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Statement on Rules to Increase Transparency of Short Sale Activity

Feb. 25, 2022

Today, the Commission unanimously voted to propose rules and amendments to broaden the scope of short sale-related data available to the investing public and to regulators. I am pleased to support this proposal because, if adopted, it would strengthen transparency of an important area of our markets that would benefit from greater visibility and oversight.

Over the years, the Financial Industry Regulatory Authority (FINRA) and the major U.S. stock exchanges have provided some data related to short sale transactions. After the 2008 financial crisis, though, Congress directed the SEC to bring more transparency to short selling. Today’s proposal would fulfill that mandate under Section 929X of the Dodd-Frank Act.

Proposed Rule 13f-2 would make aggregate data about large short positions available to the public for individual equity securities. It further would make daily short sale activity data available to the public, also on an aggregated basis. This data would supplement the short interest data that is currently available, providing the public and market participants with more visibility into the behavior of large short sellers.

Additionally, the SEC would collect more granular data from large short sellers. The proposal would require market participants that carry large short positions in equity securities to report those positions and related short sale activity to the Commission on a monthly basis. The raw data reported to the Commission on a new Form SHO would help us to better oversee the markets and understand the role short selling may play in market events. The Commission would then aggregate data from Form SHO by security and make that information available to the public.

The proposal would apply to certain institutional investment managers who hold, in an equity security of a reporting issuer, a short position of at least $10 million or the equivalent of 2.5 percent or more of the total shares outstanding, or who hold, in an equity security of a non-reporting issuer, a short position of at least $500,000.

Furthermore, we’re proposing amendments to the Consolidated Audit Trail (CAT) and to Regulation SHO. Proposed Rule 205 of Regulation SHO would establish a new order marking requirement for “buy to cover” purchase orders. This would work in conjunction with the proposed CAT amendments to supplement the short sale data currently available to regulators. The additional data would help regulators reconstruct significant market events, particularly in times of increased market volatility.

Finally, we are reopening the comment file on our proposed rule on the securities lending market, Proposed Rule 10c-1. The Commission voted to propose this rule in November, and we are reopening the comment period in light of the newly Proposed Rule 13f-2.

Given past market events, it’s important for the public and the Commission to know more about this important market, especially in times of stress or volatility. The proposed rule would help the Commission address future market events, striking a balance between the need for transparency and the price discovery process.

The proposal also would address one of the four areas for potential study identified by Commission staff in their Report on Equity and Options Market Structure Conditions in Early 2021. Earlier this month, the Commission addressed another of the four areas by unanimously voting to propose reforms to the clearing and settling process. I look forward to staff recommendations related to other areas from their Report with respect to equity market structure and digital engagement practices.

I am pleased to support today’s proposal and look forward to the public’s feedback. I’d like to thank the members of the SEC staff who worked on this rule, including:

  • Timothy M. Riley, Patrice Pitts, Brendan McLeod, Jessica Kloss, Quinn Kane, James Curley, Laura Gold, John Guidroz, Theresa Hajost, Joan Collopy, Josephine Tao, Roni Bergoffen, Joshua Nimmo, Meredith MacVicar, David Saltiel, Haoxiang Zhu, David Hsu, David Cohen, Andrew Sherman, and Mark Donohue in the Division of Trading and Markets;
  • Jessica Wachter, Amy Edwards, Cuyler Strong, Peter Dixon, Qiyu Liu, Craig Louis, Paul Hughes, Lauren Moore in the Division of Economic Risk and Analysis;
  • Michael Willis, Parhaum Hamidi, Julie Marlowe, Gregg Scopino, and Andrew Glickman in the Office of Structured Disclosure;
  • Rosemary Filou, Jane Patterson, Todd Canali, and Daniel Chang in the EDGAR Business Office;
  • Meridith Mitchell, Malou Huth, Robert Teply, Janice Mitnick, and William Miller in the Office of the General Counsel;
  • Michele Anderson and Ted Yu in the Division of Corporation Finance;
  • Stephan Packs, Melissa Gainor, Jennifer Sawin, Brian Johnson, David Bartels, and Nadya Roytblat in the Division of Investment Management;
  • Jonathan Max Warner in the Division of Enforcement; and
  • Tina Barry and Elizabeth Plaum in the Division of Examinations.
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