were netted to zero. This information must be included in Table 2 of Form SHO.
• Monthly Average Gross Short Position:  Managers must calculate and monitor monthly averages to determine if their gross short positions breach thresholds. This calculation includes dividing the cumulative daily short positions by the number of settlement days in the month.
• Outstanding Shares: Accurate and up-to-date shares outstanding data for each security are required to calculate short position percentages.
• Issuer Classification: Data points such as CUSIP, Exchange Code, and Investment Currency and Country help determine the classification for Form SHO reporting.

Automated Reporting Solutions

Given the nature of the data points required to monitor and report under Rule 13f-2, automation is the most practical solution for managers. Using technology platforms to streamline the reporting process allows for efficient tracking of short positions across multiple accounts, integration of security reference data, and the generation of XML-ready reports for submission to EDGAR with minimal effort.

Form SHO Implications for Global Investment Managers

Investment managers outside the U.S. must pay close attention if their short sales transactions involve U.S. brokers or U.S.-listed securities. Even if trades are made on foreign exchanges, the routing of orders through U.S. markets may trigger a reporting requirement under Form SHO.

Compliance Workflows and Exception Handling

Implementing structured workflows for compliance management, including exception handling and automated error detection, will help streamline the reporting process and reduce the likelihood of reporting inaccuracies.

Ongoing Monitoring and Adjustments

As this rule is currently under legal scrutiny, managers must stay informed about any changes and be prepared to adapt their processes promptly to maintain compliance. Implementing adaptable systems will enable firms to adjust quickly to regulatory updates.

How Can Investment Managers Prepare for Rule 13f-2 and Form SHO?

To effectively meet the requirements of Rule 13f-2 and Form SHO, investment managers must leverage robust technology solutions that automate the collection, tracking, and reporting of critical data. By integrating automated systems for real-time monitoring, data aggregation, and XML-ready report generation, managers can ensure accurate and timely compliance while minimizing risk. As the January 2025 deadline approaches, implementing these technology-driven solutions will help streamline workflows, reduce errors, and ensure your firm remains fully compliant with SEC regulations.