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Hedge funds and other large investors would have to disclose significantly more information about the stocks they short under a new plan from the Securities and Exchange Commission.
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Hedge funds shorting stocks face more disclosure rules from SEC

Andrew Harrer / Bloomberg

Hedge funds shorting stocks face more disclosure rules from SEC

Hedge funds and other large investors would have to disclose significantly more information about the stocks they short under a new plan from the Securities and Exchange Commission.

Institutional money managers would have to submit monthly filings with details on large equity short positions, according to a proposal released by the agency Friday. Investors would also have to disclose some daily activity affecting their bets. While most of these details would remain confidential, the SEC wants to make some aggregate data about large positions in specific securities available to the public.

Short selling has been a staple of U.S. equities markets for years, but it’s become a political lightening rod following the meme-stock mania that began in January 2021 when retail traders banded together via online message boards and bought up stocks like GameStop Corp. that they said hedge funds were betting against. Separately, the Justice Department has launched an expansive criminal investigation into relationships between investors involved in the sales and research firms.

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The plan is the latest effort by SEC Chair Gary Gensler to collect more data from hedge funds and other large investors about their trading activities. It also comes after the agency earlier this month began considering rules to shorten how long it takes to settle stock trades, another action in response to last year’s wild stock trading.

Mr. Gensler said that the changes would benefit retail investors.

“This would provide the public and market participants with more visibility into the behavior of large short sellers,” Mr. Gensler said in a statement. “It’s important for the public and the commission to know more about this important market, especially in times of stress or volatility.”

Under the new proposal, investors would have to report details including:

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• The name of the security.

• Information about the short position at the end of the month.

• Daily trading activity that affects the fund’s gross short position for each date of settlement.

Based on the data gathered, the SEC would then make public:

• The aggregate short position that money managers have in a specific security.

• The percentage of the aggregate gross short position that’s hedged.

The new monthly form would apply to fund managers with a gross short position of at least $10 million or the equivalent of 2.5% of the shares outstanding.

The SEC also said it wants to bolster existing requirements for brokers involved in short sale transactions. Currently, brokerages have to mark orders as “long,” “short,” or “short-exempt.” Under the new rule, these firms would also have to label purchases by investors as “buy to cover” if the fund has short positions in the same security.

The commission will take public comment on the plan and then must hold another vote after making any changes for it to become final.

First Published: March 1, 2022, 11:00 a.m.

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Hedge funds and other large investors would have to disclose significantly more information about the stocks they short under a new plan from the Securities and Exchange Commission.  (Andrew Harrer / Bloomberg)
Andrew Harrer / Bloomberg
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