SEC Delays 13F-2 Short Sale Reporting to 2026

On October 13, 2023, the U.S. Securities and Exchange Commission (SEC) adopted Rule 13f-2, a new regulatory requirement mandating institutional investment managers with gross short positions that meet specific thresholds, report both gross short positions and daily short-sale activity on Form SHO. This rule enhances market transparency around short-selling activities (previously covered in our past regulatory roundup). However, it also imposes significant operational and compliance burdens on hedge funds and other investment advisers.

Initially set to take effect in January 2025, the SEC has now delayed compliance until February 2026, citing industry concerns over technical readiness, operational feasibility, and the need for additional guidance. This extension gives managers more time to develop infrastructure, refine data management processes, and seek clarifications from regulators.

This article provides a refresher on Rule 13f-2, its reporting requirements, the challenges that led to the delay, and key actions investment managers should take to prepare for the 2026 compliance deadline.

Background: What Is SEC Rule 13f–2?

Rule 13f-2, adopted in October 2023, significantly expands the scope of reporting obligations for institutional investment managers that exceed specified thresholds, requiring disclosure of short positions through Form SHO. This rule aims to heighten market transparency around short-selling activities, previously highlighted in our regulatory roundups but has introduced substantial compliance challenges, particularly for hedge funds and investment advisers.

Who Needs to File Form SHO?

Institutional investment managers must file Form SHO via the EDGAR system if they meet either of the following conditions:

• For Securities Registered Under Section 12 (i.e., securities covered under 13F reporting rules):
  • A gross short position of $10 million or more at the end of a single trading day during the reporting month OR
  • A gross short position represents 2.5% or more of the company’s outstanding shares
• For Securities Not Registered Under Section 12 (such as certain over-the-counter stocks):
  • A gross short position of $500,000 or more at the close of any settlement date during the reporting month.

What Information Must Be Reported on Form SHO?

For each reportable security, investment managers must disclose:

1. Gross Short Position at the close of trading on the last settlement date of the calendar month.
2. Hedging Status: Whether the short position is fully hedged, partially hedged, or unhedged.
3. Daily Net Short-Sale Activity, including:
   • Shares sold short and covered each day.
   • Derivative transactions that impact short exposure (e.g., options exercises, assignments, and swaps).

Unlike Section 13F filings, which are only required for managers with $100M+ in equities, Rule 13f-2 applies to firms regardless of AUM as long as their short positions exceed the reporting thresholds.

How Will the SEC Publish This Data?

To balance market transparency and confidentiality, the SEC will aggregate short-sale data by security and publish it on EDGAR after a one-month delay, omitting individual fund names to protect proprietary trading strategies. This method aims to improve market visibility into short-selling trends, differentiate hedging from speculative shorting, and help detect manipulative practices like short squeezes and naked shorting.

Why Did the SEC Delay the Compliance Deadline?

The delay until 2026 was driven by several critical factors:

• Technical Specifications: The SEC published final XML specifications for Form SHO submissions on December 16, 2024, very close to the original deadline, giving firms less than three weeks before the original compliance date. XML (Extensible Markup Language) specifications define the structured format required for electronic filings, ensuring consistency in how data is submitted and processed within the SEC’s EDGAR system. Since most hedge funds freeze system updates at year-end, this left them with insufficient time to develop and test data submission processes.
• Operational Challenges: Industry leaders raised concerns about the complexity of aggregating daily short-sale data across multiple trading desks, prime brokers, and counterparties. Unlike traditional 13F filings, which only capture long positions on a quarterly basis, Form SHO requires daily net activity tracking, making it a major compliance burden.
• Industry Feedback: Multiple industry groups, including the Securities Industry, the Financial Markets Association (SIFMA), the Managed Funds Association (MFA), and the Financial Information Forum (FIF) have had significant pushback on the rule. formally petitioned the SEC for an extension, arguing that the short timeline would lead to data errors, system failures, and compliance risks.

In response, on February 7, 2025, the SEC issued a temporary exemption, pushing the compliance deadline to February 2026. This gives firms 12 additional months to develop and test reporting systems, refine data aggregation methods and resolve interpretative questions with the SEC. The acting SEC Chairman Mark Uyeda noted the exemption was given to ensure investment managers have sufficient time to implement the reporting requirements properly, given the timing the final specifications were released.

How Should Investment Managers Prepare for 2026?

With the SEC’s 13F-2 compliance deadline extended to February 2026, investment managers should take a structured approach to ensure seamless integration of Form SHO requirements into their reporting processes. The complexity of daily short-sale activity tracking demands robust data management, automation, and collaboration across internal teams and external service providers.

1. Assess Data Infrastructure & Reporting Systems

Hedge funds should conduct a comprehensive review of existing compliance systems to determine whether they can accurately:

• Capture daily short-sale activity accurately, ensuring that each individual trade and net short-sale position is properly recorded.
• Aggregate gross short positions across multiple trading desks and strategies, particularly for firms executing high-frequency trades, complex arbitrage strategies, or multi-prime brokerage setups.
• Integrate Form SHO requirements into existing 13F reporting systems, ensuring data consistency across various SEC filings.
• Enhance internal controls to mitigate reporting errors, including data validation protocols and exception-handling processes.
• Ensure system compatibility with the SEC’s EDGAR submission format, especially given the late release of technical specifications in December 2024.

Firms relying on third-party compliance software should verify whether their vendors are updating systems to support Form SHO and whether any custom configurations are necessary to align with firm-specific trading structures.

Integrate Form SHO requirements into existing 13F reporting frameworks.

2. Implement Automated Data Reconciliation

• Prevent data discrepancies between various internal trading systems, prime broker reports, and fund administrator records.
• Ensure real-time visibility into short exposure, allowing compliance teams to monitor threshold breaches proactively.
• Streamline exception management by flagging discrepancies in trade settlements, corporate actions, and derivative transactions that affect short positions.
• Improve auditability by maintaining a transparent data lineage from execution to regulatory reporting.

Firms should assess whether their existing reconciliation tools can handle high-frequency trading environments or if they need customized workflows for Form SHO-specific reporting.

3. Collaborate With Prime Brokers, Fund Administrators & Service Providers

Many hedge funds rely on multiple prime brokers, custodians, and clearing firms for their short-selling activities. This makes data coordination and aggregation particularly challenging under Form SHO’s granular reporting requirements.

Investment managers should:

• Ensure prime brokers can deliver standardized short position data at the frequency required for Form SHO compliance.
• Establish clear data protocols with fund administrators and counterparties to eliminate reporting lags and ensure consistency across data sources.
• Develop a centralized reporting process that consolidates short position data across all prime brokers, especially for funds executing cross-market arbitrage strategies.
• Confirm compatibility with service providers that assist with regulatory reporting, ensuring they are fully equipped to handle Form SHO submissions via EDGAR.

Given the SEC’s plans to publicly release aggregated short-sale data, firms should also discuss potential market impact risks with prime brokers and evaluate the implications for their trading strategies.

4. Stay Engaged with Regulators & Industry Groups

Investment managers should actively track ongoing SEC guidance, industry feedback, and best practices to ensure compliance readiness ahead of the 2026 deadline.

• Monitor SEC releases interpretive updates around gray areas such as derivative-linked short exposure calculations.
• Engage with industry organizations like SIFMA, MFA, and the Financial Information Forum (FIF), which have been advocating for clarifications and operational flexibility under the rule.
• Participate in regulatory discussions, including comment letters, industry roundtables, and SEC outreach initiatives, to influence potential refinements to Rule 13f-2.
• Conduct internal training sessions for compliance, trading, and operations teams to educate stakeholders on Form SHO’s reporting requirements, thresholds, and best practices.

By taking a proactive approach, investment managers can leverage the extended deadline to fine-tune their compliance strategies, avoid last-minute scrambling, and ensure a smooth transition to full compliance in 2026.

The Bottom Line

The SEC’s postponement of 13F-2 compliance to 2026 provides investment managers with a crucial window to refine reporting systems, strengthen compliance frameworks, and streamline operations before the rule takes effect.

Rather than viewing this as a mere delay, firms should leverage the extra time to enhance data automation, improve reconciliation processes, and align with prime brokers and service providers. Engaging with regulators and industry groups will also be key to navigating evolving guidance.

By acting proactively, hedge funds can turn a complex regulatory requirement into a strategic advantage, ensuring seamless compliance while maintaining efficiency and transparency in an increasingly scrutinized short-selling landscape.

Connect with an Arootah Business Advisor today to learn more about how our tailored advisory services can support your firm in clearing these requirements.