In an effort to increase transparency around shorting activity, the U.S. Securities and Exchange Commission (SEC) is adopting a new rule that aims to increase the public availability of data on short selling.
The new rule will require institutional investment managers to report short positions and short activity data for equities to the SEC, which will then aggregate the data and share it publicly on a delayed basis.
“In the wake of the 2008 financial crisis, Congress directed the SEC to enhance the transparency of short selling of equity securities,” said SEC chair, Gary Gensler, in a release. “Today’s adoption will promote greater transparency about short selling both to regulators and the public.”
Gensler said the new rule will improve on existing data that’s available regarding short-selling activity.
“Given past market events, it’s important for the commission and the public to know more about short-sale activity in the equity markets, especially in times of stress or volatility,” he said.
The new rule will take effect 60 days after publication in the Federal Register, and firms will have 12 months from then to comply with the new requirements. The SEC intends to start sharing data publicly three months after that.
Separately, the SEC also announced the adoption of another rule designed to increase transparency in the securities lending market.
That rule will require information about securities loans to be reported to the Financial Industry Regulatory Authority (FINRA), which will, in turn, be required to publicly report some of that data too.
“The rule is intended to increase the transparency and efficiency of the securities lending market,” the SEC said.
Gensler noted that this area of the market, which also contributed to the global financial crisis, remains relatively opaque.
Improving transparency in this market “promotes competition. It promotes fair, orderly and efficient markets,” he said.
The new rule will also take effect 60 days after publication, at which point FINRA will have 12 months to finalize its own rules regarding reporting, and the industry will have 12 months after that to begin reporting data.