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Finreg May Shine Light on Short Sellers

NEW YORK (TheStreet) -- A little-noticed provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act may require large investors to disclose short positions in stocks to the Securities and Exchange Commission, something they are not currently required to do.

The language in Section 929X(a) seems fairly clear in requiring the SEC to mandate detailed public disclosure of short interest on a monthly basis via what are known as 13(f) filings. Such filings currently require large investors -- defined as those that manage more than $100 million -- to disclose only their long positions.

The proposed new law reads as follows: "The Commission shall prescribe rules providing for the public disclosure of the name of the issuer and the title, class, CUSIP number, aggregate amount of the number of short sales of each security, and any additional information determined by the Commission following the end of the reporting period. At a minimum, such public disclosure shall occur every month."

An SEC spokesman declined to comment on the pending legislation.

Despite the detailed legislative language about what must be disclosed, there is some question about whether the SEC will find a way to avoid mandating such a disclosure, or whether it will allow short sellers to remain anonymous.

"There has been some discussion over the years about mandating disclosure of short positions and at different times the Commission has not been all that receptive to the idea that that's important market information," says Erich Schwartz, a former SEC official who is now a partner at Skadden, Arps, Slate, Meagher & Flom.

Indeed, one Washington-based hedge fund lobbyist who spoke on the condition of anonymity said he was fairly confident the reporting requirements would not lead to the identities of short sellers being disclosed.

Still, the fact that the disclosures would come via 13(f) filings suggests to Skadden's Schwartz that money managers will be required to disclosure their individual short positions.

"That's certainly a likely outcome," he says.

It is also an appropriate outcome, according to Harvey Pitt, a former SEC chairman who is now CEO of consultant Kalorama Partners.

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