I. Introduction
In an order issued on February 7, 2024, the U.S. Securities and Exchange Commission (the "SEC") granted a temporary exemption to institutional investment managers required to report certain information with regard to certain equity securities on Form SHO pursuant to Rule 13f-2, delaying the initial filing deadline to February 14, 2026 for the January 2026 reporting period, giving the industry more time for compliance. In a final rule-making issued on October 13, 2023, the SEC adopted a new Rule 13f-2 and the related Form SHO[1], imposing new short sale reporting obligations on institutional investment managers. The new rule is designed to enhance market transparency and regulatory oversight of short-selling activities, in response to concerns about manipulative or abusive short selling and the lack of transparency of short positions to both market participants and regulators. The new Rule 13f-2 came into effect on January 2, 2024, and the original compliance date was January 2, 2025.
In this client alert, we will provide a brief overview of the reporting requirements under the new Rule 13f-2 and discuss the new rule’s implications for institutional investment managers, including non-U.S. fund and asset managers, and our recommended next steps.
II. Who Is Required to File?
Institutional investment managers currently subject to Form 13F filing requirements should assess whether they would be subject to the reporting requirements under this new Rule 13f-2.
In particular, the new Rule 13f-2 applies to institutional investment managers, as defined under Section 13(f)(6)(A)[2] of the Securities Exchange Act of 1934 (the "Exchange Act"), who meet specific reporting thresholds, including the following:
- Investment advisers exercising investment discretion over client assets;
- Banks and bank trust companies offering investment management services;
- Pension fund managers;
- Brokers-dealers and insurance companies managing corporate or employee investment assets; and
- Natural persons exercising discretion over the account of another person, but excluding natural persons buying or selling securities only for their own account.
III. What Is Required?
(I) Filing Thresholds
Managers must report gross short positions in equity securities if they meet or exceed either of the following thresholds:
For U.S. reporting company securities (i.e., equity securities of a class that is registered pursuant to Section 12 of the Exchange Act or for which the issuer is required to file reports pursuant to section 15(d) of the Exchange Act):
- A monthly average gross short position at the close of regular trading hours in the equity security with a market value of $10 million or more, or
- A monthly average gross short position equal to 2.5% or more of the total shares outstanding in the equity security.
For non-U.S. reporting company securities (i.e., equity securities of a class not registered pursuant to Section 12 of the Exchange Act or for which the issuer is not required to file reports pursuant to section 15(d) of the Exchange Act):
- A gross short position in the equity security with a market value of $500,000 or more at the close of regular trading hours on any settlement date during the calendar month.
(II) Type of Securities Within Scope
Unlike in the case of the Form 13F filing pursuant to Rule 13f-1, the SEC will not publish an official list of the securities information of which is required to be reported on Form SHO pursuant to Rule 13f-2. Any equity security, whether issued by a U.S. or non-U.S. issuer, and whether such issuer is a SEC reporting company or non-reporting company, must be reported if the short position in such security meets any of the applicable thresholds discussed above.
Equity securities that fall under this new Rule 13f-2 include both exchange-listed and over-the-counter equity securities, such as:
- Stocks, limited partnership interests, and ETFs; and
- Derivatives, options, warrants, and convertibles that fall under the definition of "equity security" under Section 3(a)(11) and Rule 3a11-1 of the Exchange Act.
(III) Timing and Manner of Filing
Monthly filing within 14 calendar days after the end of each month.
Initial filing due date: February 14, 2026, covering the January 2026 reporting period.
The Form SHO and any amendments thereto must be submitted over SEC EDGAR, in an eXtensible Markup Language ("XML") specific to Form SHO.
(IV) Information to be Reported
Managers must report the following information on the Form SHO:
- The identifying information of the equity security and the issuer;
- Monthly gross short position; and
- Daily trading activity that affects the manager’s reported gross short position during the reporting period.
(V) Will the Information Be Public?
All information included in a Form SHO report is deemed subject to a confidential treatment.
However, the SEC will publish, on a delayed basis, aggregated short sale-related data.
IV. Implications for Non-U.S. Managers
If a non-U.S. manager satisfies the definition of "institutional investment manager," it would be subject to the reporting requirements under Rule 13f-2.
Even if an equity security is not issued by a U.S. reporting company, short positions must be reported if they meet the relevant thresholds. Therefore, the reporting obligations may affect short positions in non-U.S. stocks that trade over-the-counter.
In sum, non-U.S. managers who are subject to Form 13F filing requirements must now monitor and track their short positions to comply with this new reporting requirement.
V. Next Steps
We recommend that fund and asset managers that take short positions in their investment strategies implement the following in their compliance program:
1. Maintain a Short Position Tracking System
- Develop or update trading and monitoring systems to track short positions and short sale activities.
2. Prepare for the First Compliance Deadline
- Mark February 14, 2026 as the first due date for Form SHO filings.
- Start testing internal reporting processes well before the compliance deadline.
3. Review Internal Compliance Policies
- Update compliance policies and procedures to reflect this new SEC reporting obligation.
- Conduct staff training on short sale tracking and regulatory filing requirements.
4. Assess the Impact on Investment Strategies
- Evaluate whether this new Rule 13f-2 reporting obligation has any impact on short-selling strategies.
5. Monitor Regulatory Updates
- Stay updated on SEC guidance regarding implementation of this new Rule 13f-2.
- Engage with legal counsel and compliance advisors to ensure adherence to the evolving regulatory landscape.
VI. Conclusion
The new Rule 13f-2 represents a major development in reporting requirements for institutional investment managers. While the recent exemption provides temporary relief for about 12 months, managers should use this time to update their compliance program to incorporate robust tracking and monitoring mechanisms to ensure compliance.
Footnotes：
[1] A sample Form SHO, together with its instructions, can be found in Schedule A of the Final Rule, starting from p. 302.
[2] Under Exchange Act section 13(f)(6)(A), "institutional investment manager" includes "any person, other than a natural person, investing in or buying and selling securities for its own account, and any person exercising investment discretion with respect to the account of any other person."
Source: KING&WOOD MALLESONS Law Firm
- Authors:
- Eli Han, Partner, New York Office, eli.han@us.kwm.com, Areas of Practice：capital markets, structured financing, complex financial products, private investment funds, and securities and financial market regulations
- Lucia Chen, Associate, New York Office