Short sellers have been in focus in recent weeks as the U.S. Securities and Exchange Commission (SEC) works to draft new policies concerning short selling. Earlier this month, the Department of Justice announced that it opened investigations into several prominent short sellers. These short sellers were allegedly engaging in illegal schemes such as spoofing and scalping. Now, the SEC has announced a new short-selling proposal that would force short sellers to submit more disclosures concerning their positions.
The new SEC proposal would have short sellers file monthly forms detailing their large equity short positions. While other information concerning the short position would remain private, the SEC seeks to obtain more aggregate data concerning large positions in specific companies. The SEC defines a large position as at least $10 million or 2.5% or more of the shares outstanding.
Under the new proposal, large short sellers would have to report the name of the company, month-end information, and daily trading activity that affects the fund’s short position for each day of settlement. In return, the SEC would make public information concerning the “aggregate short position that money managers have in a specific security” and the “percentage of the aggregate gross short position that’s hedged.”
CEO Bryan Corbett of the Managed Funds Association (MFA) is largely against the proposal. The MFA is an entity that represents hedge funds. Corbett explained, “This information is already available to regulators without imposing new, costly, and onerous filings that expose managers to increased risk of retaliation from corporate fraudsters.”
So, what else should you know about the SEC’s latest proposal? Let’s dive right in.
5 Things to Know as the SEC Proposes New Short-Selling Policy
- While the SEC seeks to collect aggregate short-selling info, the identities of fund managers with short positions would remain private.
- The new proposal also calls for increased transparency from brokerages. Right now, brokerages mark orders as long, short or short-exempt. With the new policy, for example, any fund with an existing short position seeking to buy stock of the underlying company would be marked “buy to cover.”
- After, the “buy to cover” data would be reported to a market surveillance system called the Consolidated Audit Trail.
- SEC Chair Gary Gensler believes this proposal will benefit retail investors. He added that this information would be important to disclose “especially in times of stress or volatility.”
- The SEC seeks to take public comment on its proposal before holding a vote to make any changes.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.