Impact of the SEC's Beneficial Ownership and Short Sale Reforms on the Buy Side

Organizations will need to significantly automate and enhance compliance reporting

Investment organizations are spending more time and resources on compliance than ever before. From the EMIR Refit to the new T+1 settlement cycle, maintaining accurate monitoring and reporting amid shifting regulations is a responsibility now weighing heavily on firms, as the monetary and reputational risks of getting it wrong, become increasingly substantial.  

A timely example are the incoming SEC changes, with the Modernization of Beneficial Ownership Reporting (13D and 13G) and the Short Sale Disclosure Reforms (13F-2). Both will impact investment managers that invest in the United States, requiring organizations to significantly automate and enhance compliance reporting. 

To help firms stay one step ahead, we’ve developed this short explainer guide, together with our long-standing partner and regulatory expert FundApps. You’ll find information on the regulation, and how SimCorp together with FundApps can help ease the burden of regulatory reporting and monitoring - so you can focus on making the best decisions for your business and customers.

A brief explanation of the SEC changes going live in 2025 

On October 10, 2023, the Securities and Exchange Commission (SEC) adopted amendments to modernize the rules governing beneficial ownership reporting under Sections 13(d) and 13(g) of the Securities Exchange Act of 1934 ("Exchange Act"), which provide companies and markets visibility into the ownership of shares of public companies. Namely the changes will see: 

• Modification to the yearly filing requirement for Schedule 13G to a quarterly requirement (maintaining the 45-day deadline) 
• Shortened filing deadlines for Schedule 13D and Schedule 13G passive beneficial ownership reports (from 10 to 5 days) 
• Expanded application of regulation to certain cash-settled derivative securities, requiring organizations to file using a structured XML format 

Additionally, the new Short Sale Disclosure Reform (13F-2) will enforce short selling disclosure for the first time ever in the United States, impacting potentially any organization that already file reports with the SEC (13G, 13D, 13F, ADV, N-PX and more) whether they short in the US or anywhere else in the world.

How will my firm be affected by the Short Sale Disclosure Reforms (13F-2)?

Investment organizations already subject to US reporting requirements will need to report short positions surpassing specified thresholds. 

These thresholds vary based on the nature of the issuer:  

• For equity securities of a reporting issuer (US Section 12 Registered issuers), the threshold is a monthly average gross short position of at least USD10 million, or 2.5 percent of shares outstanding. 
• For non-reporting issuers (defined as all other issuers or public companies investment managers who file in the United States sell short), it's a gross short position of USD 500,000 or more at the close of regular trading hours on any settlement date during the month. 

This will mean daily and monthly monitoring and calculation of short position exposure, to determine if you are safely within thresholds and not breaching rules. What’s more, the SEC’s broad definition of an institutional investment manager includes any person, other than a natural person, investing in or buying and selling securities for its own account, and any person exercising discretion with respect to the account of any other person.

Tackling SEC changes with SimCorp and FundApps 

With the regulations coming into effect January 2, 2025, time is running short. In addition to the global reporting and monitoring our dedicated regulatory experts provide, we’ve partnered with FundApps, to help with this and a complex range of other disclosure triggers you may be facing. 

Since FundApps proactively keeps track of the evolving Shareholding Disclosure regulations, they already cover these new rules, including the short selling rules.  

The SaaS-based service seamlessly combines with the SimCorp One platform, decreasing time to value, while enabling clients to easily automate producing the right information, at the right time, to the right authorities. 

The rules are already live within the FundApps platform and every client has the ability to track their positions against the new regime – bringing peace of mind before the legislation goes live next year. Take a look at the FundApps platform in action.

Future-proofing shareholder disclosure compliance

Twenty-five SimCorp clients already trust FundApps to automate their global disclosure obligations and complement capabilities in the SimCorp platform. This includes issuer limits, which are becoming increasingly common and difficult for firms to keep on top of – with more frequent requirement for disclosure across a range of events e.g. an increase in equity holdings. 

You may be thinking, “None of this is new, so what’s the urgency?” Yes, shareholder disclosure has always been a tricky rule to get right operationally but firms can no longer afford to make mistakes. We know disclosure is an area regulators across the globe are clamping down, along with short selling. 

In the graphic below, it is clear to see that in 2024 alone (year to date), shareholder disclosure fines have been staggering across Europe and the US. In an increasingly competitive market, reputation is everything and these sanctions like this can be damaging to more than just the bottom line.

Source: FundApps

We know staying compliant today requires being on top of constant regulatory changes, tightening disclosure deadlines, new forms and filing processes, sometimes in a matter of hours, rather than days. Many of our clients recognize that this non-core function is eating into precious time and burdening already lean resources, making this unsustainable. It’s why today we already deliver expert global regulatory reporting coverage across the EMIR refit and regimes including SFDR, ASIC, and NAIC.

How does it work? 

FundApps team of regulatory experts interprets legal data from over 85 regulatory lists, covering 420 rules in over 100 global jurisdictions. This data comprehensively includes takeover panel lists, as well as ESMA’s FIRDS database and SEC’s 13F list. A firm’s positions file is then run against the Shareholding Disclosure rules and the system automatically notifies you when disclosures are required. Ensuring the firm remains compliant at all times. 

The combined reporting capabilities of both SimCorp and FundApps enable firms to:  

• Confidently manage portfolios with automated regulatory monitoring 
• Gain a clear understanding and pre-empt any global reporting obligations  
• Reduce external costs of workarounds and internal resource demands 
• Achieve clarity and transparency on compliance reporting threshold limits 

If you are a SimCorp client interested in learning more about FundApps, please speak to your customer success manager. For more information on SimCorp’s partnership ecosystem see here, or get in touch with us here: [email protected]