Securities Law, NYSE, NASDAQ & OTC Markets Listings & Compliance

Hedge Funds Just Won a Key Review of the SEC’s Short-Sale Disclosure Rule. Here’s What It Means.

A federal appeals court has ordered the Securities and Exchange Commission to take a fresh look at the economic impact of its short-sale transparency regime—a notable win for hedge fund groups that sued to block it. On August 25, 2025, a three-judge panel directed the SEC to reconsider the costs and cumulative economic effects of the rule, while leaving the agency’s underlying authority intact. The challenge was brought by industry associations representing hedge funds and other private funds.

First, what rule are we talking about?

In October 2023, the SEC adopted Rule 13f-2 and Form SHO, designed to increase transparency in short selling by requiring certain institutional investment managers to report their short positions and trading activity monthly once they exceed specified thresholds. The SEC said it would aggregate and anonymize the data and publish it for the market. The same package also amended the Consolidated Audit Trail (CAT) NMS Plan to tag uses of the market-maker exception for short sales.

To operationalize the filings, the SEC updated EDGAR (its filing system) and the EDGAR Filer Manual, explaining that Form SHO could be submitted via a web form or XML and that only aggregated, anonymized information would be made public.

Recognizing industry timing and build-out constraints, the SEC in February 2025 issued a temporary exemption delaying initial Form SHO reports to February 17, 2026 (covering the January 2026 reporting month).

What did the court say?

The appeals court remanded the short-sale disclosure rule, faulting the SEC’s cost–benefit analysis—specifically, for not adequately weighing cumulative economic impacts—while rejecting claims that the rule itself exceeded the SEC’s authority or would inevitably expose proprietary strategies. Translation: the rule isn’t dead, but the Commission must shore up its economic reasoning.

Why hedge funds care

Hedge funds argued that even anonymized, aggregated disclosures could invite reverse-engineering of trading strategies and impose meaningful compliance costs—especially when combined with other market-structure rules. The court didn’t buy all of those arguments, but it did agree that the SEC must better quantify burdens and interactions with other requirements. That’s the “win”: a real chance to narrow the scope, tweak thresholds, or alter cadence after a fresh analysis. 

The policy backdrop: more transparency after the meme-stock era

The SEC’s 2023 package was justified as a way to broaden short-sale data available to regulators and the public in the wake of 2021’s meme-stock volatility. Chair Gary Gensler framed the aim as enhancing transparency; Commissioners Hester Peirce and Mark Uyeda raised concerns about calibration, including how the data would be reported and interpreted. 

What happens next?

• SEC redo on economics. The Commission now has to revisit and likely supplement its economic analysis of Rule 13f-2/Form SHO. A revised rule could keep the same core approach but alter thresholds, granularity, or timing to address costs.
• Existing timing stays delayed. Thanks to the Feb. 7, 2025 exemption, first Form SHO filings aren’t due until Feb. 17, 2026 (for January 2026). Unless the SEC adjusts the compliance date again in response to the court, that remains the operative timeline.
• CAT tie-in remains relevant. The short-sale rule was paired with a CAT tagging change; while a separate court last month struck down the SEC’s CAT funding approach, the specific short-sale tagging amendment remains part of the 2023 transparency package’s context.

Practical takeaways for market participants

For hedge funds and other managers

• Keep your Form SHO build moving, but plan for potential scope changes (e.g., reporting fields or thresholds) as the SEC re-evaluates costs. The EDGAR and filer-manual updates provide the technical rails you’ll need either way.
• Revisit your assumptions about data sensitivity: although public releases will be aggregated and anonymized, consider whether your internal positioning cadence could still be inferred when combined with other public signals.

For issuers and retail investors

• Expect more (but not real-time, manager-level) visibility into short-interest dynamics if the SEC re-adopts a revised rule: the agency plans to publish aggregated datasets rather than naming specific managers.

For compliance teams

• Track the remand docket and watch for an SEC staff memorandum or reopened comment period focusing on cost–benefit issues. The Commission’s own statements and fact sheets are the best sources for determining what will ultimately be in or out.

A quick timeline

• Feb. 25, 2022 – SEC proposes Rule 13f-2 / Form SHO (short-sale transparency).
• Oct. 13, 2023 – SEC adopts Rule 13f-2 and Form SHO; also amends CAT NMS Plan.
• Dec. 16, 2024 – SEC updates EDGAR and Filer Manual for Form SHO.
• Feb. 7, 2025 – SEC issues temporary exemption, pushing first Form SHO filings to Feb. 17, 2026.
• Aug. 25, 2025 – Appeals court remands the rule for improved economic analysis (hedge fund groups’ partial victory).

Bottom line

The hedge fund community didn’t “kill” short-sale transparency, but it won a crucial do-over on the economics. Expect the SEC to retain the concept of aggregated short-sale reporting, while revisiting costs, thresholds, and implementation details. If you’re a manager, keep your systems on track for 2026—but build in flexibility for changes as the SEC re-runs its analysis.

To speak with a Securities Attorney, please contact Brenda Hamilton at 200 E Palmetto Rd, Suite 103, Boca Raton, Florida, (561) 416-8956, or by email at [email protected]. Our Founder, Brenda Hamilton, is a nationally known and recognized securities attorney with over two decades of experience assisting issuers worldwide with going public on the Nasdaq, NYSE, and OTC Markets. Since 1998, Ms. Hamilton has been a leading voice in corporate and securities law, representing both domestic and international clients across diverse industries and jurisdictions. Whether you are taking your company public, raising capital, navigating regulatory challenges, or entering new markets, Brenda Hamilton and her team deliver the experience, strategic insight, and results-driven representation you need to succeed.

Hamilton & Associates | Securities Attorneys
Brenda Hamilton, Securities Attorney
200 E Palmetto Rd, Suite 103
Boca Raton, Florida 33432
Telephone: (561) 416-8956
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