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SEC Proposes New Rules for Short Sale Disclosures and Order Marking Requirements

SEC Proposes New Rules for Short Sale Disclosures and Order Marking Requirements

On February 25, 2022 the SEC proposed new Rule 13f-2 to provide greater transparency through the publication of certain short sale data to investors and other market participants. It also proposed Rule 205, which 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. 

Specifically, new Rule 13f-2 will require institutional investment managers with discretion over accounts to report information on a monthly basis for their gross short positions in individual securities if they meet or exceed the following thresholds:

  • gross short position value of $10 million or more in any individual security (for issuers registered with the SEC or required to file reports with the SEC) for any settlement date within the month;
  • a monthly average gross short position that equals or exceeds 2.5% of the outstanding shares of the issuer; or
  • gross short position value of $500,000 or more in any individual security for an issuer not registered with the SEC or required to file reports with the SEC

Once the above criteria are met, proposed Rule 13(f)(2) will require the institutional investment manager to file new Form SHO within 14 days after the end of the month via EDGAR and include the following:

  • name of security;
  • gross short position; and
  • daily trade activity affecting the short position for each settlement date during the period, including all buys, sales, shorts, option activity, tenders, conversions, etc.

Proposed SEC Rule 205 will require broker-dealers to mark purchase orders as “buy to cover” for any account where the account has a gross short position in the same security at the time the order is placed. This is regardless of the size of the purchase order in relation to the short position and regardless of the short position being fully hedged at the time of the order.

The SEC proposals were opened for comment on February 25, 2022and the comment period is open until 30 days from when it is published in the Federal Register or April 26, 2022, whichever is later. At that point, they will either extend the comment period, file an amendment, finalize and approve the rules or shelve them for the time being. 

ViP: Validus maintains several procedures for monitoring order activity in accordance with SEC Regulation SHO. In particular, an existing procedure identifies when sale orders have not been properly marked long, short, or exempt as required by SEC Rule 200. Pending final approval of proposed Rule 205, the Validus order marking procedure will be updated to reflect the additional order marking requirement related to purchase orders by accounts with gross short positions at the time order entry.  


About Eventus Systems

Eventus Systems is a leading global provider of multi-asset class trade surveillance and market risk solutions. Its powerful, award-winning Validus platform is easy to deploy, customize and operate across equities, options, futures, foreign exchange (FX), fixed income and digital asset markets. Validus is proven in the most complex, high-volume and real-time environments of tier-1 banks, broker-dealers, futures commission merchants (FCMs), proprietary trading groups, market centers, buy-side institutions, energy and commodity trading firms, and regulators. The company’s rapidly growing client base relies on Validus and Eventus’ responsive support and product development teams to overcome its most pressing regulatory challenges. For more, visit www.eventus.com.