SEC Delays Compliance for Short Sale and Securities Lending Rules
Commentary by Steven Lofchie
The SEC issued an Order granting temporary exemptive relief that extends the compliance dates for two SEC rules addressing short sale reporting and securities loan reporting.
The SEC extended the compliance date under Rule 13f-2 ("Reporting by institutional investment managers regarding gross short position and activity information") for institutional investment managers to file Form SHO to January 2, 2028. The SEC clarified that Form SHO reports for the January 2028 reporting period must be filed within 14 calendar days after the end of that month. The SEC likewise extended the deadline under SEA Rule 10c-1a ("Securities lending transparency") for covered persons to report securities loan information to a Registered National Securities Association ("RNSA") to September 28, 2028, and postponed the RNSA’s obligation to publicly disseminate that information until March 29, 2029.
The relief follows a recent Fifth Circuit decision remanding the rules to the SEC for further consideration. The appellate court concluded that the Commission had not adequately evaluated the cumulative economic impact of the rules, while otherwise rejecting arguments that the rules were arbitrary or exceeded the agency’s statutory authority. (See related coverage.)
The SEC explained that the temporary exemptions are necessary to allow sufficient time to respond to the Court’s opinion, which may include proposing amendments to the rules. The Commission also noted that extending the compliance dates will help minimize potential costs that entities might incur to comply with provisions that could change during the remand process.
In a statement, Commissioner Caroline Crenshaw warned that the two-year delay effectively signals a plan to alter the rules rather than simply address the court’s narrow directive on economic analysis. She argued that the requisite analysis could be completed expeditiously, noting that the Fifth Circuit explicitly declined to vacate the rules and that valid regulations should not be suspended for such a prolonged period. Commissioner Crenshaw added that the extension attempts to "camouflage" a willingness to erode the rule of law, asserting that any substantive modifications should be handled separately through proper notice-and-comment rulemaking.
Commentary
Commissioner Crenshaw is correct to point out the limited grounds on which the Fifth Circuit remanded the rules. But saying that the grounds were limited is not the same as saying that the grounds were trivial. What the Court found is that the SEC had not cost-justified the rules. Commissioner Crenshaw seems to suggest that finding such cost-justification is a box-checking exercise that can be quickly accomplished.
That is not, or at least should not be, the case. Cost-justification requires a demonstration that the rule, as drafted, is worthwhile, and could not be reasonably accomplished in a better way. As to these specific rules, a strong case can be made that they cannot be cost-justified. If the SEC is to take up the subject matter of these rules again, and it is not obvious by any means that they should be a priority, the SEC would be better off starting from scratch rather than trying to save deeply flawed rulemakings.