Kavan Choksi- SEC Proposes New Rules on Disclosure For Short Sale In The US Financial Market
The US Securities and Exchange Commission (SEC) announced early this year in February that it has voted to propose some changes that will boost public access to data for short sales. The new rule that has been offered would need specific managers dealing with institutional investment to submit reports on short sales. The SEC in this way can create aggregate data on prominent short positions, with the inclusion of daily fast sale data that would be available to the public for every individual security.
Kavan Choksi- an overview of the new rule that will affect short selling in the USA
According to eminent business and finance expert Kavan Choksi, the Securities Exchange Act has proposed Rule 13f-2 that would mandate managers of institutional investments to report information on the Proposed Form SHO at the end of the month about short positions and specific daily activities that affect them.
The information is private and confidential for reporting managers
The SEC will securely aggregate this data while keeping the reporting managers confidential and will release the information publicly for investors to view. The new data will supplement the data for a short sale that is presently available from the Financial Industry Regulatory Authority or FINRA and the stock exchange.
The mandate for broker-dealers under the new rules
In February, the SEC also had another vote for proposing a new provision for Regulation SHO, Rule 205 that would create an establishment of a new “buy to cover.” This is a marking order that will be imposed on broker-dealers. This regulation is the primary regulation for short selling for the SEC, and it mandates that broker-dealers should identify every sale order and determine whether it has an effect that would be classified as short, long, or short-exempt but does not presently have a corresponding need for a purchase order.
Rule 205 and its mandate for managers dealing with institutional investments
Under Proposed Rule 205, the broker-dealer needs to mark the purchase order and list it as a buy to cover where the purchase has any short position in the security when the transaction is made. The SEC believes this data will help in reconstructing salient market events and identify possible abusive trade practices like short squeezes.
Transparency in the field of short sales will be introduced
Business and finance expert Kavan Choksi states that after the financial crisis in 2008, Congress had issued directions to the SEC to bring in transparency for short selling. This new rule is fulfilling that now under Section 929X of the Dodd-Frank Act in the USA.
The above mandate will apply to specific institutional investment managers that hold in any equity security of a reported issuer a short position of a minimum of $10 million or an equivalent of 2.5% or above of the total shares that are outstanding or who have in equity securities of an issuer that has not been reported, a short position of a minimum of $500,000 in the USA.
