Last fall, the SEC adopted Rule 13f-2 to promote transparency in the equity markets. Set to take effect on January 2, 2025, the rule will require investment managers to monitor their gross equity security short exposure on a monthly basis and report detailed data on any short positions that trigger an applicable reporting threshold on a security-specific basis within 14 days after the end of each month. Thus, firms that were previously dedicating few resources to short position monitoring and reporting must now assess whether their current reporting infrastructure can sufficiently support the new timing and data requirements.
n-Tier’s Head of Regulatory Reporting Product Strategy David Emero and Schulte Roth & Zabel’s Derek Lacarrubba discussed how the new regulation will impact all firms that fall under the definition of an “institutional investment manager” – that is, any firm that invests in, buys or sells securities for its own account or any entity or person that exercises investment discretion over the account of another entity or person.
In terms of what data should be included when monitoring and reporting on Form SHO, any short position in a security defined under the Exchange Act as an equity security resulting from transactions subject to the requirements of Regulation SHO must be accounted for. Emero explained that the thresholds for the regulation are based on short positions on an individual security basis – meaning all investment managers, regardless of AUM, will be required to report if they reach the applicable threshold in a single security during a month.
The panelists explained how the ultimate purpose of Rule 13f-2 is so the SEC can collect the necessary data to aggregate and publish short positions on a monthly basis. Individual Form SHO reports will be anonymized, but the underlying data will ultimately be publicly disseminated within approximately 28 days following the end of each month. The sweeping nature of the regulation means there will be very limited jurisdictional relief for foreign managers that trade in the U.S., Lacarrubba stated.
The conversation then shifted to how affected firms should prepare for the new rule. n-Tier Founder and CEO Peter Gargone stated that the disparate data sources required for compliant reporting will create significant technical challenges for many firms. To solve them, companies will need to have a robust yet flexible technology infrastructure in place, operating under the assumption that multiple updates or clarifications will be made to 13f-2 over time.
Emero cautioned that regulators have become more sophisticated in their ability to triangulate data across different regulatory reporting regimes – thus raising the stakes for having the right technology and reporting tools in place. The monetary and reputational consequences for noncompliance could be significant. He also stressed the importance of maintaining an audit trail to provide proof of compliance if and whenever needed. Vendor products are particularly well-equipped to handle reporting at this level of sophistication.
Lastly, Peter highlighted how n-Tier’s platform can help streamline Rule 13f-2 compliance processes, reducing the risk of errors and providing a clear path to efficient reporting and ongoing compliance. With technology customized for the specific nuances of short position reporting, n-Tier’s flexible tech stack can adapt to firm-specific interpretations and get organizations up and running swiftly under strict timelines.
To access the full webinar on Rule 13f-2 reporting, fill out this form.
To access the full webinar on Rule 13f-2 reporting, fill out this form.
