The Securities and Exchange Commission has proposed requiring financial firms to report in real-time either short sale transactions or positions, as part of an initiative to increase disclosure on the popular practice.

Section 417 of the Dodd-Frank Act, adopted last year, required the SEC’s Division of Risk, Strategy and Financial Innovation to study greater disclosure of short-selling activities.

One solution called a transactions reporting regime would require that broker-dealers and financial advisers report transactions classified as short sales to a consolidated tape.

Another type of disclosure – called position reporting – would require financial firms to report short positions either to the public or to regulators only.

The difference: if an investment adviser or a broker-dealer sells 100,000 shares of a company short it can do so in one short sale – or one transaction.

It can also sell the same 100,000 shares short in 10 different transactions. Legal experts say that under the transaction reporting regime, each of the 10 transactions would have to be reported. By contrast, under the positions reporting regime, only the 100,000 share figure would have to be disclosed.

The SEC’s study must be submitted to Congress by July 21.

In short selling, a firm tries to profit from a decline in the price of the assets between the sale and the repurchase. The seller will pay less to buy the assets than the seller received on selling them. A naked short sale occurs when a security is sold short without borrowing the security in time to make delivery to the buyer within the settlement period. Naked short selling is prohibited in the U.S.

The SEC’s report on short selling is just one of the over 20 studies the SEC was required to complete by the Dodd-Frank legislation.

The SEC says its study will be based on feedback it receives on 23 questions. Those questions include “Would real time reporting of the short positions of all investors, intermediaries, and market participants be feasible, and if so, in what ways would it be beneficial?” and “Do costs or other factors limit access to currently available data?”

The SEC says that short selling accounts for almost half of U.S. equities volume based on data provided by exchanges for June 2010.

Stock markets do make available some data about short sales twice a month while data vendors offer information about the cost to borrow securities and the portion of shares that have been borrowed from the available pool for an individual stock.