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Frequently Asked Questions (FAQ) about Short Interest Reporting

The guidance provided in these FAQs pertains to the reporting to FINRA of “short” positions pursuant to FINRA Rule 4560 (Short-Interest Reporting) in OTC Equity securities, as defined in Rule 6420, and securities listed on a national securities exchange. This guidance relates only to the short interest reporting requirements under Rule 4560 and does not address other member obligations under applicable FINRA rules or the federal securities laws, including but not limited to recordkeeping obligations under SEC Rule 17a-3.

Any questions regarding short interest reporting should be directed to FINRA's Market Regulation Department, at (240) 386-5126 or FINRA's Office of General Counsel, at (202) 728-8071.

Q1. Does Rule 4560 require that only transactions marked “short” be reported as short interest?

A1. No. Rule 4560 applies to short interest positions resulting from: (1) a “short sale,” as defined by Regulation SHO Rule 200(a); or (2) where the transaction that caused the short position was marked “long,” consistent with Regulation SHO Rule 200(g), due to the firm’s or the customer’s net long position at the time of the transaction. For example, a sale may be marked as “long” because the overall net position in the security within an aggregation unit is long at the time of the sale. If the execution results in a short position in a specific account (or subaccount) held within the aggregation unit, this position is reportable pursuant to Rule 4560.

Additionally, Rule 4560(c)(1) provides an exception for sales by any person, for an account in which the person has an interest, if the person owns the security sold and intends to deliver the security as soon as is possible without undue inconvenience or expense. Although such sales are required to be marked “short” under Rule 200(g) of Regulation SHO, the positions are not reportable as short interest. For example, positions created from sales of securities that the seller is deemed to own under Rule 200(b) are exempt from short interest reporting pursuant to paragraph (c)(1), even where they result from a “short sale” as defined by Regulation SHO.

Updated on 10/27/22

Q2: Are firms required to correct previously reported short interest information?

A2: Yes, firms have an ongoing duty to report complete and accurate short interest information to FINRA pursuant to Rule 4560. Accordingly, if a firm becomes aware that previously reported short interest information is incomplete or inaccurate, it must promptly notify FINRA Market Regulation at [email protected] and provide adjusted information if instructed to do so by FINRA.

Posted on 10/27/22

Q3. Are “fail to receive” positions reportable as short interest?

A3. No. Fails to receive are not a “short sale” as defined under Rule 200(a) of Regulation SHO and are thus not reportable pursuant to Rule 4560.

Updated on 10/27/22

Q4. Are positions resulting from sell transactions cleared by a firm on a receipt versus payment (“RVP”) basis reportable as short interest?

A4. No. In situations where the customer owns the shares and holds them away from the firm at a third party entity, e.g., a custodian bank or prime broker, and sells the shares at the firm, with the agreement that it will deliver the shares upon settlement (i.e., on a “RVP” basis), such RVP sales are not reportable as short interest for purposes of Rule 4560, even though firms may reflect such customer RVP sales as short positions on their stock record until the shares are received from the customer.

Posted on 10/27/22

Q5. Are positions resulting from stock loan activity reportable as short interest?

A5. No. Firms that engage in stock loan activity may reflect a “short” position on their books and records indicating that a stock loan of a security has been made to a customer or another broker-dealer. For example, when a firm loans shares, the firm’s stock record may reflect a “short” position to indicate that a loan occurred; however, such stock loan “short” position is not reportable pursuant to Rule 4560.

Posted on 10/27/22

Q6. Where two firms reflect the same short positions on their books and records, e.g., where one firm clears, settles or custodies positions on behalf of another firm, is it permissible for both firms to report the positions to FINRA?

A6. No. Short interest information should be reported to FINRA only once. Reporting by more than one firm results in the duplicative or “over-reporting” of short interest positions. Firms are responsible for determining whether another firm is reporting short interest on their behalf (for example, a firm with which it has a relationship or agreement to clear, settle or custody positions) and for ensuring that only one firm is submitting short interest information to FINRA.

Updated on 10/27/22

Q7. Does Rule 4560 apply to short positions held by a firm in a security that resulted from transactions effected outside the United States?

A7. Yes. Rule 4560 applies to positions in any equity security that has a U.S. symbol, irrespective of where the “short sale” is executed or whether the position is reflected on the firm’s books and records under the U.S. CUSIP, CUSIP International Numbering System (CINS) or foreign symbol. If a foreign security shares an International Securities Identification Number (ISIN) with a U.S.-listed or OTC Equity Security, a short position in such security should be reported to FINRA using the U.S. symbol and relevant U.S. exchange or trading center (e.g., NASDAQ or over the counter). See Regulatory Notice 16-32 for more detail on the requirements for submitting short interest positions through the web-based reporting system, including valid exchange/market codes.

Updated on 10/27/22

Q8. Is a firm required to report short interest positions that are held overseas at a separate legal entity and are not reflected on the firm’s books and records?

A8. No. FINRA member firms only are required to report all short positions that are held in each individual firm or customer account, including the account of a broker-dealer, that are reflected on the firm’s books and records, as described in Rule 4560.

Posted on 10/27/22

Q9. Should a firm report as short interest positions in an error account?

A9. Yes. Firms should report as short interest any short positions in an error account that result from a “short sale,” as defined by Rule 200(a) of Regulation SHO, or a transaction that is marked “long,” consistent with Regulation SHO, due to the firm’s or the customer’s net long position at the time of the transaction, e.g., aggregation units (see FAQ #1). Short positions in error accounts resulting from transactions placed into the error account, e.g., journaled from a firm or customer account or re-booked to an error account, shall be reported as short interest if, prior to being placed or re-booked into the error account, the original, underlying transaction was a “short sale” as defined by Rule 200(a) of Regulation SHO, or a transaction that was marked “long,” consistent with Regulation SHO, e.g. aggregation units.

Updated on 10/27/22

Q10. A member firm receives a customer order to sell 100 shares of security ABC. Rather than sell 100 shares of ABC, per the order, the firm erroneously sells 100 shares of security ABA (or 1000 shares of ABC). Where such an erroneous sale by the firm on behalf of a customer results in a short position in the firm’s error account, is the short position reportable for short interest purposes?

A10. Yes. In this limited instance, where a firm makes an error when effecting a customer sell order, it is appropriate to consider any resulting short position in the firm’s error account as reportable for short interest purposes, irrespective of whether the erroneous sale on behalf of the customer is actually long or short based on the customer’s position at the time it is executed.

Posted on 10/27/22

Q11. Should a firm report “short” positions reflected in a dividend reinvestment account that result from the simultaneous purchase of shares for, and credit to, a customer’s account, where the shares are allocated to the customer’s account before the purchase transaction settles?

A11. No. A position that results from the simultaneous purchase of shares for, and credit to, a customer’s account is not reportable pursuant to Rule 4560—even where the transaction is reflected internally as a “short” position and remains open until the settlement date of the purchase transaction. Such positions are not reportable because they do not result from a “short sale,” as defined by Rule 200(a) of Regulation SHO, or a transaction that is otherwise marked as “long,” consistent with Regulation SHO, due to the firm’s or the customer’s net long position at the time of the transaction, e.g., aggregation units.

Updated on 10/27/22

Q12. Must a firm report short interest positions that result from option exercises or assignments?

A12. Yes. Firms must include in short interest reports any short positions that result from the exercise or assignment of an option.

Updated on 10/27/22

Q13. Some prime brokers automatically re-designate a “long sale” executed at another broker-dealer as a “short sale” (and subsequently report it as short interest) if the customer does not have shares on deposit at the prime broker. Is this permissible under Rule 4560?

A13. Prime brokers should not automatically assume that such trades are “short sales,” as defined by Rule 200(a) of Regulation SHO, and must take steps to verify the true nature of the position before reporting it as short interest pursuant to Rule 4560.

Updated on 10/27/22

Q14. If a security is traded on a “when-issued” basis where no settlement date has been set, should a firm’s short position in the security be reported as short interest?

A14. No. Rule 4560(b) provides that firms must report only those short positions resulting from a “short sale” that has settled or reached settlement date by the close of the FINRA-designated reporting settlement date. Thus, if a transaction has not settled or reached settlement date, or if no settlement date has yet been established for the transaction, a firm should not report the position as short interest pursuant to Rule 4560.

Updated on 10/27/22

Q15. Does Rule 4560 apply to short positions that are the result of ETF creation activity?

A15. Yes. ETF creation activity, i.e., the exchange of the underlying component stocks that compose an ETF for shares of the ETF from the issuer, is considered a sale transaction for purposes of short interest reporting. Thus, if ETF creation activity by a firm results in a short position in one or more of the underlying component stocks at the level of the clearing firm, then the position is reportable as short interest pursuant to Rule 4560.

Posted on 10/27/22

Q16. Firms may use book-entry transfers to transfer shares or positions from one account held at the firm to another account held at the firm for various reasons, e.g., risk management purposes. Are short positions that result from such book-entry transfers reportable as short interest?

A16. Short interest may only be reported to FINRA pursuant to Rule 4560 when the position resulted from: (1) a “short sale,” as defined by Regulation SHO Rule 200(a); or (2) where the transaction(s) that caused the short position was marked “long,” consistent with Regulation SHO, due to the firm’s or the customer’s net long position at the time of the transaction (See FAQ #1).

Therefore, if some or all of a short position is created solely by a book-entry transfer, that portion of the short position is not reportable to FINRA. We note, however, that if a short position that resulted from a short sale (as described above and in Rule 4560) exists in Account A, and is later transferred in whole or in part to Account B, resulting in a short position (or an increased short position) in Account B, then the firm must include the short position resulting from the transfer to Account B in its reporting to FINRA (because the short position in Account B originally resulted from a short sale).

Posted on 10/27/22

Q17. Are positions reflected on a firm’s books and records as “short” due to off-setting purchase and sale transactions with different settlement dates reportable?

A17. Whether a position that results from off-setting purchase and sale transactions with different settlement dates is reportable as short interest pursuant to Rule 4560 depends on whether the sale transaction is a short sale as defined by Regulation SHO Rule 200(a).

Scenario 1

A customer places an order to sell long 100 shares of a security with an extended settlement, e.g., T+10. To facilitate the customer long sale order, the firm first effects a sale on the open market of 100 shares with a regular way settlement (T+2) from Proprietary Account A, which has no position in the security. The firm subsequently purchases 100 shares of the security from the customer with an extended settlement date of T+10 into Proprietary Account A. While the sale transaction settles on T+2, the purchase transaction from the customer will not settle until T+10. As a result, a short position of 100 shares in Proprietary Account A is reflected on the firm’s books and records until the purchase transaction settles on T+10. Because Proprietary Account A does not have a position in the security prior to the firm’s sale of 100 shares and the sale occurred before the purchase, the sale is “short” as defined by Rule 200(a) of Regulation SHO and the resulting short position on the firm’s books and records would be reportable as short interest pursuant to Rule 4560.

Scenario 2

A customer places an order to buy 100 shares of a security with a shortened (e.g., same day) settlement. To facilitate the customer buy order, the firm first effects a purchase of 100 shares with a regular way settlement (T+2) into Proprietary Account A, and subsequently sells 100 shares to the customer with a same day shortened settlement. Because the purchase transaction occurs prior to the sale of 100 shares, the firm’s sale transaction would be “long,” even though the sale transaction settles prior to the purchase transaction, and the position would not be reportable as short interest pursuant to Rule 4560.

Posted on 10/27/22

Q18. When long and short positions in the same security are maintained simultaneously and held in the same account, such as a “short against the box” or hedge position, are such short positions reportable?

A18. Yes. Where, as part of a strategy, an account holds both a short and long position in the same security simultaneously, the short position is reportable as short interest pursuant to Rule 4560 and must be reported in full, i.e., not netted against the long position. This guidance applies where the beneficial owner of the account holds both a long and short position in the same security simultaneously as part of a strategy. By contrast, if simultaneous long and short positions in the same account and in the same security exist as a result of an error or a processing delay, the short position would not be reportable. For example, if an account purchases shares into one account type (e.g., cash) to cover a short position existing in a different account type (e.g., margin), but there is a delay in collapsing the two positions, the short position would not be reportable.

Posted on 10/27/22

Q19. Should a firm report a short interest position for which a purchase transaction to cover the position has settled, but the relevant short position temporarily remains reflected on the firm’s books and records, e.g., the purchase was booked to a different account type and the firm has not yet collapsed the position?

A19. No. If the purchase transaction to cover any portion of a short position has settled, the covered portion of the short position should not be reported as short interest pursuant to Rule 4560, even if such “short” position remains temporarily reflected on the firm’s books and records.

Posted on 10/27/22

Q20. How should firms report short positions in master/sub-accounts or parent/child accounts?

A20. Firms that maintain positions in master/sub-accounts or parent/child accounts must calculate and report short interest under Rule 4560 based on the short position in each sub- or child account. Firms should not report a net short interest position for each account grouping, i.e., by parent or master account. See Regulatory Notice 17-43.

Posted on 10/27/22