TheCorporateCounsel.net

On Friday, the SEC adopted a pair of rules mandated by Dodd-Frank & intended to enhance market transparency when it comes to short positions & securities lending activities. The SEC first announced the adoption of Rule 10c-1a, which will require certain persons to report information about securities loans to a registered national securities association and in turn require that association to make publicly available specified information about those loans. Here’s the 353-page adopting release and the 2-page fact sheet. This excerpt from the fact sheet explains why the new rule matters:

Parties to securities lending transactions are not currently required to report the material terms of those transactions. The lack of public information and data gaps create inefficiencies in the securities lending market and make it difficult for borrowers and lenders to ascertain – and to know whether the terms of their loans are consistent with – market conditions. Rule 10c-1a will provide market participants with access to pricing and other material information regarding securities lending transactions in a timely manner. Further, the rule will provide regulators with information for their market oversight functions.

The SEC then announced the adoption of Rule 13f-2, which is intended to increase the public availability of information about short sale activity. Here’s the 315-page adopting release and here’s the 2-page fact sheet.  This excerpt from the fact sheet explains why this new rule matters:

Section 13(f)(2) of the Securities Exchange Act of 1934 (“Exchange Act”), added under Section 929X of the Dodd-Frank Wall Street Reform and Consumer Protection Act, requires the Commission to prescribe rules to make certain short sale related data publicly available. The data reported in Form SHO filings and the aggregated data from Form SHO filings that are published by the Commission pursuant to Rule 13f-2 will among other things, help inform market participants regarding the overall short sale activity by reporting Managers and will bolster the Commission’s and other regulators’ oversight of short selling.

The rules were adopted by the now customary 3-2 party line vote.  The new rules may increase the transparency of short activity & securities lending – which typically go hand in hand – but as the WSJ points out, the final rules don’t require disclosure of the kind of granular information that could compromise the anonymity of hedge fund short sellers. I guess that means that the downtrodden stocks of corporate America will still need to pin their hopes from time-to-time on the intervention of the Dumb Money crowd for relief from short sellers’ depredations. For some of these companies, the meme stock folks may not be the heroes they need, but they’re almost always the ones they deserve.

– John Jenkins