The Securities and Exchange Commission is proposing a new set of reporting requirements for short selling that it says will help market regulars and watchdogs better understand what’s going on. in the stock market and how short sellers are affecting the price of individual stocks.
The rules, if passed, would require investment managers such as hedge funds to submit monthly reports on their short positions, after which the managers would publish the aggregate, according to the report. a proposal the SEC announced on Friday. The thresholds for reporting will be based on the size of investors’ short positions, not the size of the investment companies themselves.
“This will provide the public and market participants with greater visibility into the behavior of the major short sellers,” Gary Gensler, chairman of the SEC, said in an emailed statement to journalists. Mr. Gensler said the new requirements would also be good for financial regulators as they “will help us better monitor the market and understand the role short selling can play in market events. ”
To short a stock, a trader borrows shares from a broker for a fee and sells them immediately, with the expectation of buying them back when the stock price falls, returning them to the broker and pocketing the share. difference. Short selling is not illegal and its advocates say it can even benefit the market by weeding out underperforming companies. But it also has the potential to destabilize markets, as happened last year during the meme stock euphoria.
Regulators have been looking at ways to keep short selling from disrupting the stock market, largely spurred by events in January 2021, when retail investors gathered A consortium of hedge funds that are shorting shares of GameStop, the video game retailer, and AMC Entertainment, a struggling movie theater chain, in so-called “short spins.”
In a short time, there is chaos.
Individual investors bought as many shares of those companies as they could, causing their share prices to spike so much that trades in them began to fail at high rates. When shares are undersold too much, it can happen that the same stock of a company is loaned to multiple people looking to short-sell it – and when it’s time to buy back that stock at the end of the trade, may not. get enough shares to go around. That’s what happened during the AMC and GameStop squeeze.
Friday’s proposal is designed to make that less likely.
The SEC wants any investment manager with short positions large enough to meet a certain threshold to file a monthly report on those positions and the daily trading activities that generate them. Regulators intend to keep the identities of the companies reporting and publishing aggregated data secret, giving the public an overview of the moves of the major short sellers each month.
The SEC appears to be following in the footsteps of regulators in the European Commission, which have been more aggressive in requiring traders and investors to disclose most short positions.
The proposal will not become a new rule until after the 60-day comment period, during which time market participants and members of the public can make suggestions on how the committee should amend it. . The committee will then have to vote to adopt the final rule.
Matthew Goldstein contribution report.
https://www.nytimes.com/2022/02/25/business/sec-short-selling.html SEC wants to increase public view on massive short selling