Securities Caught in U.S. 13f2 Short Reporting

The scope of securities includes both exchange-listed and OTC equity securities, including but not limited to ETFs, certain derivatives, options, warrants, and other convertibles.

The Reporting Thresholds in Rule 13f-2 are based on the Manager’s gross short position in the equity security itself and do not need to aggregate with derivative positions for initial (gross) threshold calculations. The exposure gained through instruments such as swaps would not give rise to reporting obligations.

There is a lawsuit pending against the disclosure rule. See our comments here

Foreign issuers

Once a manager is obligated to file with the SEC, all their shorts effected in USA may be caught by the reporting, subject to thresholds and the scope of instruments. Consequently, the effect is that lower thresholds may apply to many foreign issuers (which are non-reporting issuers to the SEC) rather than the US public companies.

Contradictory to the wording in the Final Rule, SEC have confirmed in a reply during the lawsuit proceedings that the rule will only cover the sales effected in the USA.

ADRs

The most common foreign issued securities would be the ADRs. These are generally subject to SEC reporting, and likewise will be subject to Threshold A. We are still analysing which threshold will apply if a reporting exemption has been granted to the issuer.

‘Is this Foreign Instrument an Equity?’

As a foreign country may treat a certain instrument as an Equity or non-equity, different from how the SEC defines it, for some instrument types that determination may need to be made.

E.g. The Exchange Act notes a ‘security future’ as an Equity but if you trade a future in a foreign country, they may classify it as a derivative instrument. However, for the purposes of 13f-2 reporting, it should be treated as an Equity instrument.

Derivatives

Managers do not have to account for economic exposure to an underlying equity security created through the use of equity derivatives when calculating the reporting thresholds for reporting short sales of that underlying equity security. However, once a Manager meets or exceeds a reporting threshold for an underlying equity security, the Manager will then be required to report certain short activity for each settlement date during the reporting calendar month, and that disclosure will take into account activity in options, tendered conversions, secondary offering transactions, and other equity derivatives or activity that might affect the reported short positions on Form SHO.