ICI Criticizes SEC Short Position Reporting Proposal

In a comment letter on an SEC proposal to require institutional investment managers to report short position and short activity, the Investment Company Institute ("ICI") urged the SEC to expand existing reporting obligations, rather than implement a new reporting regime.

Proposed SEA Rule 13f-2 ("Reporting on gross short position and activity information") would implement Section 13(f)(2) ("Periodical and other reports") of the Exchange Act, which requires the SEC to adopt rules requiring the public disclosure of certain short positions by institutional investment managers on a monthly basis (see previous coverage).

ICI emphasized the importance of balancing "increased transparency with the additional burdens on market participants and harms of information leakage." Given the likely compliance burdens and costs of the proposed rule, ICI encouraged the SEC to achieve its goal of increasing short sale transparency by expanding existing reporting obligations (e.g., the consolidated audit trail and FINRA member reporting) rather than implementing a new reporting regime.

In the event the SEC proceeds with the proposed framework under Rule 13f-2, ICI recommended the following changes:

• adopting a single reporting threshold based on a percentage of shares outstanding rather than a dollar value;

• setting the reporting threshold to be an average short position of five percent or more of an issuer's shares outstanding;

• allowing a manager to determine whether it has hit the reporting threshold based on its position on the last settlement date of the month, rather than on each settlement date in the month;

• requiring the reporting of position changes on a weekly or biweekly basis rather than on any settlement date; and

• extending the time to file Form SHO from 14 days to 30 days after the end of a month.