This table reports the coverage of the short interest in the equities in non-reporting company issuers at
  different threshold levels. Data are from OTC Markets Group for September 30, 2020. The ``Greater than''
  levels are cumulative. ``% of $ Short Interest'' is the percentage of total dollar value of short interest.
  ``% of Short Positions'' is the percentage of short positions, assuming 1 or 3 Managers have short positions
  in each stock.

E. Supplementing Current Short Sale Data Available From FINRA and the
Exchanges

    As noted above, certain short sale data is publicly disseminated
currently by FINRA and most of the exchanges. Notably, however, FINRA
or the exchanges, at their discretion, could modify, or eliminate,
their collection or publication of such short sale data. Moreover, the
Commission understands that some of the exchanges require payment of a
fee to access the data, which may make it difficult for some investors
to access. The Commission believes that the short sale data provided
pursuant to Proposed Rule 13f-2 and Proposed Form SHO would supplement
the short sale information that is currently publicly available from
FINRA and the exchanges, with the benefit of having certain of the
short sale data provided consolidated in a readily accessible location
(i.e., EDGAR), with aggregated data free to all investors and other
market participants. The short sale data collected pursuant to Proposed
Rule 13f-2 and Proposed Form SHO, for example, would include certain
activity related data that is not currently available from FINRA or the
exchanges, including activity in related options. While FINRA's
existing short interest data reports aggregate short positions on a bi-
monthly basis,\83\ they do not reflect the timing with which short
positions increase or decrease in the two week period between the two
reporting dates. The short sale data collected pursuant to Proposed
Rule 13f-2 and Proposed Form SHO would help to fill that gap. The
Commission believes that publication of this additional information,
aggregated as discussed above, could help to further inform market
participants regarding overall short sale activity by reporting

Managers with substantial short positions.
---------------------------------------------------------------------------

    \83\ The short interest data reported reflects aggregate short
positions as of the specified reporting dates.
---------------------------------------------------------------------------

F. Request for Comments

    While the Commission welcomes any public input on Proposed Rule
13f-2 and Proposed Form SHO, the Commission asks commenters to consider
the following questions.
     Q1: EDGAR: Managers that meet a Reporting Threshold would
be required to report prescribed short sale related data on Proposed
Form SHO through EDGAR.
    [cir] Are there are other reporting mechanisms for reporting
Managers that would be more appropriate, including more efficient, than
reporting through EDGAR? If so, please identify the alternative
reporting mechanism, and provide the reasons why such alternative
reporting mechanism would be more appropriate.
     Q2: Managers: Under Proposed Rule 13f-2, the Commission is
proposing that the information reported by Managers be aggregated
across all reporting Managers prior to publication.
    [cir] Please discuss any views on the reporting requirements of
Proposed Rule 13f-2 and Proposed Form SHO.
    [cir] Please discuss any views regarding the Commission's proposed
approach to aggregate the reported information across all reporting
Managers prior to publication and address the pros and cons, as
applicable, of the Commission's proposed approach.
    [cir] Proposed Rule 13f-2 would require that a Manager provide
identifying information including its active LEI (if it has one) when
filing Proposed Form SHO. If a Manager does not have an active LEI,
should such Manager be required to obtain an LEI?
     Q3: Hedging Information: When reporting on Proposed Form
SHO, Managers would be required to identify whether the gross short
position reported is fully hedged, partially hedged, or not hedged.
    [cir] Please describe any views regarding the reporting of hedging
information as proposed by the Commission and address the pros and
cons, as applicable.
    [cir] Do Managers generally know whether a position is fully hedged
or partially hedged?
    [cir] Is there a common understanding among Managers regarding what
fully hedged or partially hedged means? Are those understandings
different than the Commission's proposed instructions and discussion
above? If there is a common understanding or definition, please
describe it.
    [cir] Is the Commission's description of ``fully hedged'' or
``partially hedged'' appropriate for purposes of reporting under
Proposed Rule 13f-2? If so, describe why. If not, please describe what
would be an appropriate definition of these terms for purposes of
Manager reporting under Proposed Rule 13f-2.
    [cir] Would the required hedging information provide important
information to assist in interpreting the reported gross short position
information?
    [ssquf] If not, what other information might help to inform on the
economic exposure of the reported gross short position?
     Q4: Publication of ``Activity'' Information by the
Commission:
    [cir] Please discuss any views regarding the Commission's proposed
approach with regard to the publication of aggregated ``net'' activity,
as described above, and address the pros and cons, as applicable.
    [cir] Would aggregated ``net'' activity be more useful and
informative if it was published by ``category'' of activity identified
in Information Table 2, rather than consolidated across all
``categories'' of activity identified in Information Table 2?
    [cir] Is there another manner in which aggregated ``activity''
information could be published that would be more useful and
informative than is proposed by the Commission? If so, please describe.
     Q5: Reporting Thresholds: Under Proposed Rule 13f-2, only
Managers that meet a stated Reporting Threshold would be required to
report on Proposed Form SHO through EDGAR. This approach is intended to
focus reporting by Managers with substantial gross short positions.
    [cir] Are the proposed Reporting Thresholds appropriate? If so,
explain why. If not, explain why not and how the Reporting Thresholds
should be modified.
    [cir] Do you believe that Managers would try to avoid triggering
the proposed Reporting Thresholds? If so, please explain.
    [cir] In determining whether the dollar value threshold in
Threshold A (U.S. dollar value of $10 million or more) is met, the
Commission proposes that a Manager utilize the closing price at the
close of regular trading hours on the settlement date. Should Managers
be required to use a specific source of information in determining the
closing price of the equity security? If yes, explain why, and describe
the source(s) of information. Could there be circumstances in which a
closing price is not available for equity securities subject to
Threshold A? If yes, please describe those circumstances. In such
circumstances, should a Manager be required to use a specific source of
information in determining the closing price of the equity security?
    [cir] To determine whether the percentage threshold in Threshold A
(2.5% or more) is met, the Commission proposes that a Manager utilize
the number of outstanding shares of the security for which information
is being reported as determined by reference to an issuer's most recent
annual or quarterly report, and any subsequent update thereto, filed
with the Commission. Are there circumstances in which Managers should
not reference these reports filed with the Commission to determine the
number of outstanding shares? If yes, please describe those
circumstances. Should Managers be required or permitted to use a
different source of information in determining the number of shares
outstanding of the equity security? If yes, please explain why, and
describe the source(s) of information.
    [cir] In determining whether the dollar value threshold in
Threshold B (U.S. dollar value of $500,000 or more) is met, the
Commission proposes that a Manager utilize the closing price at the
close of regular trading hours on the settlement date. The Commission
further proposes that in circumstances where such closing price is not
available, a Manager would be required to utilize the price at which it
last purchased or sold any share of that equity security in determining
whether Threshold B is met. Should Managers be required to use a
specific source of information in determining the closing price of such
an equity security--for example, the closing price provided on an
interdealer quotation system (``IDQS'') \84\ or an alternative trading
system (``ATS'') \85\? Or alternatively, last available sale price of
such equity security? If yes, explain why, and describe the source(s)
of information.
---------------------------------------------------------------------------

    \84\ See 17 CFR 240.15c2-11(e)(3).
    \85\ See 17 CFR 242.300(a).
---------------------------------------------------------------------------

    [cir] Managers would be required to report their gross short
positions in equity securities without offsetting such gross short
positions with long shares of the equity security or with an equivalent
long position through derivatives of the equity security. Are there any
pros and cons of such a proposed approach, especially when compared to
using a ``net'' short interest position calculation? If so, explain
why, and describe any associated costs and benefits.
     Q6: Securities Covered: Under Proposed Rule 13f-2,
Managers would be required to report to the Commission certain short
sale related data, as

described above, for equity securities consistent with the Commission's
short sale regulations (i.e., Regulation SHO).
    [cir] Should reporting Managers be required to report short sale
related data for a different universe of securities than equity
securities consistent with Regulation SHO? If so, please explain why
and describe the universe of securities that would be more appropriate.
    [cir] Should fixed income securities be included under Proposed
Rule 13f-2? If yes, explain why and describe what costs and benefits
might be associated with such reporting.
    [cir] Should other securities be included under Proposed Rule 13f-
2? If yes, identify such securities, explain why, and describe what
costs and benefits might be associated with such reporting.
    [cir] Should certain securities be excluded from Proposed Rule 13f-
2 reporting? If yes, identify the securities in question, and explain
why.
    [cir] ETFs would be included under Proposed Rule 13f-2. Should ETFs
be excluded from Proposed Rule 13f-2? If yes, describe why. If no,
explain why not.
     Q7: Economic Short Positions: Proposed Rule 13f-2 requires
that a Manager calculate its gross short position in the equity
security in determining whether it meets the Reporting Thresholds.
    [cir] Should a Manager also be required to include short positions
resulting from derivatives in determining whether it meets the
Reporting Thresholds? If so, explain why, and describe any associated
costs and benefits to doing so. If not, explain why not.
    [ssquf] Should only certain derivative positions be included? If
so, which ones and why?
    [ssquf] Should certain derivative positions not be included? If so,
which ones and why?
    [ssquf] Does excluding derivative positions create opportunities to
avoid triggering the Reporting Thresholds through other economically
equivalent instruments? If so, please explain.
     Q8: Short Position Information: Under Proposed Rule 13f-2,
Managers that meet a Reporting Threshold are required to report their
end of month gross short position in the equity security.
    [cir] Should a Manager also be required to separately report its
end of month gross short position in derivatives, including, for
example, options? Please explain.
    [cir] If yes, should only certain derivatives be reported? Please
explain.
    [cir] If yes, should certain derivatives not be reported? Please
explain.
    [cir] Please describe any views related to the pros or cons
associated with reporting end of month gross short positions in
derivatives.
    [cir] Proposed Form SHO requires Managers to report CUSIP and if
assigned, FIGI, for a security for which information is being reported
in both Instruction Tables 1 and 2. If a FIGI has been assigned, should
a Manager be required to report CUSIP as well?
    [cir] Please describe any views related to the position data that a
Manager would be required to report as described in Information Table 1
of Proposed Form SHO.
     Q9: Short Sale ``Activity'' Information Reported by
Managers: Under Proposed Rule 13f-2, Managers would be required to
report on Proposed Form SHO all activity in the equity security on each
settlement date during the calendar month.
    [cir] Please describe any views related to the ``categories'' of
activity data that a Manager would be required to report as described
in Information Table 2 of Proposed Form SHO.
    [cir] With regard to the reporting of ``other'' activity, are there
certain types of ``other'' activity that should be reported? If yes,
describe the other activity and describe why it should be reported.
    [cir] ETF creations and redemptions would be included under
Proposed Rule 13f-2. Should ETF creations and redemptions be excluded
from Proposed Rule 13f-2? If yes, describe why. If no, explain why not.
    [cir] Should other activity be included or excluded from Proposed
Rule 13f-2? If yes, describe the other activity and describe why it
should be included or excluded.
     Q10: Indirect Short Positions or Short Activities:
Managers meeting a Reporting Threshold would be required to report a
gross short position in an ETF, but would not be required to consider
short positions that the ETF holds in individual underlying equity
securities that are part of the ETF basket in determining whether the
Manager meets a Reporting Threshold for such underlying equity
securities that are part of the ETF basket.
    [cir] Should Managers be required to consider short positions that
the ETF holds in individual underlying equity securities that are part
of the ETF basket in determining whether the Manager meets a Reporting
Threshold for such underlying equity securities that are part of the
ETF basket? If yes, explain why. If no, explain why not.
    [cir] Are there other diversified portfolio products in addition to
ETFs that should be included? If yes, describe the product. Describe
why, or why not, a Manager should be required to consider short
positions in individual underlying equity securities of the product's
basket of assets.
     Q11: Frequency of Reporting: Under Proposed Rule 13f-2, a
Manager that meets a Reporting Threshold must file Proposed Form SHO
with the Commission within 14 calendar days after the end of each
calendar month.
    [cir] Is monthly reporting by Managers appropriate? If so, explain
why. If no, explain why not and describe an alternative frequency of
reporting that is more appropriate.
    [cir] Does reporting within 14 calendar days of the end of the
calendar month provide reporting Managers sufficient time to accurately
report the short sale related information as described in Proposed Rule
13f-2? If no, please explain why not and describe any suggested
alternative timeline(s). Alternatively, is the 14 calendar days after
the end of the calendar month reporting period for Managers too much
time? If so, please explain why and describe any suggested alternative.
     Q12: Multiple Managers with Investment Discretion. As
noted above, as is the case for Form 13F filers, under Proposed Rule
13f-2, to prevent duplicative reporting of Proposed Form SHO if two or
more Managers, each of which is required by Proposed Rule 13f-2 to file
Proposed Form SHO for the reporting period, exercise investment
discretion with respect to the same securities, only one such Manager
must report the information in its report on Proposed Form SHO.
    [cir] Please describe any views related to the pros or cons
associated with the Commission's proposed approach as described above.
    [cir] Will a Manager always be aware of instances in which there is
another Manager(s) with investment discretion with respect to the same
securities? If yes, how will that Manager be aware of the other
Manager(s)? If yes, if there is more than one Manager that has
investment discretion with respect to the same securities, how would
each manager determine which Manager shall report short position and
short position activity pursuant to Proposed Form SHO in order to avoid
duplicative reporting?
    [cir] Should there be a mechanism that requires Managers to
coordinate with one another to avoid duplicative reporting? If yes,
please describe. In addition, please describe any alternative approach
designed to prevent duplicative reporting by Managers.
     Q13: Amendments to Proposed Form SHO: A Manager that
determines

that it has filed a Proposed Form SHO that includes inaccurate
information must file an amended Proposed Form SHO within 10 calendar
days of discovery of the error. Amendments to Proposed Form SHO must
restate the Proposed Form SHO in its entirety and provide on the
Proposed Form SHO Cover Page prescribed information about the revision
being made--including the impact on prior Proposed Form SHO reporting
periods. In prescribed circumstances, Managers must notify the
Commission staff of the filing of an amended Proposed Form SHO.
    [cir] Please discuss any views regarding the Commission's proposed
approach regarding filing amendments to Proposed Form SHO and address
the pros and cons, as applicable, of the Commission's proposed
approach. In particular:
    [ssquf] Should the Commission provide updated data on a rolling
basis for more (or less than) 12 consecutive months?
    [ssquf] Should Managers notify Commission staff of errors for any
data point of greater than, or less than, 25%? Should the Commission
flag, with an asterisk or other indicator, updates to published data
that are less than 25% of prior published data? Should the Commission
use other types of indicators (e.g., asterisk for an update of 25% or
greater, or other indicator for update of less than 25%, etc.)?
    [ssquf] In filing an amended Proposed Form SHO, should Managers be
required to re-file the entire Proposed Form SHO, or should Managers
have the opportunity to re-file only the data that is being corrected?
    [ssquf] The Commission is proposing to require Managers to notify
Commission staff about multiple consecutive Amendments and Restatements
to help Commission staff determine if there is a continuing issue with
the integrity of that Manager's filings. Should Managers be required to
notify Commission staff only if there are a specified number of months
of consecutive Amendments and Restatements, e.g., three, four, or five
consecutive months?
    [ssquf] The Commission is proposing that if a revision reported in
an Amendment and Restatement changes a data point reported in the
Proposed Form SHO by twenty-five percent (25%) or more, the Manager
must notify the Commission staff via email within two (2) business days
after filing the Amendment and Restatement. Does two (2) business days
provide a Manager with sufficient time to notify the Commission? If no,
please explain why not and describe any suggested alternative
timeline(s).
    [ssquf] The Commission is proposing that, regardless of the scope
of the revision being reported, if the data being reported in an
Amendment and Restatement affects the data reported on the Proposed
Form SHO reports filed for multiple Proposed Form SHO reporting
periods, the Manager, within two (2) business days after filing the
Amendment and Restatement, must provide the Commission staff via email
with notice of such occurrence, and provide an explanation of the
reason for the revision. Does two (2) business days provide a Manager
with sufficient time notify the Commission? If no, please explain why
not and describe any suggested alternative timeline(s).
    On November 18, 2021, the Commission proposed rule 10c-1 under the
Exchange Act \86\--a rule designed to increase the transparency and
efficiency of the securities lending market by requiring lenders of
securities to provide the material terms of securities lending
transactions to a registered national securities association, such as
FINRA. On [insert date of vote], the Commission reopened the comment
period for proposed Rule 10c-1.\87\ We encourage commenters to review
the Reporting of Securities Loans Proposing Release to determine
whether it might affect their comments on this proposing release and
Proposed Rule 13f-2 and Proposed Form SHO.
---------------------------------------------------------------------------

    \86\ Reporting of Securities Loans, Exchange Act Release No.
93613 (Nov. 18, 2021) (``Reporting of Securities Loans Proposing
Release'').
    \87\ Reopening of Comment Period for Reporting of Securities
Loans, Exchange Act Release No. 34-94315 (Feb. 25, 2022).
---------------------------------------------------------------------------

IV. Potential Alternative Approach to Proposed Rule 13f-2 Regarding How
the Information Reported on Proposed Form SHO Is Published by the
Commission

    As noted above, the Commission's Proposed Rule 13f-2 would require
that a Manager provide identifying information including its name and
active LEI, if the Manager has an active LEI, when filing Proposed Form
SHO through EDGAR. The Commission would collect information from all
reporting Managers and publish aggregated information across all
Managers reporting in a particular equity security. The Commission,
however, seeks comment on the following alternative approach regarding
how the information reported on Proposed Form SHO by reporting Managers
would be published by the Commission. Under this alternative approach,
the Commission would not alter the proposed Reporting Thresholds or the
information that would be reported by a reporting Manager on Proposed
Form SHO, as described herein. However, under this alternative, the
information reported by a Manager on Proposed Form SHO would be
published as it is reported to the Commission, and would not be
aggregated with information reported by other Managers. Reported
information would therefore be published at the individual Manager
level, rather than aggregated across all reporting Managers prior to
publication. The reporting Manager's identifying information, including
its name and active LEI, if the Manager has an active LEI, would be
removed in an effort to anonymize the information published. In
anonymizing the reporting Manager's information prior to publication,
the Commission would be seeking to balance the above noted calls for
additional short sale transparency with, among other things, the above
noted concerns regarding potential issuer and investor retaliation
against identified short sellers. The Commission remains concerned that
such retaliation could result in a reduction in short selling, along
with a reduction in the corresponding liquidity and price transparency
benefits. The Commission further understands that despite measures
designed to help anonymize published information, it may still be
possible for market participants to identify certain reporting
Managers. For example, it is not uncommon for there to be only one
large short seller in an equity security, and under such circumstances,
sophisticated traders may be able to link individual short sellers to
their short positions reported on Proposed Form SHO through public
statements, social media posts, or even rumors.\88\ Using Threshold A
as described above, the Commission estimates that 32% of reportable
equity securities would have only one reporting Manager.
---------------------------------------------------------------------------

    \88\ See generally infra Part VIII.D.2.
---------------------------------------------------------------------------

     Q14: Managers and the Potential Alternative Approach:
Under the potential alternative approach presented, the reported
information by a Manager would be published at the Manager level,
without aggregation with other reporting Managers, with the reporting
Manager's identifying information, including any active LEI, being
removed prior to publication.
    [cir] Please discuss the Commission's potential alternative
approach, and address the pros and cons, as applicable.

V. Proposed Amendment to Regulation SHO To Aid Short Sale Data
Collection

    The Commission is proposing new Rule 205 of Regulation SHO to
facilitate its collection of more comprehensive data on the lifecycle
of short sales. Proposed Rule 205 would establish a new ``buy to
cover'' order marking requirement for certain purchase orders effected
by a broker-dealer for its own account or the account of another person
at the broker-dealer. Specifically, a broker-dealer would be required
to mark a purchase order as ``buy to cover'' if, at the time of order
entry, the purchaser (i.e., either the broker-dealer or another person)
has a gross short position in such security in the specific account for
which the purchase is being made at such broker-dealer. A broker-dealer
would be required to mark a purchase order as ``buy to cover,''
regardless of the size of such purchase order in relation to the size
of the purchaser's gross short position in such security in the
account, and regardless of whether the gross short position is offset
by a long position held in the purchaser's account at the time of order
entry.\89\ If, for example, the purchaser has a gross short position of
100 shares in security ABC in account number 123 at broker-dealer X,
then purchases 50 shares of ABC through broker-dealer X in account
number 123 (a purchase amount less than the purchaser's gross short
position in the account at broker-dealer X), broker-dealer X would be
required to mark the purchase order as ``buy to cover.'' If the
purchase order was instead for 150 shares of ABC in account number 123
(a purchase amount greater than the purchaser's gross short position in
account number 123 at broker-dealer X), broker-dealer X would likewise
be required to mark the purchase order as ``buy to cover.'' The
proposed ``buy to cover'' marking requirement would not impact
compliance with, or the operation of, other rules under Regulation SHO,
including a broker-dealer's determination of whether to mark a sale
order as ``long,'' ``short,'' or ``short exempt'' pursuant to Rule 200.
---------------------------------------------------------------------------

    \89\ Unlike the netting requirements under Rule 200 of
Regulation SHO, the ``buy to cover'' order marking determination
under Proposed Rule 205 will be made on a ``gross'' basis. The
Commission believes that this approach would help minimize costs to
broker-dealers because it would require them to determine only
whether any short position is held by the account on whose behalf
the purchase is being effected regardless of whether such short
position is offset by any long position in the same security held by
the purchaser in the same or any other account.
---------------------------------------------------------------------------

    There is presently no ``buy to cover'' order marking requirement,
so the Commission does not currently have regular access to ``buy to
cover'' order marking information. The Commission believes that having
``buy to cover'' order marking information would provide additional
context to the Commission and other regulators regarding the lifecycle
of short sales by identifying the timing of purchases that close out,
in whole or in part, open short positions in a security. The Commission
believes this information would assist in reconstructing market events,
and would be useful in identifying and investigating any potentially
abusive trading practices including any potential manipulative short
squeezes.\90\
---------------------------------------------------------------------------

    \90\ See infra Part VIII.D.1 for a discussion of how the
Commission could have used this data to enhance our understanding
and recreation of the `meme stock' phenomenon of January 2021.
---------------------------------------------------------------------------

    To reduce potential burdens and costs to broker-dealers, the
proposed rule would require the broker-dealer to determine only whether
a purchase is being made for an account at the broker-dealer that has a
gross short position in that equity security in that account at the
time of the purchase. The Commission believes that this simplified
approach would help minimize costs to broker-dealers by allowing short
positions held in any accounts other than the purchasing account, as
well as offsetting long positions held by the purchaser in the
purchasing account or any other account, to be excluded for purposes of
the broker-dealer's ``buy to cover'' order marking determination. The
Commission believes that the resulting data would provide the
Commission with an indication of which purchases are potentially
associated with a ``short squeeze,'' where short sellers are pressured
to cover their open short positions by purchasing shares as a result of
increases in the price of a stock or borrowing costs. Having access to
``buy to cover'' information would help the Commission identify
instances in which an increase in ``buy to cover'' orders in a
particular equity security coincides with an increase in price and/or
borrowing costs in the same equity security, and thus identify where
``short squeezes'' may be occurring. As discussed further below, this
data would aid the Commission in reconstructing significant market
events related to short selling.
    The Commission alternatively considered proposing to require the
broker-dealer to look across multiple accounts held by the customer
within the broker-dealer itself, if applicable, and/or to its
customer's account(s) held at other firms, if applicable, but
determined that the costs and burdens to the broker-dealer would likely
increase significantly under such an approach. With regard to other
accounts held by the customer within the broker-dealer itself, the
broker-dealer would incur additional costs and burdens in conducting
such review. With regard to its customer's accounts held at other
firms, the Commission understands that this information is not
typically available to the broker-dealer and might be challenging to
obtain. As a result, after considering the potential costs and burdens
to broker-dealers, Proposed Rule 205 would require the broker-dealer to
determine only whether a purchase is being made for an account at the
broker-dealer that has an open short position in that equity security
in that account.
    The proposed ``buy to cover'' requirement would likely create one-
time programming costs to broker-dealers as well as ongoing costs
associated with order marking. The proposed ``buy to cover'' order mark
determination would be distinct from that made by broker-dealers'
existing order marking systems and processes designed to ensure
compliance with Rule 200 of Regulation SHO. Thus, broker-dealers would
be required to update their respective systems and processes to account
for compliance with Proposed Rule 205 (i.e., broker-dealers would
likely need to program systems to add an additional field for the ``buy
to cover'' order mark).
    While the Commission welcomes any public input on Proposed Rule
205, the Commission asks commenters to consider the following
questions.
     Q15: Should Proposed Rule 205 also require the broker-
dealer to mark a purchase as ``buy to cover'' if the person is
purchasing in an account that does not have a gross short position, but
the person may have gross short positions in other accounts at the same
and/or other broker-dealers? Would a purchase in a different account
than an account with a gross short position in that security also be
reflective of a person's intent to buy to cover a gross short position
in that security? To what extent do short sellers buy to cover short
positions by purchasing securities through accounts other than the
account holding the short position? Would persons buy to cover
securities at accounts at different broker-dealers? How often might
such buy to cover orders occur in different accounts or at different
broker-dealers? What would be the additional burdens or costs of such
an additional requirement?
     Q16: Are there likely to be costs, other than those
described in the

release, to broker-dealers resulting from the proposed ``buy to cover''
order marking requirement?
     Q17: Should Proposed Rule 205 require broker-dealers to
make the ``buy to cover'' order marking determination based on the
purchaser's net short position instead of gross short position? What
are the costs and benefits associated with each approach?

VI. Proposal To Amend CAT

    In July 2012, the Commission adopted Rule 613 of Regulation NMS,
which required national securities exchanges and national securities
associations (the ``Participants'') \91\ to jointly develop and submit
to the Commission a national market system plan to create, implement,
and maintain a consolidated audit trail (the ``CAT'').\92\ The goal of
Rule 613 was to create a modernized audit trail system that would
provide regulators with more timely access to a sufficiently
comprehensive set of trading data, thus enabling regulators to more
efficiently and effectively reconstruct market events, oversee market
behavior, and investigate misconduct. On November 15, 2016, the
Commission approved the national market system plan required by the CAT
NMS Plan.\93\
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    \91\ The Participants include: BOX Exchange LLC; Cboe BYX
Exchange, Inc.; Cboe BZX Exchange, Inc.; Cboe C2 Exchange, Inc.;
Cboe EDGA Exchange, Inc.; Cboe EDGX Exchange, Inc.; Cboe Exchange,
Inc.; Financial Industry Regulatory Authority, Inc.; Investors'
Exchange LLC; Long-Term Stock Exchange, Inc.; MEMX LLC; Miami
International Securities Exchange LLC; MIAX Emerald, LLC; MIAX
PEARL, LLC; Nasdaq BX, Inc.; Nasdaq GEMX, LLC; Nasdaq ISE, LLC;
Nasdaq MRX, LLC; Nasdaq PHLX LLC; The Nasdaq Stock Market LLC; New
York Stock Exchange LLC; NYSE American LLC; NYSE Arca, Inc.; NYSE
Chicago, Inc.; and NYSE National, Inc.
    \92\ See Exchange Act Release No. 67457 (July 18, 2012), 77 FR
45722 (Aug. 1, 2012) (``Rule 613 Adopting Release'').
    \93\ Exchange Act Release No. 79318 (Nov. 15, 2016), 81 FR
84696, (Nov. 23, 2016) (``CAT NMS Plan Approval Order''). The CAT
NMS Plan is Exhibit A to the CAT NMS Plan Approval Order. See CAT
NMS Plan Approval Order, 81 FR at 84943-85034. The CAT NMS Plan
functions as the limited liability company agreement of the jointly
owned limited liability company formed under Delaware state law
through which the Participants conduct the activities of the CAT
(the ``Company''). Each Participant is a member of the Company and
jointly owns the Company on an equal basis. The Participants
submitted to the Commission a proposed amendment to the CAT NMS Plan
on August 29, 2019, which they designated as effective on filing.
Under the amendment, the limited liability company agreement of a
new limited liability company named Consolidated Audit Trail, LLC
serves as the CAT NMS Plan, replacing in its entirety the CAT NMS
Plan. See Exchange Act Release No. 87149 (Sept. 27, 2019), 84 FR
52905 (Oct. 3, 2019).
---------------------------------------------------------------------------

    Section 6.4(d) of the CAT NMS Plan provides that each Participant,
through its Compliance Rule,\94\ must require Industry Members \95\ to
record and electronically report certain information to the CAT Central
Repository, which means that any broker-dealer that is a member of a
national securities exchange or a member of a national securities
association must report the lifecycle of an order from original receipt
or origination, modification, cancellation, routing, execution (in
whole or in part) and allocation of an order, and receipt of a routed
order to the CAT.\96\ This provides regulators, including the
Commission, access to comprehensive information regarding the lifecycle
of orders, from origination to execution, as well as the post-execution
allocation of shares.
---------------------------------------------------------------------------

    \94\ ``Compliance Rule'' means, with respect to a Participant,
the rule(s) promulgated by such Participant as contemplated by
Section 3.11 of the CAT NMS Plan. See CAT NMS Plan, Section 1.1.
    \95\ An ``Industry Member'' means a member of a national
securities exchange or a member of a national securities
association. See CAT NMS Plan, Section 1.1.
    \96\ ``Central Repository'' means a repository responsible for
the receipt, consolidation, and retention of all information
reported to the CAT pursuant to Rule 613 of Regulation NMS and the
CAT NMS Plan. See CAT NMS Plan, Section 1.1.
---------------------------------------------------------------------------

    Broker-dealers, through the Compliance Rule adopted pursuant to the
CAT NMS Plan, are required to report some short sale order data,
including for sell orders, whether an order is long, short, or short
exempt,\97\ but not other short sale order data, including when a buy
order is designed to close out an existing short position, or whether a
market participant is relying on the bona fide market making exception
of the Regulation SHO locate requirement in Rule 203. To supplement the
short sale related data that would be reported by Managers to the
Commission pursuant to Proposed Rule 13f-2 and on Proposed Form SHO,
the Commission now believes it is appropriate to amend the CAT NMS Plan
to require the Participants to require CAT reporting firms to report
certain additional short sale related data to the CAT, as discussed
below.
---------------------------------------------------------------------------

    \97\ Section 1.1 of CAT NMS Plan defines ``Material Terms of the
Order,'' which includes, for sell orders, ``whether the order is
long, short, [or] short exempt[.]''
---------------------------------------------------------------------------

A. ``Buy to Cover'' Information

    First, the Commission proposes that Industry Members be required to
report to the CAT ``buy to cover'' information, which would be
collected pursuant to Regulation SHO through Proposed Rule 205 as
discussed in Part IV above. Specifically, the Commission proposes to
amend Section 6.4(d)(ii) of the CAT NMS Plan by adding new subparagraph
6.4(d)(ii)(D) which would require the Participants to update their
Compliance Rules to require Industry Members to report for the original
receipt or origination of an order to buy an equity security, whether
such buy order is for an equity security that is a ``buy to cover''
order as defined by Rule 205(a) of Regulation SHO (17 CFR
242.205(a)).\98\ This provision would require Industry Members to
identify ``buy to cover'' equity orders received or originated by
Industry Members and Customers \99\ as ``buy to cover'' orders in order
receipt and order origination reports submitted to the CAT Central
Repository.
---------------------------------------------------------------------------

    \98\ See Proposed Section 6.4(d)(ii)(D) of the CAT NMS Plan;
Proposed Rule 205(a) of Regulation SHO, 17 CFR 242.205(a)).
    \99\ Section 1.1 of the CAT NMS Plan defines the term
``Customer'' as (a) the account holder(s) of the account at a
registered broker-dealer originating the order; and (b) any person
from whom the broker-dealer is authorized to accept trading
instructions for such account, if different from the account
holder(s). See also, 17 CFR 242.613(j)(3).
---------------------------------------------------------------------------

    The originally proposed CAT NMS Plan would have required all CAT
Reporters (i.e., Participants and Industry Members) to report an
``open/close indicator'' as a ``Material Term'' on all orders, as
required by Rule 613.\100\ This open/close indicator could have been
used to identify ``buy to cover'' equities orders, because it would
have provided information on whether an order is to open or close an
existing position in a security. However, when the Commission approved
the CAT NMS Plan, it determined that it was appropriate to remove the
proposed requirement that an open/close indicator be reported as part
of the Material Terms of the Order for equities and Options Market
Maker quotations.\101\ At the time, three commenters objected to the
requirement that CAT Reporters report an open/close indicator for
equities transactions. Among other things, commenters noted that an
``open/close indicator'' is not used for equities, and believed that an
additional or separate cost-benefit analysis should be done before it
be required for equities.\102\ One of these commenters stated that
including an ``open/close indicator'' for equities would require
``significant process changes and involve parties other than CAT
Reporters, such as buy-side clients, OMS/EMS vendors, and others.''
\103\ Ultimately, the Commission decided that limiting the open/close
indicator to

listed options was ``reasonable,'' acknowledging concerns in other
areas, ``including the lack of a clear definition of the term for
equities transactions.'' \104\
---------------------------------------------------------------------------

    \100\ See 17 CFR 242.613(j)(7) (defining ``Material Terms of the
Order'' to include ``open/close indicator''); Exchange Act Release
No. 77724 (Apr. 27, 2016); 81 FR 30614, 30680 (May 17, 2016).
    \101\ See CAT NMS Plan Approval Order, 81 FR at 84747.
    \102\ See id.
    \103\ See id.
    \104\ See id. The Commission believes that the proposed
reporting requirements here do not have the same issue regarding the
lack of a clear definition because, unlike simply requiring an
``open/close indicator,'' the proposed reporting requirements more
clearly define when a ``buy to cover'' indicator would be required
to be reported.
---------------------------------------------------------------------------

    The Commission believes it is now appropriate to require ``buy to
cover'' CAT reporting by Industry Members. Unlike the ``open/close
indicator'' requirement in Rule 613, which was included in the
definition Material Terms of the Order, the Commission is proposing to
only require reporting by Industry Members on a subset of CAT reports
related to equity buy orders; specifically, order receipt and order
origination reports. Pursuant to the CAT NMS Plan, Material Terms of
the Order are required to be reported to the CAT for numerous other
events in an order's lifecycle, including routing of an order, receipt
of an order that has been routed, order modifications, order
cancellations, and executions of orders, in whole or in part.\105\ In
addition, the proposed provisions only require ``one-sided'' CAT
reporting--that is, except in circumstances where an Industry Member
originates a ``buy to cover'' order and submits it to another Industry
Member as a Customer (requiring both Industry Members to report ``buy
to cover'' information as part of order origination and order receipt
reports, respectively), only one CAT Reporter is required to report
that an order is a ``buy to cover'' order to the CAT. In addition, the
``buy to cover'' information does not have the same definitional issues
as an ``open/close indicator'' because ``buy to cover'' is being added
to Regulation SHO, as discussed in Part IV above. ``Buy to cover'' is
also a more narrow concept than an ``open/close indicator'' and would
require only a change to CAT reporting for a subset of equity buy
orders, and thus would not affect CAT reporting for a majority of
equity orders, and would not change CAT reporting relating to options
trading at all. Because of this, the costs associated with the
reporting of ``buy to cover'' information to the CAT should be
substantially less than the costs of reporting an ``open/close
indicator'' would have been.
---------------------------------------------------------------------------

    \105\ See Section 6.3(d) and 6.4(d) of the CAT NMS Plan. Because
``buy to cover'' information will only be available on order receipt
and order origination reports, Commission staff and regulators will
have to do more analysis to identify certain CAT records (e.g.,
order routes, modifications, cancellations, and executions) as
associated with a ``buy to cover'' order since Industry Members
would not be required to report ``buy to cover'' information on
these CAT reports, but the Commission believes this inefficiency is
justified by the reduction in burden of reporting for Industry
Members.
---------------------------------------------------------------------------

    The Commission believes that requiring proposed reporting of ``buy
to cover'' information to the CAT would provide valuable information
for the Commission and other regulators in investigations and
reconstruction of market events. The Commission and regulators
currently do not have ready access to ``buy to cover'' information
because they do not regularly receive Industry Member and customer
position information, and it is only possible to identify ``buy to
cover'' orders if the Commission or regulators independently obtain
position information, such as by obtaining trade data and blotters from
Industry Members. Even then, it is difficult to identify and track
equity orders that are ``buy to cover.'' Ready access to ``buy to
cover'' information in the CAT would allow regulators to more easily
determine whether a purchase of an equity security increases the equity
exposure of an Industry Member or Customer and whether the buy covers a
short position. Ready access to information used to determine whether
an order adds to an existing position or covers an existing short
position would assist in detecting and investigating portfolio pumping,
short selling abuses, short squeezes marking the close, potential
manipulation, insider trading, or other rule violations, such as
violations of Rule 105 of Regulation M, which generally governs when
short sellers can participate in a follow-on offering.\106\ This
information would also enhance the Commission staff's and regulators'
analysis and interpretations of the impact short selling and ``buys to
cover'' have on the market, by more accurately lining up trading
activity data available in the CAT with security price changes to
examine and study the impact of ``short squeezes'' on equity prices.
---------------------------------------------------------------------------

    \106\ 17 CFR 242.105.
---------------------------------------------------------------------------

B. Reliance on Bona Fide Market Making Exception

    The Commission also proposes to require CAT reporting firms that
are reporting short sales to indicate whether such reporting firm is
asserting use of the bona fide market making exception under Regulation
SHO for the locate requirement in Rule 203 for the reported short
sales. Specifically, the Commission proposes to amend Section
6.4(d)(ii) of the CAT NMS Plan to add a new subparagraph (E) which
would require Participants to update their Compliance Rules to require
Industry Members to report to the CAT, for the original receipt or
origination of an order to sell an equity security, whether the order
is a short sale effected by a market maker in connection with bona-fide
market making activities in the security for which the exception in
Rule 203(b)(2)(iii) of Regulation SHO is claimed.\107\ The Commission
believes that this information would provide valuable data to both the
Commission and other regulators regarding the use of this exception by
market participants, an exception which allows a broker-dealer (and
consequently, a short seller) to avoid or delay certain requirements of
Regulation SHO, including the locate and close out requirements.
---------------------------------------------------------------------------

    \107\ See proposed Section 6.4(d)(ii)(E) of the CAT NMS Plan.
---------------------------------------------------------------------------

    Rule 203(b)(1) of Regulation SHO generally prohibits a broker-
dealer from accepting a short sale order in an equity security from
another person, or effecting a short sale in an equity security for its
own account, unless the broker-dealer (i) has borrowed the security,
(ii) has entered into a bona-fide arrangement to borrow the security,
or (iii) has reasonable grounds to believe that the security can be
borrowed so that it can be delivered on the date delivery is due.\108\
This is generally referred to as the locate requirement. Rule 203(b)(2)
of Regulation SHO provides an exception to the locate requirement for
short sales effected by a market maker in connection with ``bona fide''
market making activities.\109\ To qualify for the bona fide market
making exception, however, a firm must be engaged in bona fide market
making at the time of the short sale in question.\110\ The Commission
adopted this narrow exception to Regulation SHO's locate requirement
for market makers that may need to facilitate customer orders in a fast
moving market without possible

delays associated with complying with such a requirement.\111\
---------------------------------------------------------------------------

    \108\ 17 CFR 242.203(b)(1).
    \109\ 17 CFR 242.203(b)(2). The Commission has provided guidance
on indicia of bona fide market making activities eligible for the
locate exception. See Regulation SHO Adopting Release, supra note 4
(setting forth examples of activities that would not be considered
to be bona fide market making activities); see also, Exchange Act
Release No. 58775 (Oct. 14, 2008), 73 FR 61690, 61698-99 (Oct. 17,
2004) (adopting amendments to Regulation SHO and providing
additional guidance on what constitutes bona fide market making).
Whether activity is considered bona fide market making activity for
purposes of Regulation SHO will ``depend on the facts and
circumstances of the particular activity'' in question, and only
market makers engaged in bona fide market making activity in the
security at the time they effect a short sale are eligible for the
locate exception. See id. at 61699.
    \110\ See id. at 61699.
    \111\ See Regulation SHO Adopting Release, supra note 4, at
48015 n.67.
---------------------------------------------------------------------------

    The Commission previously proposed to require a locate identifier
for short sales to be reported to the CAT in Rule 613, but removed this
requirement, among others, from the adopted rule text.\112\ At the
time, the Commission believed that the CAT would still achieve
significant benefits without requiring the routine recording and
reporting of these specific data elements to the CAT, that the
Commission could obtain information from a broker-dealer in a follow-up
request if necessary, and that the benefits of having these specific
data elements in the CAT would be minimal.\113\ However, with greater
experience and access to CAT Data, the Commission now believes that it
is important for regulatory and surveillance purposes to capture
information regarding the use of the narrow bona fide market making
exception to Regulation SHO and no longer believes that the benefits of
having this specific data element in the CAT would be minimal. The
Commission also believes that requiring this reporting would impact
substantially fewer CAT Reporters than the original Rule 613 proposal,
which would have required locate identifiers for all short sales.
---------------------------------------------------------------------------

    \112\ See Rule 613 Adopting Release, 77 FR at 45751.
    \113\ See id.
---------------------------------------------------------------------------

    There are a number of settled enforcement actions against firms in
connection with their use of the exception.\114\ Firms are not
permitted to use the bona fide market making exception for, among other
things, speculative selling strategies or investment purposes of the
broker-dealer that are disproportionate to the usual market making
patterns or practices of the broker-dealer in that security.\115\ Firms
that do not need to obtain a locate prior to effecting a short sale, on
the basis of the bona fide market making exception, have a competitive
advantage over firms that are required to obtain a locate because these
firms can trade more quickly and more easily adjust to or take
advantage of changing market conditions. Currently, the Commission must
request information from a broker-dealer to determine which orders have
been submitted pursuant to the bona fide market making exception. The
Commission believes that requiring Industry Members to identify short
sales for which they are claiming the bona fide market making exception
would provide the Commission and other regulators an additional tool to
determine whether such activity qualifies for the exception, or instead
could be indicative of, for example, proprietary trading instead of
bona fide market making.\116\
---------------------------------------------------------------------------

    \114\ See, e.g., In the Matter of Wilson-Davis & Company, Inc.,
Respondent, Order Making Findings and Imposing Remedial Sanctions
and a Cease-and-Desist Order Pursuant to Sections 15(b) and 21C of
the Securities Exchange Act of 1934, Release No. 80533 (April 26,
2017) (settled matter); In the Matter of Jeffrey A. Wolfson, Robert
A. Wolfson, and Golden Anchor Trading II, LLC (n/k/a Barabino
Trading, LLC), Respondents, Order Making Findings and Imposing
Remedial Sanctions and Cease-and-Desist Order Pursuant to Sections
15(b) and 21C of the Securities Exchange Act of 1934 as to Robert A.
Wolfson and Golden Anchor Trading II, LLC (n/k/a Barabino Trading,
LLC), Release No. 67450 (July 17, 2012) (settled matter).
    \115\ See Regulation SHO Adopting Release, supra note 4, at
48015.
    \116\ Depending on the circumstances, the proposed requirement
to report the use of the bona fide market making exception to
Regulation SHO at order initiation could either reduce or increase
compliance costs to market participants. In some cases, for example,
examiners identifying market participants for examination of
prolonged fails to deliver would be able to readily determine that
such fails were due to bona fide market making activity, obviating
the need to examine the particular market participant based on such
fails alone. In other circumstances, by contrast, an indication of
reliance on the bona fide market maker exception could be flagged
for examination if it appears that the market participant is
unlikely to be engaging in bona fide market making activities to the
extent of the fails to deliver that have occurred--for instance, a
market participant that does not post any quotes in the security for
which the fails are occurring that has indicated it is relying on
the bona fide market making exception in Regulation SHO. The
Commission does not believe requiring the indicator will have a
chilling effect on market making generally. Rather, the indicator
will be used to identify whether a short sale for which a market
participant is asserting the bona fide market making exception has
been effected in connection with bona fide market making activities
such that the narrow exception to a narrow exception to the locate
requirement of Regulation SHO applies.
---------------------------------------------------------------------------

    While Regulation SHO does not require market maker firms to record
whether they are relying upon the exception in Rule 203(b)(2)(iii) of
Regulation SHO for bona fide market making activity, the Commission
believes that market maker firms that engage in equity trading should
be able to identify what trading activity qualifies for the exception
so a firm can demonstrate its eligibility for the asserted exception.
Thus, the Commission believes that this information should be easily
reportable to the CAT by Industry Members that do rely upon this
exception. As noted above, there is a narrow exception to Regulation
SHO's locate requirement for bona fide market making in Rule
203(b)(2)(iii), and a firm should know at the time that it submits a
sell short order without performing a locate pursuant to the bona fide
market making exception whether or not it qualifies for the exception.

C. Request for Comments

    While the Commission welcomes any public input on the Proposal to
Amend CAT, the Commission asks commenters to consider the following
questions.
     Q18: Proposal to Amend CAT: Under the Proposal to Amend
CAT, Industry Members would be required to report certain additional
short sale related data to the CAT, as described above.
    [cir] Are the proposed reporting requirements related to ``buy to
cover'' and the bona fide market making exception sufficiently clear
and understandable to allow Industry Members to collect and report the
necessary information? Are the proposed requirements sufficiently clear
for the Participants to implement the necessary changes to their
Compliance Rules? Are the proposed requirements sufficiently clear for
the CAT Plan Processor to implement necessary systems and technical
changes and implement revised technical or other specifications
required to facilitate and allow for the reporting of these new CAT
data elements?
    [cir] Please describe any technical challenges or concerns relating
to the reporting, capture and processing of the proposed new
information.
    [cir] Are there concerns relating to the collection of ``buy to
cover'' information by executing brokers to report to the CAT? What
difficulties would Industry Members face in reporting their own
proprietary ``buy to cover'' orders? Customer ``buy to cover'' orders?
Are there other concerns relating to the reporting of ``buy to cover''
information to the CAT? If so, please describe those concerns and the
specific issues or other burdens that should be considered by the
Commission.
    [cir] Are there concerns relating to the collection of or reporting
reliance on the bona fide market making exception of Regulation SHO to
the CAT? Would it be difficult for market making firms to identify what
orders are originated pursuant to the bona fide market making
exception? If so, please describe those concerns and the specific
issues or other burdens that should be considered by the Commission.
    [cir] The proposal would require broker-dealers to identify, at
order origination, whether they are asserting use of the bona fide
market making exception to the locate requirement. Should the
Commission also require identification of purchases by broker-dealers
to close out fails to deliver resulting from bona fide market making
under Rule 204 of

Regulation SHO? \117\ If so, please describe the costs and benefits of
such an approach.
---------------------------------------------------------------------------

    \117\ Rule 204 requires a participant of a registered clearing
agency to deliver securities to a registered clearing agency for
clearance and settlement on a long or short sale transaction in any
equity security by settlement date, or to immediately close out a
failure to deliver by borrowing or purchasing securities of like
kind and quantity by the applicable close out date. For a short
sale, a participant must close out a failure to deliver by no later
than the beginning of regular trading hours on T+3. For a long sale,
or for activity that is attributable to ``bona fide'' market making
activities, a participant must close out a failure to deliver by no
later than the beginning of regular trading hours on T+5.
---------------------------------------------------------------------------

    [cir] Is there any other short sale related data that should be
reported to the CAT? If so, please describe the costs and benefits of
reporting that data.
     Q19: Cost of Reporting: Under the Proposal to Amend CAT,
Industry Members would be required to report certain additional short
sale related data to the CAT, as described above.
    [cir] Please describe any views related to the anticipated costs or
other burdens, as well as benefits, associated with reporting under the
Proposal to Amend CAT, and identify the specific costs or other burdens
that should be considered by the Commission.

VII. Paperwork Reduction Act Analysis

A. Background

    Certain provisions of Proposed Rule 13f-2, Proposed Form SHO,
Proposed Rule 205, and the Proposal to Amend CAT contain new
``collection of information'' requirements within the meaning of the
Paperwork Reduction Act of 1995 (``PRA'').\118\ The Commission is
submitting the proposed collection of information to the Office of
Management and Budget (``OMB'') for review in accordance with the
PRA.\119\ The title for the collection of information is: ``Proposal to
Enhance Short Sale Data.'' OMB has not yet assigned a control number to
the collection of information. An agency may not conduct or sponsor,
and a person is not required to respond to, a collection of information
unless it displays a currently valid OMB control number. The
requirements of this collection of information are mandatory for
Managers under Proposed Rule 13f-2 and Proposed Form SHO, for broker-
dealers under Proposed Rule 205, and Plan Participants and CAT
reporting firms under the Proposal to Amend CAT.
---------------------------------------------------------------------------

    \118\ 44 U.S.C. 3501 et seq.
    \119\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------

    As discussed above,\120\ Proposed Rule 13f-2 and related Proposed
Form SHO are designed to provide greater transparency of short sale
related data to regulators, investors and other market participants by
requiring certain Managers to file monthly on Proposed Form SHO,
through EDGAR in Proposed Form SHO-specific XML, certain short position
and activity data. Under Proposed Rule 13f-2 and Proposed Form SHO,
only those Managers that meet a specified Reporting Threshold for an
equity security would be required to file Proposed Form SHO.
---------------------------------------------------------------------------

    \120\ See supra Part III.A.
---------------------------------------------------------------------------

    Proposed Rule 205 would establish a new ``buy to cover'' order
marking requirement for purchase orders effected by a broker-dealer
that applies if, at the time of order entry, the account for which the
purchase order is placed has a gross short position in the security
being purchased.\121\ Such information would provide additional context
to the Commission and other regulators regarding the lifecycle of short
sales, would assist in reconstructing market events, and would be
useful in identifying and investigating potentially abusive short
selling practices. The Commission believes that many broker-dealers
will have existing order marking systems and processes, and will be
familiar with how to adapt and update them to accommodate new order
marks.
---------------------------------------------------------------------------

    \121\ See supra Part V.
---------------------------------------------------------------------------

    The Proposal to Amend CAT is intended to supplement the short sale
related data that would be reported by certain Managers to the
Commission pursuant to Proposed Rule 13f-2 and Proposed Form SHO. As
discussed above, the Commission proposes that CAT reporting firms be
required to report ``buy-to-cover'' information to the CAT and believes
that this information would allow Commission and SRO staff to review
the life of a short sale, from creation to termination, which would
assist in reconstructing unusual market events such as the market
volatility in early 2021.\122\ In addition, the Commission proposes to
require CAT reporting firms that are reporting short sales to indicate
whether such reporting firm is asserting use of the bona fide market
making exception for the ``locate'' requirement in Rule 203 under
Regulation SHO for the reported short sales. The Commission believes
that this information would provide valuable data to both the
Commission and other regulators regarding the use of the bona fide
market making exception by market participants. The Proposal to Amend
CAT could potentially affect all CAT reporting firms, but the
Commission believes that the proposal will primarily affect those CAT
reporting firms that engage in short sale activity with subsequent
purchases to cover such short positions.
---------------------------------------------------------------------------

    \122\ See supra Part VI.A.
---------------------------------------------------------------------------

    Given the differences in the information collections applicable to
these parties, the burdens applicable to Managers, broker-dealers and
CAT reporting firms are separated in the analysis below.

B. Burdens for Managers Under Proposed Rule 13f-2 and the Related
Proposed Form SHO

1. Applicable Respondents
    As discussed above, Proposed Rule 13f-2 and Proposed Form SHO would
require Managers that trigger a Reporting Threshold to file monthly via
EDGAR, on Proposed Form SHO, certain short position and activity data.
Under Section 13(f)(6)(A) of the Exchange Act and for purposes of
Proposed Rule 13f-2, Managers would include any person, other than a
natural person, investing in or buying and selling securities for its
own account, and any person (including a natural person) exercising
investment discretion with respect to the account of any other
person.\123\ Thus, the requirements of Proposed Rule 13f-2 could apply,
for example, to investment advisers that exercise investment discretion
over client assets, including investment company assets; broker-
dealers; insurance companies; banks and bank trust departments; and
pension fund managers or corporations that manage corporate investments
or employee retirement assets. Of those, the Commission estimates that,
each month, approximately 1,000 Managers would trigger a Reporting
Threshold for at least one security, and therefore be required to file
a Proposed Form SHO.\124\
---------------------------------------------------------------------------

    \123\ See also Instructions to Form 13F.
    \124\ This estimate is similar to the estimate provided in the
Disclosure of Short Sales and Short Positions by Institutional
Investment Managers, 73 FR at 61686. However, the number of
estimated Proposed Form SHO filers represents a monthly, as opposed
to weekly, filing, and therefore the Commission estimates fewer
overall filings per month. Additionally, the estimate accounts for
the estimate by the Commission staff that 346 Form SH filers would
have been required to file had a threshold of 2.5% of shares
outstanding or $10 million position dollar value been imposed during
the analyzed time period. The estimate of 1,000 is higher than the
346 estimated Form SH filers to account for: (1) Managers with
discretion over less than $100 million, which were not required to
file Form SH; (2) the fact that Form SH was only required to be
filed for 13(f) securities as opposed to all equity securities of
both reporting and non-reporting issuers; and (3) the fact that Form
SH did not include a second, lower threshold (Threshold B) for short
positions in securities of non-reporting issuers.
---------------------------------------------------------------------------

2. Burdens and Costs
    The Commission believes that the burden associated with Proposed
Rule

13f-2 and the related Proposed Form SHO reporting in EDGAR would be
similar to a Manager's reporting requirements for former Form SH. In
October 2008, the Commission adopted interim temporary Rule 10a-3T,
which required institutional investment managers that exercise
investment discretion with respect to accounts holding Section 13(f)
securities having an aggregate fair market value of at least $100
million to file Form SH with the Commission following a calendar week
in which it effected a short sale in a Section 13(f) security, with
some exceptions. Form SH included information on short sales and
positions of Section 13(f) securities, other than options.\125\ With
respect to each applicable Section 13(f) security, the Form SH filing
identified the issuer and CUSIP number of the relevant security and
required the Manager's start of day short position, the number and
value of securities sold short during the day, the end of day short
position, the largest intraday short position, and the time of the
largest intraday short position.\126\ In adopting interim temporary
Rule 10a-3T, which required certain Managers to file weekly nonpublic
reports via Form SH, the Commission believed that Managers would spend
an estimated 20 hours to prepare and file each Form SH.\127\
---------------------------------------------------------------------------

    \125\ See supra note 35.
    \126\ Form SH was adopted in the wake of the 2008 financial
crisis, and remained in effect until July 2009.
    \127\ See Disclosure of Short Sales and Short Positions by
Institutional Investment Managers, 73 FR at 61686 (Stating that,
``[t]he 20 hour per filing estimate is based on data received from a
small sample of actual filers and a random sample of filings
conducted by our Office of Economic Analysis.'').
---------------------------------------------------------------------------

    While recognizing that the information required under former Form
SH differs from that required under Proposed Form SHO, the Commission
believes that both forms require the reporting of short sale related
data of similar depth and complexity.\128\ However, Proposed Rule 13f-2
would require monthly reporting if certain conditions are met, as
opposed to the weekly reporting required by Form SH for Managers that
effected short sales within the preceding week,\129\ which is
anticipated to decrease the overall volume of reports required to be
filed by Managers. Accordingly, the Commission believes that the burden
associated with preparing and filing Proposed Form SHO in EDGAR would
be approximately 20 hours per filing, consistent with that of former
Form SH. The Commission further estimates that Managers would
collectively spend approximately 240,000 hours per year to comply with
the reporting requirements of Proposed Rule 13f-2.\130\ The Commission
estimates that the hourly cost of internal expertise required for each
filing would be $217.55, which includes a blended calculation of the
estimated hourly rate for a compliance attorney, senior programmer, and
in-house compliance clerk.\131\ Taken together the estimated burden
hours and hourly rate for the filing of Proposed Form SHO result in an
estimated annual cost to the industry of $52,212,000.\132\ The
Commission, however, recognizes that advances in technology over time
could result in Managers spending less time preparing and filing
Proposed Form SHO than is estimated above.\133\
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    \128\ Under Form SH, Managers who met the applicable threshold
and effected a short sale in a Section 13(f) security in the
preceding week were required to file a report identifying the
opening short position, closing short position, largest intraday
short position, and the time of the largest intraday short position,
for that security during each calendar day of the prior week.
Exchange Act Release No. 58591 (Sept. 18, 2008), 73 FR 55175, 55176
(Sept. 24, 2008).
    \129\ See id.
    \130\ 20 hours per filing x 1,000 filings by Managers each month
x 12 months = 240,000 hours.
    \131\ The $217.55 wage rate reflects current estimates of the
blended hourly rate for an in-house compliance attorney ($368), a
senior programmer ($334) and in-house compliance clerk ($71).
$217.55 is based on the following calculation: (($368) + ((($334 +
$71) / 2) x 10)) / 11 = $217.55. The estimated proportion of
compliance attorney (1/11th) to senior programmer and in-house
compliance clerk (10/11ths) time burden is based on commenter input
and computation of the estimated burden for the filing of Form 13F-
HR. See Electronic Submission of Applications for Orders, Exchange
Act Release No. 93518 (Nov. 4, 2021), 86 FR 64839 (Nov. 19, 2021) at
64860-61 (``Electronic Submission of Applications for Orders''). The
$368 per hour and $334 per hour figures for a compliance attorney
and a senior programmer, respectively, are based on salary
information for the securities industry compiled by the Securities
Industry and Financial Markets Association's Office Salaries in the
Securities Industry 2013 (``SIFMA Report''), modified by Commission
staff to account for an 1800-hour work year and inflation, and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead. The $71 per hour figure for a compliance
clerk is based on salary information from the SIFMA Report, modified
by Commission staff to account for an 1800-hour work-year and
inflation, and multiplied by 2.93 to account for bonuses, firm size,
employee benefits and overhead. See Exchange Act Release No. 89290
(July 10, 2020), 85 FR 46016 (July 31, 2020) (``Proposed Reporting
Threshold for Institutional Investment Managers'').
    \132\ 20 hours per filing x 1,000 filings by Managers each month
x 12 months x $217.55 per hour = $52,212,000.
    \133\ See Electronic Submission of Applications for Orders, 86
FR at 64859 (stating that ``[c]ommenters stated that the advances in
technology have made the process of completing and filing Form 13F
highly automated, reducing the time and external costs to managers
in complying with this requirement.'').
---------------------------------------------------------------------------

    The Commission also anticipates that most Managers will file
Proposed Form SHO directly in the structured XML-based data language
for Proposed Form SHO,\134\ rather than using the fillable web form
provided by EDGAR, resulting in some limited additional costs for each
filing.\135\ The Commission believes that Managers that file Proposed
Form SHO using a structured XML-based data language could incur an
additional burden of 2 hours of work by a programmer,\136\ at an
estimated cost of $540.\137\ The Commission further estimates that
Managers would collectively spend up to approximately 24,000 hours and
$6,480,000 per year to file Proposed Form SHO directly in a structured
XML-based data language.\138\ The Commission also estimates that a
similar, additional burden of 2 hours of work by a programmer per
filing would apply to Managers filing an amended Form SHO directly in a
structured XML-based data language.
---------------------------------------------------------------------------

    \134\ The Commission believes most Managers would be familiar
with other EDGAR Form-specific XML data languages, the use of which
is required for the filing (by Managers that exercise investment
discretion with respect to accounts holding 13(f) Securities having
an aggregate fair market value on the last trading day of any month
of any calendar year of at least $100 million) of Form 13F. See
Frequently Asked Questions About 13F, available at https://www.sec.gov/divisions/investment/13ffaq.htm. In order to achieve a
conservative estimate of industry costs, the Commission estimates
that all of the 1,000 Managers estimated to file Proposed Form SHO
each month will do so directly using the structured XML-based data
language rather than the fillable web form provided by EDGAR.
    \135\ See Investment Company Act Release No. 34441 (Dec. 15,
2021) (proposing release) at 123-125, available at https://www.sec.gov/rules/proposed/2021/ic-34441.pdf (stating that, in the
context of money market funds filing Form N-CR, the use of the XML-
based data language for that Form may result in ``some additional
reporting costs related to adjusting their systems to a different
data language'' but that such changes ``may reduce costs and
introduce additional efficiencies for money market funds already
accustomed to reporting using structured data and may reduce overall
reporting costs in the longer term.'').
    \136\ The 2 hour estimated burden is consistent with similar
estimates for the use of structured XML data formats for the filing
of Form N-CR and Form 24F-2. See Investment Company Act Release No.
34441 (Dec. 15, 2021) at 282 Table 10. See also, Exchange Act
Release No. 88606 (Apr. 8, 2020), 85 FR 33290, 33329 n.439 (June 1,
2020) (stating that ``[w]e assume that the burden of tagging Form
24F-2 in a structured XML format would be 2 hours for each
filing.'').
    \137\ Based on industry sources, Commission staff previously
estimated that the average hourly rate for technology services in
the securities industry (outside senior programmer or systems
programmer) is $270. See Exchange Act Release No. 83062 (Apr. 18,
2018), 83 FR 21574, 21653 n.493 (May 9, 2018) (``Regulation Best
Interest Proposing Release'').
    \138\ 2 hours per filing x $270 per hour x 1,000 filings each
month x 12 months = $6,480,000.
---------------------------------------------------------------------------

    The Commission estimates that approximately 3.5% of the Managers
that file Proposed Form SHO each month would also file an amended
Proposed Form SHO, resulting in an

additional burden and cost for an estimated 35 Managers each
month.\139\ The additional burden could take up to the original 20
hours to process and file, as it would require the filing of an
entirely new Proposed Form SHO.\140\ The associated wage rate would
also be consistent with the cost of expertise required to complete the
original Proposed Form SHO, estimated to be $217.55 per hour.\141\ The
Commission also estimates that each amended Proposed Form SHO would be
filed directly using a structured XML-based data language, resulting in
a corresponding additional burden of 2 hours of work by a programmer
per amended Proposed Form SHO filing.
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    \139\ The estimate of 3.5% of Regulation SHO filers that are
anticipated to file an amended Proposed Form SHO is based on the
frequency of recent filings of amended Form 13F. See Exchange Act
Release No. 93518 (Nov. 4, 2021), 86 FR 64839, 64860-61 Table 5
Notes 7, 8, and 10 (Nov. 19, 2021) (estimating a total of 5,466 Form
13F-HR filings, 1,535 Form 13F-NT filings, and 244 Form 13F
amendment filings (244 / 7,001 = 3.5%) and noting that ``[t]his
estimate is based on the number of Form 13F amendments filed as of
December 2019.'').
    \140\ See Form SHO, Special Instructions at 4.
    \141\ See supra note 131.

                               PRA Table 1--Estimated Manager Burden and Costs Associated With Proposed Form SHO Reporting
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Total industry
                                                                          Proposed Form   Hours needed   burden hours to
                                                            Managers       SHO reports   to process and    process and       Wage rate    Total industry
                                                            (monthly)     processed and   file Proposed   file Proposed       (Avg.)        cost burden
                                                                         filed (annual)     Form SHO         Form SHO                        (annual)
                                                                                (avg.)          (annual)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Proposed Form SHO Filings..............................           1,000          12,000              20          240,000         $217.55     $52,212,000
Use of Structured XML-Based Data Language..............           1,000          12,000               2           24,000             270       6,480,000
Amended Proposed Form SHO Filings......................              35             420              20            8,400          217.55       1,827,420
Use of Structured XML-Based Data Language..............              35             420               2              840             270         226,800
                                                        ------------------------------------------------------------------------------------------------
    Total..............................................  ..............  ..............  ..............          273,240  ..............      60,746,220
--------------------------------------------------------------------------------------------------------------------------------------------------------

    In addition to the costs associated with the reporting burden, the
Commission believes that Managers could incur an initial technology-
related burden of 325 hours, at an hourly estimated wage rate of
$320.30,\142\ for an estimated total cost of $104,097.50 per
Manager,\143\ to update their current systems to capture the required
information, and automate and facilitate the completion and filing of
Proposed Form SHO. The Commission generally believes that the type of
Managers that would trigger a Reporting Threshold would likely have
sophisticated technologies and would be able to implement systems to
help automate the reporting requirements of Proposed Rule 13f-2. In
particular, the estimate of 325 initial technology-related burden hours
for Managers filing Proposed Form SHO is based on the estimated initial
filing burden (325 hours) for large hedge fund advisers \144\ to
fulfill proposed amendments to the reporting requirements for Form
PF,\145\ and is similar to the initial technological infrastructure-
related burden (355 hours) for the proposed security-based swap
position reporting requirements of proposed Rule 10B-1(a).\146\ While
Managers most likely have other existing reporting obligations, the
Commission recognizes that Managers may need to update their systems to
ensure timely and accurate filing of the specific information required
under Proposed Form SHO.
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    \142\ The Commission estimates that, of a total estimated burden
of 325 hours, approximately 195 hours will most likely be performed
by compliance professionals and 130 hours will most likely be
performed by programmers working on system configuration and
reporting automation. Of the work performed by compliance
professionals, we anticipate that it will be performed equally by a
compliance manager at a cost of $316 per hour and a senior risk
management specialist at a cost of $365 per hour. Of the work
performed by programmers, we anticipate that it will be performed
equally by a senior programmer at a cost of $334 per hour and a
programmer analyst at a cost of $246 per hour. ((($316 per hour x
0.5) + ($365 per hour x 0.5)) x 195 hours) + ((($334 per hour x 0.5)
+ ($246 per hour x 0.5)) x 130 hours) / 325 = $320.30.
    \143\ 325 initial technology-related burden hours x $320.30 per
hour = $104,097.50.
    \144\ See Amendments to Form PF to Require Current Reporting and
Amend Reporting Requirements for Large Private Equity Advisers and
Large Liquidity Fund Advisers, Investment Act Release No. 5950 (Jan.
26, 2022), 87 FR 9106 (Feb. 17, 2022) (The Commission recognizes
that Proposed Rule 13f-2 would cover persons other than large hedge
fund advisers, and that large hedge fund advisers may generally be
more accustomed to existing Commission reporting requirements than
some other persons that would be covered by Proposed Rule 13f-2.).
    \145\ See id. at 9140 Table 2.
    \146\ See Exchange Act Release No. 93784 (Dec. 15, 2021), 87 FR
6652, 6678 (Feb. 4, 2022).

                      PRA Table 2--Estimated Manager Burden and Costs Associated With Proposed Form SHO Initial Technology Projects
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     Managers with    Number of hours  Industry burden
                                                                     proposed Form      needed for        hours for
                                                                    SHO reportable        initial          initial         Wage rate      Total industry
                                                                    short interest      technology        technology         (avg.)        cost burden
                                                                       positions      projects (avg.)      projects
--------------------------------------------------------------------------------------------------------------------------------------------------------
Proposed Form SHO Initial Technology Projects....................            1,000               325          325,000          $320.30     $104,097,500
--------------------------------------------------------------------------------------------------------------------------------------------------------

    In making its estimates for the population of Managers that may be
required to file a Proposed Form SHO, the Commission notes that its
estimate may be over-inclusive of the number of Managers that can
reasonably be expected to be covered. This is highlighted by the
estimate that only 346 Form SH filers would have had to file a report
if one of the proposed Reporting Thresholds for Proposed Form SHO--$10
million or 2.5% of

outstanding shares--were to be applied.\147\ However, Form SH
represented a narrower population of potential filers (e.g., only those
that exercise investment discretion with respect to accounts holding
Section 13(f) securities having an aggregate fair market value of at
least $100 million) than prospective Proposed Form SHO filers. Form SH
also applied to a narrower population of securities, 13(f) securities,
than Proposed Form SHO, which is proposed to apply more broadly to all
equity securities.\148\ Additionally, Proposed Rule 13f-2 will include
a second Reporting Threshold (Threshold B) that applies to short
positions in non-reporting company issuers, which could result in
additional Managers having to file a Proposed Form SHO. The number of
Managers with accounts containing short positions big enough to trigger
either of the proposed threshold prongs for Proposed Form SHO may have
increased in the thirteen years since Form SH was implemented,
particularly if overall shorting activity has increased. The Commission
also recognizes that technological innovation and automation can change
quickly, providing for new opportunities to streamline processes and
reduce both initial and ongoing burdens and costs. Thus, the Commission
seeks specific comment as to whether the proposed burden estimates are
appropriate or whether such estimates should be increased or reduced.
The Commission invites comment on the estimated number of Managers
anticipated to be required to file a Proposed Form SHO each month
(1,000), the estimated time burden (20 hours) of preparing and filing
each required Proposed Form SHO, and the estimated initial time burden
(325 hours) for Managers to update their systems and technology to
facilitate the filing of Proposed Form SHO. The Commission also invites
comment on the estimated number of Managers that will file Proposed
Form SHO each month directly in Proposed Form SHO-specific XML (1,000),
the estimated associated additional burden (2 hours of work by a
programmer) for each filing, and whether the burden is more accurately
categorized as an ongoing per filing burden or an initial, one-time
technological systems update burden. If those estimates or any other
element of Proposed Rule 13f-2 and Proposed Form SHO burdens or costs
should be increased or decreased, please address by how much and why.
---------------------------------------------------------------------------

    \147\ See supra Part III.D.2 Table I, Panel B.
    \148\ See supra Part III.A discussing equity securities subject
to requirements of Regulation SHO.
---------------------------------------------------------------------------

C. Burdens for Broker-Dealers Under Proposed Rule 205

1. Applicable Respondents
    As discussed above, Proposed Rule 205 would add a new ``buy to
cover'' marking requirement for a broker-dealer effecting a purchase
order for its own account or on behalf of another person, wherein the
account has a gross short position in the security being purchased.
Proposed Rule 205 would require that, regardless of the size of such
purchase for such account, the broker-dealer mark the purchase ``buy to
cover.'' All broker-dealers whose accounts or whose customers' accounts
at the broker-dealer could hold a short position are potentially
subject to the requirements of Proposed Rule 205. As of December 31,
2020, there were 3,551 broker-dealers registered with the
Commission.\149\ The Commission estimates that of the 3,551 registered
broker-dealers, 1,218 place orders that would require a ``buy to
cover'' order mark.\150\
---------------------------------------------------------------------------

    \149\ This estimate is derived from broker-dealer FOCUS filings
as of December 31, 2020.
    \150\ This estimate is derived from an analysis conducted by
Commission staff of CAT data indicating that 1,218 broker-dealers
would have been required to mark an order ``buy to cover'' in
November 2021. The Commission further estimates that a month-long
period is likely to capture all broker-dealers to which the marking
requirement of Proposed Rule 205 would apply.
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2. Burdens and Costs
    For purposes of the PRA, the Commission staff estimates that a
total of approximately 62.25 billion ``buy to cover'' orders would be
entered annually.\151\ This would make for an average of approximately
51.1 million annual ``buy to cover'' order marks by each broker-dealer
anticipated to require a ``buy to cover'' order mark.\152\ Each
instance of marking an order ``buy to cover'' is estimated to take
between approximately .00001158 and .000139 hours (.042 and .5 seconds)
to complete.\153\ This estimate is based on a number of factors,
including: previously estimated burdens for the current marking
requirements of Rule 200(g) of Regulation SHO requiring broker-dealers
to mark sell orders ``long,'' ``short,'' or ``short exempt''; broker-
dealers should already have the necessary mechanisms and procedures in
place and already be familiar with processes and procedures to comply
with the marking requirements of Rule 200(g) of Regulation SHO; broker-
dealers should be able to continue to use the same or similar
mechanisms, processes and procedures to comply with Proposed Rule 205;
and that computing speeds have significantly improved since the initial
order marking burdens of Rule 200(g) of Regulation SHO were initially
estimated.
---------------------------------------------------------------------------

    \151\ Our estimate of 62.25 billion annual ``buy to cover''
orders was calculated based on a staff review of short sale trades,
comprised of trades marked ``short'' and ``short exempt'' during the
five years from 2016 through 2020. Based on a review of Rule 605
reports from the three largest market centers during August 2008, we
have previously estimated a ratio of 14.4 orders to each completed
trade. We gross up our 4.3 billion estimate of average annual short
sale trades from 2016 to 2020 by 14.4, which yields 62.25 billion
average annual short sale orders. A similar review of Rule 605
reports from large market centers has not been performed since the
August 2008 period. The ratio of short sale orders to completed
trades may have increased or decreased since that time.
    \152\ This figure was calculated as follows: 62.25 billion ``buy
to cover'' orders divided by 1,218 broker-dealers anticipated to
place orders requiring the ``buy to cover'' order mark.
    \153\ The upper end of this estimate--.5 seconds--is based on
the same time estimate for marking sell orders ``long'' or ``short''
under Rule 200(g) of Regulation SHO. See Regulation SHO Adopting
Release, supra note 4, at 48023. See also, Exchange Act Release No.
48709 (Oct. 28, 2003) 68 FR 62972, 63000 n. 232 (Nov. 6, 2003);
Exchange Act Release No. 59748 (Apr. 10, 2009), 74 FR 18042, 18089
(Apr. 20, 2009) (providing the same estimate--.5 seconds--for
marking sell orders ``short exempt'' under Rule 200(g) of Regulation
SHO). The lower end of this estimate--.042 seconds--is based on a
Commission estimate that computing speeds are twelve times faster
today than they were in 2007. See infra note 312.

                               PRA Table 3--Estimated Broker-Dealer Burden Associated With ``Buy to Cover'' Order Marking
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                Broker-Dealers                         Burden hours per
                                that may ``buy     Annual ``buy to     ``buy to cover''    Total annual industry burden      Annual burden per broker-
                                  to cover''        cover'' orders           order                    hours                           dealer
--------------------------------------------------------------------------------------------------------------------------------------------------------
``Buy to Cover''.............            1,218  62.25 billion........  .00001158 (.042   721,000 to 8,652,750...........  592 to 7,104.
Order Marking................                                           seconds) to
                                                                        .000139 (.5
                                                                        seconds).
--------------------------------------------------------------------------------------------------------------------------------------------------------

    In addition to the burden and costs associated with the marking of
individual ``buy to cover'' orders, the Commission believes that
broker-dealers required to mark ``buy to cover'' will incur initial,
one-time technology project costs to update their existing order
marking systems. The Commission believes that the implementation cost
of the ``buy to cover'' marking requirement will likely be similar to
the implementation cost of the ``short exempt'' order marking
requirements of Rule 200(g) of Regulation SHO.\154\ The initial
implementation cost of the ``short exempt'' order marking requirement
was estimated to be approximately $115,000 to $145,000 per broker-
dealer. Taking the average of that range and updating it for inflation
results in an approximate one-time cost of $170,000 per broker-
dealer,\155\ and a total initial combined implementation cost of
approximately $207,060,000 for all broker-dealers that are estimated to
``buy to cover.'' \156\
---------------------------------------------------------------------------

    \154\ See Exchange Act Release No. 61595 (Feb. 26, 2010), 75 FR
11232, 11287 (Mar. 10, 2010), basing its cost estimates for the
implementation of ``short exempt'' order marking on the estimates
contained in Regulation SHO Adopting Release, supra note 4, at
48023, which based its cost estimates on input from industry
sources.
    \155\ The adjustment for inflation was calculated using
information in the Consumer Price Index, U.S. Department of Labor,
Bureau of Labor Statistics for February 2010 and November 2021.
    \156\ This figure was calculated as follows: $170,000
implementation cost x 1,218 broker-dealers anticipated to mark ``buy
to cover'' = $207,060,000 industry-wide implementation cost.

PRA Table 4--Estimated Broker-Dealer Costs Associated With Initial ``Buy to Cover'' Order Marking System Updates
----------------------------------------------------------------------------------------------------------------
                                                                  Estimated initial
                                             Broker-dealers      technology cost to      Total initial costs to
                                           that may ``buy to    update order marking       all broker-dealers
                                                cover''                systems
----------------------------------------------------------------------------------------------------------------
``Buy to Cover'' Initial System Updates..             1,218                  $170,000              $207,060,000
----------------------------------------------------------------------------------------------------------------

    In making its estimate of annual ``buy to cover'' orders, the
Commission notes that its estimate may be over-inclusive of the total
number of purchase orders that can be reasonably expected to be covered
by Proposed Rule 205. As noted above, the estimate is based on the
average annual orders marked ``short'' and ``short exempt'' over a five
year period--2016 through 2020. Such data was used based on the
assumption that, over the course of a year, for every short position
created by a ``short'' or ``short exempt'' sale order, there will be an
equal and opposite number of ``buy to cover'' purchase orders placed in
order to cover, and ultimately close out, those short positions.
However, the Commission recognizes that industry practices may differ
in terms of how order marks are applied (e.g., whether orders marked
``short'' are defaulted to in some instances where the seller may in
fact be net long) and/or how short positions are created (e.g.,
potentially with multiple, smaller orders over time) and covered (e.g.,
potentially with fewer, larger orders). The Commission also requests
comment on the 14.4 ratio of orders to trades used to calculate the
total number of anticipated ``buy to cover'' orders. The Commission
recognizes that the number of orders that result in a transaction may
have materially changed since the August 2008 estimate based on a
review of Rule 605 reports.\157\ The Commission also requests comment
on the estimated range of .042 to .5 seconds (.00001158 to .000139
hours) that it takes for a broker-dealer to properly mark a purchase
order for an account that holds a gross short position in the security
being purchased as ``buy to cover.'' The Commission also requests
comment on the estimated cost of $170,000 per broker-dealer of
initially adding the ``buy to cover'' mark to existing order marking
systems, including whether having existing order marking systems,
potentially having previously updated such systems to include a ``short
exempt'' order mark, and significant advances in technology and
automation may have reduced the estimated costs from those described in
2003 and 2004.\158\ Thus, the Commission seeks specific comment as to
whether the proposed burden estimates are appropriate or whether such
estimates should be increased or reduced. Among the other factors of
these estimates, the Commission invites comments on the estimated
number of ``buy to cover'' orders anticipated to be placed by broker-
dealers each year (62.25 billion), the estimated ratio of orders per
trade (14.4:1), the time required to accurately mark a purchase order
``buy to cover'' (between .042 and .5 seconds), and the cost of
updating existing order marking systems to accommodate the ``buy to
cover'' order mark ($170,000). If those estimates or any other element
of the estimated Proposed Rule 205 burdens should be increased or
decreased, please address by how much and why.
---------------------------------------------------------------------------

    \157\ See supra note 151.
    \158\ See supra note 154 and accompanying text.
---------------------------------------------------------------------------

D. Burdens and Costs Associated With the Proposal To Amend CAT

1. Summary of Collections of Information
    The Proposal to Amend CAT would amend the CAT NMS Plan to require
Participants to update their Compliance Rules to require reporting by
Industry Members of the following information: (i) For the original
receipt or origination of an order to buy an equity security, whether
such buy order is for an equity security that is a ``buy to cover''
order as defined by Rule 205(a) of Regulation SHO (17 CFR 242.205(a));
and (ii) for the original receipt or origination of an order to sell an
equity security, whether the order is a short sale effected by a market
maker in connection with bona-fide market making activities in the
security for which exception Rule 203(b)(2)(iii) of Regulation SHO is
claimed.\159\
---------------------------------------------------------------------------

    \159\ See supra Part VI; see also proposed CAT NMS Plan Sections
6.4(d)(ii)(D) and 6.4(d)(ii)(E).
---------------------------------------------------------------------------

2. Proposed Use of Information
    The Commission believes that requiring proposed reporting of
certain short sale information to the CAT would provide valuable
information for the Commission and other regulators in investigations
and reconstruction of market events. Ready access to ``buy to cover''
information in the CAT would allow regulators to determine whether a
purchase or sale of an equity security increases or decreases equity
exposure of an Industry Member or Customer, and whether the buy covers
a short position. The ability to determine whether an order adds to an
existing position or covers an existing short position would

be useful in detecting and investigating portfolio pumping, short
selling abuses, short squeezes marking the close, potential
manipulation, insider trading, or other rule violations. It would also
assist Commission staff and regulatory staff analysis of the impact of
``buys to cover'' on equity prices and price volatility, and determine
the impact of ``short squeezes.'' The Commission believes that
requiring Industry Members to identify short sales for which they are
claiming the bona fide market making exception would provide the
Commission staff and other regulators an additional tool to determine
whether such activity qualifies for the exception, or instead is
indicative of, for example, proprietary trading instead of bona fide
market making.
3. Respondents
a. National Securities Exchanges and National Securities Associations
    The respondents to certain proposed collections of information for
the Proposal to Amend CAT would be the 25 Plan Participants (the 24
national securities exchanges and one national securities association
(FINRA)).\160\
---------------------------------------------------------------------------

    \160\ The Participants are: BOX Options Exchange LLC; Cboe BZX
Exchange, Inc.; Cboe BYX Exchange, Inc.; Cboe C2 Exchange, Inc.;
Cboe EDGA Exchange, Inc.; Cboe EDGX, Inc.; Cboe Exchange, Inc.;
Financial Industry Regulatory Authority, Inc.; Investors Exchange
Inc.; Long-Term Stock Exchange, Inc.; MEMX, LLC; Miami International
Securities Exchange LLC; MIAX PEARL, LLC; MIAX Emerald, LLC; NASDAQ
BX, Inc.; NASDAQ GEMX, LLC; NASDAQ ISE, LLC; NASDAQ MRX, LLC; NASDAQ
PHLX LLC; The NASDAQ Stock Market LLC; New York Stock Exchange LLC;
NYSE MKT LLC; and NYSE Arca, Inc., NYSE Chicago Stock Exchange,
Inc., NYSE National, Inc.
---------------------------------------------------------------------------

b. Members of National Securities Exchanges and National Securities
Associations
    The respondents for certain information collection for the Proposal
to Amend CAT are the Participants' broker-dealer members, that is,
Industry Members. The Commission understands that there are currently
3,551 broker-dealers; \161\ however, not all broker-dealers are
expected to have new CAT reporting obligations under the Proposal to
Amend CAT.\162\ Based on an analysis of CAT data from November 2021,
conducted by Commission staff, the Commission estimates that
approximately 1,218 broker-dealers will be affected by the Proposal to
Amend CAT, including 1,218 broker-dealers that would be required to
report ``buy-to-cover'' information on buy orders for equity securities
and 104 broker-dealers that would be required to report for the
original receipt or origination of an order to sell an equity security
whether the order is a short sale effected by a market maker in
connection with bona-fide market making activities in the security for
which the exception in Rule 203(b)(2)(iii) of Regulation SHO is
claimed.
---------------------------------------------------------------------------

    \161\ See supra note 149.
    \162\ See also supra Part VI.B.2.
---------------------------------------------------------------------------

4. Total Initial and Annual Reporting and Recordkeeping Burdens
    The Commission's total burden estimates in this Paperwork Reduction
Act section reflect the total burden on all Participants and Industry
Members. The burden estimates per Participant or Industry Member are
intended to reflect the average paperwork burden for each Participant
or Industry Member, but some Participants or Industry Members may
experience more burden than the Commission's estimates, while others
may experience less. The burden figures set forth in this section are
the based on a variety of sources, including Commission staff's
experience with the development of the CAT and estimated burdens for
other rulemakings. Because the CAT NMS Plan applies to and obligates
the Participants and not the Plan Processor, the Commission believes it
is appropriate to estimate the Participants' external cost burden based
on the estimated Plan Processor staff hours required to comply with the
proposed obligations.\163\ Put another way, pursuant to the proposed
amendments to the CAT NMS Plan the Participants will be obligated to
make changes to the CAT, but the CAT is managed by the Plan Processor
pursuant to contractual agreement, and so the Participants will be
required to engage the Plan Processor to make any required changes.
---------------------------------------------------------------------------

    \163\ The Commission derives estimated costs associated with
Plan Processor and Industry Member staff time based on per hour
figures from SIFMA's Management & Professional Earnings in the
Securities Industry 2013, modified by Commission staff to account
for an 1800-hour work-year, and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead, and adjusted for
inflation based on Bureau of Labor Statistics data on CPI-U between
January 2013 and January 2020 (a factor of 1.12). For example, the
2020 inflation-adjusted effective hourly wage rate for attorneys is
estimated at $426 ($380 x 1.12).
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a. Participant Burdens
    The Proposal to Amend CAT would require the Participants to engage
the Plan Processor to modify the Central Repository to accept and
process the new short sale data elements on order receipt and
origination reports. The Commission estimates that the Participants
would incur an initial, one-time burden of 130 hours, or 5 hours per
Participant, of staff time required to supervise and implement the
changes necessary for the Plan Processor to accept and process the new
data elements, and an external cost of $101,520, or a per Participant
expense of approximately $4,060.80 to compensate the Plan Processor for
staff time required to make the initial necessary programming and
systems changes to accept and process the new data elements, based on a
preliminary estimate that it would take 300 hours of Plan Processor
staff time to implement these changes.\164\
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    \164\ The estimated 300 hours of Plan Processor staff time
include 200 hours by a Senior Programmer, 40 hours by a Senior
Database Administrator, 40 hours for a Senior Business Analyst and
20 hours for an Attorney. The Commission estimates that the initial,
one-time external expense for Participants will be $101,520 =
(Senior Programmer for 200 hours at $339 an hour = $67,800) +
(Senior Database Administrator for 40 hours at $349 an hour =
$13,960) + (Senior Business Analyst for 40 hours at $281 an hour =
$11,240) + (Attorney for 20 hours at $426 an hour = $8,520).
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    The Commission believes that other Paperwork Reduction Act burdens
that would apply to the Participants, including ongoing burdens and
external expenses for the Plan Processor's acceptance and processing of
the new data elements, are already accounted for in the existing
Paperwork Reduction Act estimate that applies for Rule 613 and the CAT
NMS Plan Approval Order, submitted under OMB number 3235-0671.\165\ The
Commission believes that the prior Paperwork Reduction Act analysis
incorporates any other potential Paperwork Reduction Act burdens for
the Participants because the existing Paperwork Reduction Act analysis
accounts for initial and ongoing costs for, among other things,
operating and maintaining the Central Repository, including the cost of
systems and connectivity upgrades or changes necessary to receive and
consolidate the reported order and execution information from
Participants and their members, the cost to store data and make it
available to regulators, the cost of monitoring the required validation
parameters, and management of the Central Repository.\166\ In addition,
the Commission anticipates that each exchange and national securities
association would file one Form 19b-4 filing to implement updated
Compliance Rules. While such filings may impose certain costs on the
exchanges, those burdens are already accounted for in the comprehensive

Paperwork Reduction Act Information Collection submission for Form 19b-
4.\167\ The Commission does not expect the baseline number of 19b-4
filings to increase as a result of the Proposal to Amend CAT, nor does
it believe that the incremental costs exceed those costs used to arrive
at the average costs and/or burdens reflected in the Form 19b-4 PRA
submission.
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    \165\ See CAT NMS Plan Approval Order, 81 FR at 84911-43. See
also OMB Control No. 3235-0671, 85 FR 37721 (June 23, 2020) (notice
of submission of request for approval of extension).
    \166\ See CAT NMS Plan Approval Order, 81 FR at 84918.
    \167\ See OMB Control No. 3235-0045 (August 19, 2016), 81 FR
57946 (August 24, 2016) (Request to OMB for Extension of Rule 19b-4
and Form 19b-4 PRA).
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b. Broker-Dealer Burdens
    The Commission believes that certain Industry Members will have
initial, one-time burdens and costs relating to the Proposal to Amend
CAT, to update systems and processes as necessary to capture and report
the proposed data elements to CAT. The Commission has estimated these
initial burdens and costs below.
    The Commission also believes that the Proposal to Amend CAT would
impose an ongoing annual burden relating to, among other things,
personnel time to monitor each broker-dealer's reporting of the
required data and the maintenance of the systems to report the required
data, and implementing changes to trading systems that might result in
additional reports to the Central Repository. However, the Commission
believes that the ongoing burden imposed by the Proposal to Amend CAT
related to reporting to the CAT is already accounted for in the
existing information collections burdens associated with Rule 613 and
the CAT NMS Plan Approval Order submitted under OMB number 3235-
0671.\168\ Specifically, the CAT NMS Plan Approval Order takes into
account requirements on broker-dealer members to comply with the CAT
NMS Plan, including the requirement to maintain the systems necessary
to collect and transmit information to the Central Repository,\169\
provides aggregate burden hour and external cost estimates for the
broker-dealer data collection and reporting requirement of Rule 613,
and did not quantify the burden hours or external cost estimates for
each individual component comprising the broker-dealer's data
collection and reporting responsibility.\170\ The Proposal to Amend CAT
would not require any Industry Member to submit new reports to the CAT,
but to add limited additional information to existing reports in
certain circumstances for certain Industry Members. The Commission does
not believe that this would alter the estimates of ongoing burden and
external costs in the existing Paperwork Reduction Act Analysis and the
ongoing burden associated with these new collection requirements are
accounted for in the existing Paperwork Reduction Act Analysis.
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    \168\ See CAT NMS Plan Approval Order, 81 FR at 84911-43.
    \169\ See, e.g., CAT NMS Plan Approval Order, 81 FR at 84930.
    \170\ See CAT NMS Plan Approval Order, 81 FR at 84930.
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Buy to Cover Information on Orders
    With regard to the obligation to report ``buy to cover''
information on orders to the CAT, the Commission believes that it is
appropriate to divide the 1,218 Industry Members that would be required
to report buy to cover information to the CAT for the original receipt
or origination of orders into two categories: (i) Industry Members that
report directly to the CAT (``insourcing Industry Members''); and (ii)
Industry Members that use third-party reporting agents such as service
bureaus for CAT reporting (``outsourcing Industry Members''). For
purposes of this Paperwork Reduction Act analysis, the Commission
estimates that of the 1,218 Industry Members that would be required to
report buy to cover information to the CAT for the original receipt or
origination of orders, 126 would be insourcing Industry Members, and
1,092 would be outsourcing Industry Members. This is based on the CAT
NMS Approval Order, which based on an analysis of specific data
provided by FINRA on how firms report OATS data estimated that there
were 126 large OATS \171\ reporting broker-dealers, with all other
broker-dealers either not reporting to CAT at the time or reporting to
OATS through service bureaus.\172\ The Commission believes it is
reasonable to estimate for purposes of this Paperwork Reduction Act
analysis that the same number of broker-dealers that reported directly
to OATS report directly to CAT, and that it unlikely that previously
outsourcing broker-dealers and broker-dealers without an obligation to
report to OATS developed the infrastructure necessary to report to the
CAT.
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    \171\ OATS was FINRA's Order Audit Trail System, which existed
prior to the creation of the CAT and was an order audit trail system
maintained by FINRA, was retired on September 1, 2021 because FINRA
determined that the accuracy and reliability of the CAT met certain
standards and thus OATS was duplicative in light of the
implementation of CAT. See Exchange Act Notice No. 92239 (June 23,
2021), 86 FR 34293 (June 29, 2021).
    \172\ See CAT NMS Plan Approval Order, 81 FR at 84860.
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    The Commission estimates that the 126 insourcing Industry Members
will incur an initial, aggregate, one-time burden of 32,760 hours, or
that each of these insourcing Industry Members would incur an initial,
average one-time burden of 260 hours, and that these 126 insourcing
Industry Members will incur an initial, aggregate, one-time external
expense of approximately $1,890,000 for software and hardware to
facilitate reporting of the new data elements to CAT, or that each
insourcing Industry Member would incur an initial, average one-time
external expense of approximately $15,000 for hardware and software to
facilitate reporting of the new data elements to CAT.\173\
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    \173\ The Commission is basing this figure on the estimated
internal burden for a broker-dealer that handles orders subject to
customer specific disclosures required by Rule 606(b)(3) to both
update its data capture systems in-house and format the report
required by Rule 606. See Exchange Act Release No. 84528 (November
2, 2018), 83 FR 58338, 58383 (November 19, 2018) (``Rule 606
Adopting Release''). The Commission believes that this is a
reasonable proxy for a preliminary estimation for the burdens and
costs associated with updating data capture systems for reporting
purposes here because in both rulemakings broker-dealers were
required to update in-house data reported for pre-existing reporting
obligations, and, as discussed above, the Paperwork Reduction Act
analysis for Rule 613 and the CAT NMS Plan did not attempt to
quantify the burden hours or external cost estimates for each
individual component comprising the broker-dealer's data collection
and reporting responsibility. See supra note 169.
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    The Commission estimates that the 1,092 outsourcing Industry
Members will incur an initial, aggregate, one-time burden of 10,920
hours, or that each of these outsourcing Industry Members would incur
an initial, one-time burden of 10 hours on average, and that together
these 1,092 outsourcing Industry Members will incur an initial,
aggregate, one-time external expense of approximately $1,092,000 for
software and hardware to facilitate reporting of the new data elements
to CAT and for external expenses relating to fees paid to CAT reporting
agents to update their systems or coding as necessary, or that each
outsourcing Industry Member would incur an initial, average one-time
external expense of approximately $1,000.\174\
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    \174\ The Commission believes that the preliminary estimated
burden and external costs for outsourcing Industry Members is
reasonable because the burden on individual Industry Members should
be significantly lower than insourcing Industry Members because of
the difference in how these firms report to the CAT. Outsourcing
Industry Members will not be required to change internal CAT
reporting systems, but instead would have to be responsible for
making any updates necessary for CAT reporting agents to report this
information to the CAT. The outsourcing Industry Members will have
external costs associated with paying CAT reporting agents for any
additional fees relating to the change, but because CAT reporting
agents can report on behalf of numerous outsourcing Industry Members
at the same time, the costs of any updates to their systems can be
distributed amongst outsourcing Industry Members.

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    As discussed above, the Commission does not believe that these CAT
Reporters would have an ongoing PRA burden or external costs related to
the reporting of the new information to CAT because the ongoing burden
and external costs are already accounted for in the existing
information collections burdens associated with Rule 613 and the CAT
NMS Plan Approval Order submitted under OMB number 3235-0671.\175\
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    \175\ See supra note 165.
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Bona Fide Market Making Exception Information
    The Commission believes that this aspect of the Proposal to Amend
CAT will only impose additional burdens on Industry Members that trade
equity securities and rely upon or plan to rely upon the bona fide
market making exception. Based on an analysis of data reported to the
CAT in November 2021, and specifically the identification of all unique
CAT Reporters that were identified as equity market makers (including
different classes of market makers such as ``designated'' or ``lead''
market makers, and secondary liquidity providers), the Commission
believes that approximately 104 CAT Reporters will be subject to the
new reporting obligation. The Commission believes that some broker-
dealers that rely upon this exception may retain records regarding
their eligibility for this exception for specific orders or for orders
originated by specific desks or units of their business, and thus for
some broker-dealers this information could be more easily reportable
than information not currently available to Industry Members, such as
the ``buy to cover'' identification of equity buy orders.
    With regard to the obligation to report regarding bona fide market
making exception information to the CAT, the Commission believes that
it is appropriate to divide the 104 Industry Members that would be
required to report this information into two categories: (i) Industry
Members that report directly to the CAT; and (ii) Industry Members that
use third-party reporting agents for CAT reporting. For purposes of
this Paperwork Reduction Act analysis, the Commission estimates that of
the 104 Industry Members that would be required to this information, 60
Industry Members would be reporting this information directly to the
CAT, and 44 Industry Members would be reporting this information
through third-party reporting agents. The Commission believes this is a
reasonable estimation because it believes that the majority of Industry
Members that are identified as market makers in the CAT are large
enough to have developed their own systems and technology to report
directly to the CAT.
    The Commission estimates that the 60 insourcing Industry Members
that report directly to the CAT will incur an initial, aggregate, one-
time burden of 15,600 hours, or that each of these CAT Reporters would
incur an initial, average one-time burden of 260 hours, and that each
of these 60 insourcing Industry Members will incur an initial,
aggregate, one-time external expense of approximately $900,000 for
software and hardware to facilitate reporting of the new data elements
to CAT, or that each insourcing Industry Member would incur an initial,
average one-time external expense of approximately $15,000.\176\
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    \176\ The Commission is basing this figure on the estimated
burden and external costs for a broker-dealer that handles orders
subject to customer specific disclosures required by Rule 606(b)(3)
to update their systems to capture the data and produce a report to
comply with Rule 606. See Rule 606 Adopting Release, 83 FR at 58383.
The Commission believes that this is a reasonable proxy for a
preliminary estimation for the burdens and costs associated with
updating data capture systems for reporting purposes here because in
both rulemakings broker-dealers were required to update in-house
data reported for pre-existing reporting obligations.
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    The Commission estimates that the 44 outsourcing Industry Members
that use third-party reporting agents to report to the CAT will incur
an initial, aggregate, one-time burden of 440 hours, or that each of
these outsourcing Industry Members would incur an initial, one-time
burden of 10 hours on average, and that these 44 outsourcing Industry
Members will incur an initial, aggregate, one-time external expense of
approximately $44,000 for software and hardware to facilitate reporting
of the new data elements to CAT, or that each outsourcing Industry
Member would incur an initial, average one-time external expense of
approximately $1,000.\177\
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    \177\ The Commission believes that the preliminary estimated
burden and external costs for outsourcing Industry Members is
reasonable because the burden on individual Industry Members should
be significantly lower than insourcing Industry Members because of
the difference in how these firms report to the CAT. Outsourcing
Industry Members will not be required to change internal CAT
reporting systems, but instead would have to be responsible for
making any updates necessary for CAT reporting agents to report this
information to the CAT. The outsourcing Industry Members will have
external costs associated with paying CAT reporting agents for any
additional fees relating to the change, but because CAT reporting
agents can report on behalf of numerous outsourcing Industry Members
at the same time, the costs of any updates to their systems can be
distributed amongst outsourcing Industry Members.
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    As discussed above, the Commission believes that the ongoing burden
associated with reporting to the CAT is already accounted for in the