The SEC has extended the rule requiring large institutional investment managers (IIMs) to report their short sales and short positions. The new rule and Form SH will be in place until August 1, 2009. In contrast to the prior emergency order, the new rule is retroactive: if a short sale triggers a filing requirement, the IIM must disclose all outstanding short positions, even those effected before September 22, 2008 (the first reportable day under the emergency order).

New Form SH Requirements

The new Form SH includes

  • the number of securities (except options) sold short; and 
  • the opening and closing short positions.

Filers no longer have to report the value of securities sold short or the size and time of the largest intraday short position. Short positions should not be reported net of any long positions the filer also holds in the securities.

As under the prior emergency order, the institutions subject to the new rule are those that exercise investment discretion with respect to accounts having a fair market value of US$100 million or more that hold equity securities listed on a U.S. stock exchange. An IIM must file a Form SH on the last business day1 of a calendar week if

  • the IIM filed or was required to file Form 13F2 with the SEC as of the end of the most recent calendar quarter; 
  • any short sales in section 13(f) securities (other than options) were effected during the previous calendar week (which means the previous Sunday to Saturday), and 
  • one or more of the materiality thresholds is met.

Materiality Thresholds

Because of the retroactivity of the new rule, the SEC has raised the materiality threshold to US$10 million from US$1 million. Specifically, a Form SH does not have to be filed if, on each day of the week, the startof- day short position, gross number of securities sold short and end-of-day short position each

  • constitutes less than 0.25% of the class of securities outstanding, and 
  • has a fair market value of less than US$10 million.

If one or more materiality thresholds are met, a Form SH must be filed; but any amounts falling below a threshold may be marked either zero or N/A. This will lessen the burden of IIMs having to gather and disclose immaterial information.

Retroactivity

The requirement to report pre-September 22, 2008 short positions becomes mandatory on November 7, 2008, when Forms SH are filed for the week of October 26 to November 1, 2008.3 Forms SH filed on October 24, 2008 and October 31, 2008 were/are permitted to exclude retroactive information, but in that case, the relevant fair market value threshold was/is US$1 million (as under the emergency order) instead of US$10 million.

The SEC is soliciting comment on all aspects of the new rule and Form SH, and intends to address the comments received in a subsequent release. Comments are due on or before December 16, 2008.