Hidden in Reform Bill: Potential Short-Sale Reporting Requirements
July 23, 2010
Does the new U.S. financial reform law give the Securities and Exchange Commission leeway to resurrect stringent reporting of short sale activities for fund managers and broker-dealers?
That isn’t quite clear. What is clear is that “investment advisers and broker-dealers may soon need to report additional information on their short-selling practices,” says Edward Johnsen, a partner with the law firm of Winston & Strawn in New York.
Buried in a tersely worded paragraph in the lengthy new reform bill is an amendment to Section 13(f) of the Securities and Exchange Act of 1934 which requires the SEC to come up with rules for the “public disclosure of the name of the issuer and the title, class, CUSIP number and 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.” That reporting period must be, at minimum, once per month. It is not known how the SEC will gather the information, whether and how it will make the information public and whether the published information will include the name of the short-seller.
Depending on how the SEC decides to implement the new requirement, investment advisers would end up with a lot more recordkeeping work, Johnsen believes. Among the tasks: aggregating and reconciling data on trading activities and the description of the securities traded from portfolio management, order management, securities lending and securities master files.
“Investment advisers already hate to make 13f filings so I don’t think they will be pleased with the additional information they have to report,” says Todd Cipperman, president of Cipperman &Co in Pennsylvania, a law firm specializing in investment funds.
In the case of short sales, the SEC has not specified which securities would be subject to reporting but Cipperman believes it could be similar to the current list for long-only positions subject to quarterly reporting on Form 13F to the SEC.
Section 13(f) was added to the Securities and Exchange Act of 1934 in 1975 requires that institutional investment managers and broker dealers who have discretionary authority over more than $100 million in listed securities, report to the SEC on a quarterly basis their holdings in shares which appear on a list that the SEC publishes on its website at the end of each quarter.
Once the institutional investment manager becomes subject to the reporting requirement, it must report all of its holdings in these “13(f) securities,” unless a holding is less than 10,000 shares of a given issuer with an aggregate fair market value of under $200,000.
What remains to be seen is whether the “additional information” determined by the SEC will include any of the information that was previously required on a separate form, Form SH. Exactly one year ago, on July 27, 2009, the SEC declined to extend or renew interim Exchange Act Rule 10a-3T, which required institutional investment managers to report short sales and short positions on Form SH.
