In October 2023, the SEC proposed SEC Rule 13f-2, designed to provide greater transparency to investors and market participants by increasing the public availability of short sale related data.
Effective on January 2, 2024, requires institutional investment managers that meet or exceed certain thresholds to begin reporting certain short position data for equity securities on a monthly basis in January 2025. The US Securities and Exchange Commission (SEC) believes that these requirements may potentially impact a wide variety of market players such as banks, hedge funds, insurance companies, broker/dealers, corporations and pension funds.
Compliance challenges
The leading challenge firms face when looking to comply with Rule 13f-2 is identifying equity securities of reporting or non-reporting company issuers. Unlike Rule 13f-1, for which the SEC publishes a list of “Section 13(f) securities”, for Rule 13f-2, the SEC mentioned that “it is not necessary to compile and periodically provide a list of securities covered by Rule 13f-2,” and consequently the SEC will not provide a list comparable to that published for Rule 13f-1.
Another compliance challenge flows from the fact that the universe of in scope securities under 13f-2 is much broader than under 13f-1, as the former includes not only US-listed equities but also OTC equities as well as foreign equities.
Firms will also need to identify whether an equity security falls under Threshold A or B. To determine this, they need to obtain the correct source data disseminated in various reports filed with the SEC or FDIC. Given the number of reports firms need to look through to find very specific data points, this can be an incredibly time-consuming and complex process because. If the wrong source document is used, it can throw off a firm’s ability to comply effectively.
As the first compliance date is January 2, 2025, there is relatively little time left for firms to prepare. Following a series of close consultations with market participants and industry representatives, Bloomberg has created a new enterprise data solution, available via Data License, that helps identify SEC 13f-2 equity securities of reporting or non-reporting company issuers.