The SEC adopted rules Oct. 13 that require increased disclosure from institutional short sellers and make public certain information in the securities lending market.
In a 3-2 vote, with both Republican commissioners voting no, the SEC adopted a rule requiring institutional investment managers to report certain short sale-related data to the SEC within 14 calendar days at the end of each month, according to an SEC fact sheet.
The SEC would then publish such data, aggregated by security and with manager information kept confidential.
Institutional investment managers subject to the proposed changes are those with a short position of at least $10 million, or at least 2.5% of shares outstanding, and money managers with a short position of at least $500,000 in a non-reporting issuer equity security, the SEC said.
SEC Chair Gary Gensler said the rule comes as a result of a congressional mandate, directing the SEC to enhance transparency of short sale activity.
"This rule addresses Congress's mandate and improves upon existing sources of short sale-related data in the equity markets," he said in a news release.
Bryan Corbett, president and CEO of the Managed Funds Association, said in an Oct. 13 statement: "MFA is disappointed that the final rule places burdensome and costly reporting requirements on investment managers instead of adjusting, consolidating, and leveraging data already collected."
In tandem with the rule, the commission adopted an amendment to the National Market System plan governing the Consolidated Audit Trail, or CAT, in another 3-2 vote. The amendment requires CAT reporting firms to indicate if they use the bona fide market making exception, as featured in the SEC's short sale rules.
The American Securities Association said in a statement it has privacy concerns over the CAT.
"The SEC has again sought to expand information collected under the CAT without first addressing the significant privacy and cybersecurity concerns that the CAT presents," Chris Iacovella, ASA president and CEO, said in the organization's Oct. 13 statement. "The SEC's rulemaking today is much less important than safeguarding the fundamental privacy rights of American investors."
Separately, the SEC adopted a rule, in a 3-2 vote, requiring "certain persons" to report information about securities loans to a registered national securities association, of which the Financial Industry Regulatory Authority, or FINRA, is the only one.
FINRA is then required to make certain information it receives publicly available, which Gensler said will help break through an opaque securities lending market.
"In the Dodd-Frank Act, Congress mandated that the commission enhance the transparency of the securities lending market," Gensler said in a news release on the rule.
"In fulfilling Congress's mandate, today's adoption will promote greater transparency in the securities lending markets both to regulators and the public."
Lenders will have to report loans the day after they go into effect, rather than within 15 minutes as originally proposed.
A covered person, under the rule, refers to anyone who agrees to a covered securities loan "on behalf of the lender (intermediary) other than a clearing agency when providing only the functions of a central counterparty or a central securities depository" or "as the lender when an intermediary is not used." It also includes "the broker or dealer when borrowing fully paid or excess margin securities," according to an SEC fact sheet.
"SIFMA appreciates the SEC's efforts to improve the transparency and efficiency of the securities lending market," Kenneth E. Bentsen, president and CEO of the Securities Industry and Financial Markets Association, said in a statement Oct. 13. "While we are still reviewing the final rule, as an initial response, we appreciate the SEC's modification of its securities lending proposal based on public input, including our comment letter."
