The Securities and Exchange Commission (SEC) has recently released new or updated rules related to three key areas for asset managers: short positions, securities lending, and beneficial ownership. All three final rules were issued in October of this year with effective dates of early 2024.
These changes represent additional instances of a clear priority for the current Commission: increased and more timely information flow to market participants, regulators, and the general public. As seen in the changes to T+1 settlement and provisions in the new private funds rule, the SEC continues to prioritize transparency in the marketplace.
This sounds like a laudable goal, but how does it affect investment managers and what sort of load does this place on compliance teams? The answer: possibly quite a bit. Knowledge of the new rules is critical, but developing policies, procedures, and systems to implement and monitor them is a more complicated endeavor. One way to help support both front and back office teams in managing these new requirements is through maintaining a clean and precise library of compliance rules in the firm’s order management system (“OMS”). See below for additional information on the new rules.
Short Selling
The new rule 13f-2[1] of the Securities Exchange Act of 1934 (“Exchange Act”), requires the SEC to make certain information regarding short selling available to the public. The goal is to increase information available to other market participants, as well as increased oversight by the Commission.
The new rule will require managers to upload a new Form SHO report to the SEC’s Edgar system within 14 days after the end of each calendar month. This information will then be used to aggregate certain data which will then be available on Edgar.
Securities Lending
Securities lending has historically been devoid of reporting obligations, which the SEC believes creates inefficiencies in the market and limits the ability for lending participants to assess whether the transaction is consistent with current market conditions. Exchange Act Rule 10c-1a requires certain information about securities loans be reported to registered national securities association (“RNSA”), who will then make some of this information public.
The new reporting obligations will cover information such as the following:
- Legal name of the issuer of the securities to be borrowed;
- Ticker symbol of those securities;
- Time and date of the loan;
- Amount of reportable securities loaned;
- Rates, fees, charges, and rebates;
- Type of collateral provided and the percentage of the collateral to the value of the reportable securities loaned;
- Termination date of the loan;
- And more
Beneficial Ownership
The deadline for submitting beneficial ownership filings like Forms 13G or 13D will be cut in half, from 10 days to 5. Additionally, the data must be submitted in a machine-readable format.
[1] Added within Section 929X of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).
