On Friday morning local time, the US Securities and Exchange Commission (SEC) reviewed and voted to approve the reporting rules for margin trading and the regular reporting rules for institutional investors' short positions. This also means that US stock investors will have more dimensional data on short selling behavior in the market.
(Source: SEC) Similar to the situation in the United States Congress, the SEC's vote is also divided by camp, with the results of both votes being 3-2. Two Republican members of the SEC voted against it, but it did not affect the outcome.
In securities lending transactions, investors who are bearish on the value of securities borrow stocks or bonds to sell them, wait until the value of the securities falls as scheduled, and then buy them back from the market and return them to the lender. Today's rules have strengthened the credit obligations of securities lenders (usually securities firms) and short traders. Known as the "most hardworking SEC chairman in decades," Gensler once stated that short selling and securities lending are two "opaque areas" in the current market.
Firstly, in the new rules for securities lending reporting (Rule 10c-1a), securities lenders are required to report information such as the securities name, transaction time, securities lending amount, rate, collateral and collateral ratio, and transaction end date for each transaction to the National Association of Securities Companies (in fact, there is only one financial industry regulatory agency in the United States).
(Source: US SEC) In this rule, the SEC has also made significant compromises. In the previous proposal, the SEC required lenders to complete the letter within 15 minutes after the transaction is completed and make it publicly available in real time. But amidst strong opposition from Wall Street, the final rule was to complete the report on the day of trading. At the same time, FINRA will summarize and disclose most of the information received before the morning of the next working day, but will conceal the specific amount and size of the transaction. This part of the data will not be released to the public until 20 working days later.
The SEC stated that by delaying the disclosure of size data, traders do not have to worry about their trading strategies being "seen through" by competitors. Meanwhile, compared to the current FINRA monthly summary and release of two securities lending data, the timeliness of securities lending data will be greatly improved after the implementation of the new regulations.
In the new rule 13f-2 for institutional investors' short selling, the SEC ultimately adopts the rule that traders who have reached the reporting threshold for short positions need to submit monthly short positions and specific short trading data within 14 days after the end of the natural month. The SEC will publicly summarize the data before the last day of the end of the following month after the end of the natural month. Unlike the familiar 13F chart, which investors are very familiar with, specific position data for each fund will not be disclosed here.
According to the rules, all short positions with an average daily short position of 2.5% of the outstanding shares of the listed company, or with an amount exceeding $10 million, need to submit this form.
Both of these new regulations will take effect 60 days after being published in the Federal Register, and a series of rules will be implemented in about a year after they take effect.