New SEC short selling rules will force investors to submit updates every month

U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler testifies before the Senate Banking, Housing and Urban Affairs Committee’s oversight hearing on the SEC on Capitol Hill in Washington, May 14. September 2021.

Evelyn Hockstein | Swimming Pool | Reuters

The Securities and Exchange Commission said Friday that it is considering a new rule and changes to existing regulations that will force short sellers to disclose more frequently about their bets. surname.

Wall Street’s top custodian said the proposed changes would require institutional investors to collect and submit certain short-selling data to the SEC each month. The committee will then make aggregated data on large short positions, including daily shorting activity, available to the public for each security.

When selling short, a trader who wants to bet against a company borrows shares of that company’s stock and then sells them on the market. In theory, the trader would buy back those shares at a later price and pay them back to the broker or asset manager who lent them the equity.

Asset managers lend those shares to short sellers in exchange for regular fees.

“I am pleased to support this proposal because, if passed, it would enhance the transparency of a key area of ​​our market that would benefit from greater visibility and oversight. better monitoring”, SEC Chairman Gary Gensler said in a press release.

The proposed changes to the SHO Regulations, a set of SEC rules for short selling, would keep the identities of managers and individual short positions confidential.

Gensler noted in his comments that the new rule would apply to institutional managers who hold short positions with at least $10 million or the equivalent of 2.5% or more of total shares. current.

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“It is important for the public and the Commission to know more about this important market, especially in times of stress or volatility,” he added. “The proposed rule would help the Commission deal with future market events, striking a balance between the need for transparency and the price discovery process.”

The proposed new rules are the SEC’s latest attempt to strengthen its oversight of the practice, which has been blamed by lawmakers in recent years for upsetting wild and dangerous price action on Wall Street. This activity came under scrutiny in early 2021 as individual investors gathered on social media to sell juice stocks like GameStop which attracted great interest from short sellers.

Late last year, the SEC proposed a rule that would require brokerages and asset managers that lend securities to short sellers to report data on each loan to a watchdog such as the U.S. Securities and Exchange Commission. financial industry manager within 15 minutes of making the loan.

The SEC said it is extending the period for public comment on that rule based on its latest proposed rule changes.

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