­­­­Rule 13f-2 in Focus: Navigating the SEC’s Latest Short Position Reporting Rules with n-Tier’s Compliance Workbench

­­­­Rule 13f-2 in Focus: Navigating the SEC’s Latest Short Position Reporting Rules with n-Tier’s Compliance Workbench

­­­­Rule 13f-2 in Focus: Navigating the SEC’s Latest Short Position Reporting Rules with n-Tier’s Compliance Workbench

n-Tier engages the evolving 13f-2 requirements and implications, ensuring industry compliance through our growing solution suite.
n-Tier engages the evolving 13f-2 requirements and implications, ensuring industry compliance through our growing solution suite.

Last October marked the approval of Rule 13f-2, the SEC’s latest effort to enhance transparency into the short selling of equity securities. As part of their new disclosure mandates, investment managers that meet or exceed certain reporting thresholds will be required to submit specified short position data and monthly activity via Form SHO.  Note that the SEC’s definition of investment manager includes “buy side” investment management firms, as well as broker dealers that have proprietary and discretionary account positions.  The SEC will then publicly disseminate the aggregated data to investors and other market participants, maintaining confidentiality for the firms that must comply.

Due to the general regulatory trend toward increasingly complex data requirements, Rule 13f-2 will likely not fit neatly into most firms’ existing position reporting workflows. While most regulations require position data based on the trade date, this rule will require firms to report and monitor positions based on the settlement date, adding complexity to data management processes. Additionally, while the old Rule 13f-1/Form 13F quarterly reporting regime included a set threshold across all reportable securities held of $100 million of total long positions, Rule 13f-2/Form SHO thresholds will be unique to each security based on the value and/or size of individual security positions ($10MM/$500K value or 2.5% of outstanding shares based on the issuer’s SEC classification).  Given the 13f-2 threshold is as little as $500K, it will likely impact many firms that previously were not subject to 13f-1.

Regulators will also expect firms to have active monitoring and supervisory programs in place for 13f-2, even if they don’t reach reportable position levels.  Additionally, the SEC isn’t providing a 13f-2 reportable security list (unlike 13f-1), so firms must determine product eligibility for themselves. In addition, the rule requires the reporting of the daily change in short position for triggered securities, so firms must now maintain and calculate aggregate short positions daily, rather than a single snapshot at the end of the quarter. 

Simply put, firms that were previously dedicating few resources to complying with this rule must now assess whether their current reporting infrastructure can sufficiently support the new timing and data requirements. With a January 2025 effective date on the horizon, many firms are actively working to enhance their approach to regulatory reporting in line with these considerations.

n-Tier is here to help. For two decades, we have provided leading financial institutions with comprehensive data management solutions to handle their most complex and pressing regulatory reporting challenges. Our 13f-2 Short Position Monitoring and Form SHO reporting solution is no exception. By leveraging our highly flexible and scalable Compliance Workbench platform, combined with our business analysis and implementation resources, clients can efficiently meet these challenging new requirements.

With Compliance Workbench, firms can eliminate the need for complex logic to determine which securities and positions fall under the new 13f-2 reporting scope, in addition to supporting other compliance obligations. We provide a comprehensive solution that utilizes our clients’ current position and transaction data feeds to aggregate short positions across all controlled accounts and calculate accurate settlement date positions as required.

Some of our key capabilities include:

  • Flexible Consolidation of External and Client Data Sources: We have the flexibility to accommodate data in any format and from any source. Clients can rely on us to aggregate securities and transactions from multiple origins to calculate the accurate settlement-date short position at the end of regular trading hours.

  • Calculation of Short Positions: Clients can leverage internal data and/or external reference data to determine company classification, obtain outstanding share information and source closing prices FX rates to calculate the daily dollar value and ownership percentage.

  • Alerts and Monitoring: Clients can monitor daily and average monthly balances per the specified filing thresholds. This includes the ability to set custom “early-warning” thresholds so users can take proactive steps and manage internal trading restrictions before balances reach reportable levels.

  • Form SHO Report Generation: Clients can identify their reportable short positions that meet the filing threshold at month’s end and trigger the creation of the end-of-month position and daily net position change data tables required for Form SHO. XML tables can be exported to facilitate easy form submission for filing into the SEC’s EDGAR system.

The flexible nature of our 13f-2 solution means it can also be integrated with our FINRA Short Interest Reporting module and may be extended to enable monitoring of long positions as per other regulatory thresholds like 13f-1, 13d, 13g, Section 16 and Bank Holding Company Rules.

As the effective date for Rule 13f-2 approaches, we are committed to advocating for our clients and serving as an educational resource. We are currently working with Financial Information Forum (FIF) to develop FAQs and host working groups with market participants. The aim of these gatherings is to review and discuss key priorities and implementation issues, including the identification of reportable securities, the applicability of the Form 13F reporting requirements and FAQs to Form SHO, and how the reporting requirements may be applied to activity outside the US.

As longtime experts in the regulatory reporting space, the n-Tier team continues to be deeply engaged with the requirements of 13f-2 and its implications for the industry, continually refining and enhancing our solution suite to help our institutional clients navigate uncharted regulatory waters. If you’re interested in learning more about how n-Tier can support your firm’s unique operating model and entity structure when it comes to 13f-2 and beyond,  reach out to schedule a consultation with us.

by David Emero
Head of Regulatory Reporting Product Strategy at n-Tier

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n-Tier is an innovative technology company that couples deep industry expertise with a unique software platform to help firms manage the accuracy and completeness of their critical business data. n-Tier’s clients range from global leaders to small and mid-size companies in various industries including finance, pharmaceuticals, and insurance.  Our platform is highly configurable, has low IT impact and can be installed locally or used as part of our cloud offering.

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