US financial regulator to investigate links between short selling and abusive market practices
The SEC is looking at two proposals to make short sales more visible and transparent in real time.
The agency is seeking public comment on a proposal to voluntarily add short sale-related marks to the consolidated tape and to require reporting of short positions to regulators, making those data available publicly either simultaneously or after a delay.
The SEC released a request for comment on its website yesterday, asking for input on the costs, benefits, feasibility and market impacts of the proposals.
Of particular interest to IROs, the SEC estimates that short sales account for nearly 50 percent of listed equity share volume, based on an examination of June 2010 market activity.
Among the 23 questions on which the agency is seeking comment is one concerning how ‘short selling has been associated with abusive market practices’ including ‘bear raids’ or other market manipulation.
While acknowledging legitimate reasons for short selling, such as market-making functions, the SEC also asks for comment on other reasons for short selling and queries ‘how much of all short selling is accounted for by bona fide market making?’
Since 2007, total short interest in each listed security has been reported twice each month by the exchange on which the security is listed.
As one of several studies mandated by the Dodd-Frank financial reforms, the commission’s report to Congress on the issue is required by July 21.
The study itself is being conducted by the SEC’s Division of Risk, Strategy and Financial Innovation, which was created in the fall of 2009 by combining the Office of Economic Analysis with the Office of Risk Assessment. The division’s focus is on risk and economic analysis, strategic research and financial innovation.
To see the SEC’s request for comment, go here.
