Complying with a new rule known as Form SH, the first 1,700 money managers, mostly hedge funds, fell in line yesterday by filing their respective short positions with the Securities and Exchange Commission.
Complying with a new rule known as Form SH, the first 1,700 money managers, mostly hedge funds, fell in line yesterday by filing their respective short positions with the Securities and Exchange Commission.
The rule is part of a Sept. 19 emergency ban on short selling that applies to 800 banks and related financial companies.
Despite firms’ and banks’ compliance, however, the rule is being vehemently opposed by the hedge fund industry on a variety of grounds ranging from what they say are onerous filing requirements to an invasion of proprietary trading strategies.
“It’s like making Colonel Sanders give Popeye’s their chicken recipe,” said Richard Baker, president and chief executive of the Managed Funds Association in Washington.
Mr. Baker, who represents much of the $2 trillion hedge fund industry, takes less of an issue with the actual filing process, which requires multifaceted weekly reports to the SEC, than he does with the SEC plans to make the short position data available to the public two weeks after each filing deadline.
“Just filing would certainly make it understandable, and within reason, we’ll give them what they want, but public disclosure doesn’t serve any regulatory purpose that we can see,” he added.
“I’m still at somewhat of a loss as to what that accomplishes, versus confidential disclosure.”
The filing rule, like the targeted ban on short selling, was designed as a temporary means until Oct. 2 to manage market volatility, but at this point it, could be in place at least until the third week of October, according to SEC spokesman John Nester.
Some have compared Form SH to the quarterly 13F filing, to which hedge funds and other institutional money managers must conform, which involves reporting all long positions to the SEC.
“We don’t even know what the consequences of this will be,” Mr. Baker said. “Wholesale disclosure of what trade and what time it happened goes to the heart of our business.”
Hedge fund manager Larry Eiben, chief operating officer of TFS Capital LLC in Richmond, Va., described the Form SH filing requirements as “very onerous and a massive undertaking.”
Mr. Eiben, whose firm manages $420 million, is not currently subject to the Form SH requirements because its short positions don’t meet the parameters of the rule as being equal to $1 million worth of a single stock or 0.25% of the total market capitalization of a single company.
However, he still takes issue with the idea of asking money managers to make reports based on what short exposure a portfolio had at the beginning and end of each week, as well as the highest short exposure during that period and the exact time of day of the short positions.
“If we had to file this information, it would easily be our most time-intensive and onerous of any of our other filing requirements,” Mr. Eiben said.
“Basically, it’s another way of the government to say, ‘Cut down on the short selling for a while.’”
