It’s been a number of weeks now since we all started receiving those 100 days until Christmas emails…and the big US short selling rules deadline is well ‘short’ of that. Yep, just over 60 days until the compliance deadline of 2 January 2025 and it’s not even fully baked. Those keeping an eye will know that earlier this month the oral argument for the legal challenge was heard in New Orleans and, while it was an important listen, so many questions remain. So FundApps pulled together an impressive panel of legal experts for a webinar to talk through the many uncertainties around 13f-2. The goal was to determine if a sense of consensus could be found.
The esteemed panel included C. Wallace DeWitt Counsel at A&O Shearman, Matthew Rogers Counsel at K&L Gates, Kevinraj Bhatia, CFA Senior Compliance Officer and Counsel at Bridgewater Associates and our very own Lead Regulatory Expert at FundApps, Felix Blumer. Lots and lots of questions were posted ahead of the webinar with many more coming in live as the session progressed.
So what were some of the big questions the panel tackled? Below are some of the highlights but do join the over 500 other registered interested parties and register here if you haven’t seen it yet or to rewatch it.
One of the biggest questions we have repeatedly been asked by clients, prospects and many times ahead of this webinar is the following:
SEC’s Extraterritorial Scope: In or Out?
The SEC repeatedly confirmed the rule’s extraterritoriality in the formal rulemaking process and in a public address, why do you think they changed tack in the appellate brief?
This has probably caused the most confusion to the market. Despite previously confirming it, the SEC now seems to have determined that Threshold B’s extraterritoriality was extremely vulnerable to challenge.
The challenge to extraterritoriality can be summarised in four points:
i. The Dodd Frank Act clearly didn’t mandate such extraterritoriality and in the absence of such a mandate, the case law dictates that the rules should not apply
ii. That it is clearly going against established bounds of territoriality when compared to existing short selling and beneficial ownership regulations
iii. That is doesn’t make sense from a practical perspective because you’d be getting an incomplete view of short sale interest in foreign issuers which would be of no practical use
iv. That it wasn’t provided for in the SEC’s estimate of costs
So, in short, in an attempt to save the rest of the 13f-2 tree, the SEC has chosen to cut off the poisoned branch.
To B or Not to B? Can there be severance?
And in a follow up question that often accompanies the extraterritorial scope question, Is Threshold B severable?
The panel talked through the legal basis of this in more detail, so on balance they determined it is severable but it is open to the courts to make the final determination.
Now that we’ve heard the oral argument on October 7, did that reveal any further information about the case or how 13f-2 might be implemented?
The top line is that most of the focus was on the Securities Lending Rule and how that ties up to 13f-2 but what that really means is 13f-2 is most likely to proceed in whole or in part. 13f-2 is motivated by the Dodd-Frank act and is so more secure and less likely to be shot down.
Got an Opinion on When an Opinion will be Published?
The panel went on to discuss timings and debated the following question: When do you expect the Court’s opinion to be published? Do you expect a remand period?
The case was argued on 7 October, securities laws aren't part of the daily wheelhouse of this Court and the case involves a complex set of facts and issues. Given all that and the impending holiday season, it will likely come after Christmas. The judges will be aware of the Jan 2 date but it really is anybody’s guess.
Can we wait before we start preparing for 13f-2?
Timing is everything and ultimately viewers wanted to know How could the timing of the judgement affect what actions investment managers have to take to comply, or prepare for compliance?
The consensus was simple, investment managers need to move forward with their compliance plans, we can’t wait for the judgement so preparations need to be made.
The webinar lasted a full hour and, as mentioned, addressed lots of pressing and pertinent questions. The above is only a small snapshot of what was covered and we’d urge you to sign up or listen again to join the over 500 who registered for this compelling 13f-2 webinar.
In addition, our team of experts here at FundApps remains at your disposal.
