Oct. 09, 2022
October 9, 2022
I am writing in strong support of rule S7-08-22
Short Position and Short Activity Reporting by Institutional Investment Managers Notice of Proposed Amendments to the National Market System Plan Governing the Consolidated Audit Trail for Purposes of Short Sale-related Data Collection.
As a retail investor investing in securities for the long term, I am concerned with the way short sellers have been manipulating the market and attempting to destroy good companies during periods of economic instability.
Per the proposed rule \"while short selling can serve useful market purposes, it also may be used to drive down the price of a security, to accelerate a declining market in a security, or to manipulate stock prices\" pg 5. FULL TRANSPARENCY in short activity and short positions would enable investors and market participants to properly effectuate market price discovery. Current market regulations allow short positions and short activity to occur that artificially increase the number of shares in circulation. This information affecting the supply of shares is not available to regulators, investors, or other market participants which facilitates stock price manipulation.
In pursuit of an efficient market, this proposal should be further enhanced so that ALL short sale related data should be reported at the same level of granularity and detail as long positions.
The current proposal limits reporting to institutional investment managers that meet or exceed a specified reporting threshold which leaves open a significant amount of unreported short activity by market participants who do not fit the criteria.
The current proposal limits reporting to a monthly basis despite \"FINRA and most exchanges collecting and publishing daily aggregate short sale volume data, and on a one month delayed basis publishing information regarding short sale transactions\" pg 12. An efficient market is one where information is disseminated quickly and efficiently to market participants. Thus, more frequent and accurate reporting is beneficial towards promoting an efficient market and stronger risk management.
Short sale activity should be reported as quickly and as efficiently as possible in a manner at least equivalent to long position reporting to promote an efficient market, promote greater and more effective risk management, and reduce systemic risk.
The new \"buy to cover\" order marking requirement is helpful to \"facilitate the collection of more comprehensive data on the lifecycle of short sales\" pg 54 for the Commission. However, a known problem revealed by the 2012 Rolling Stone article Accidentally Released and Incredibly Embarrassing Documents Show How Goldman et al Engaged in Naked Short Selling' is that some market participants (including Goldman Sachs and Bank of America/Merrill Lynch) manipulated supply and demand by intentionally creating fails-to-deliver on a targeted list of stocks including, for example, Overstock stock. These market manipulators used fraudulent trades to extend fails-to-deliver including matching trades to \"sell into\" required buy-ins. While marking a trade as \"buying to cover\" may reveal information beneficial to the Commission, this marking does not address the underlying issues where market manipulators have been and are skirting requirements to buy in to close short sales that failed t
o deliver.
Simply put, there is no situation outside of Wall St where a fail to deliver would ever be tolerated. If a fully paid for security fails to deliver, there must be a hard requirement to buy-in and close that transaction. This is clearly within the regulatory power and scope of the SEC, who in the midst of the 2008 crisis issued new (interim) rules against abusive naked short selling primarily to protect troubled financial institutions. See 2008-204 SEC Issues New Rules to Protect Investors Against Naked Short Selling Abuses (Sept 17, 2008). Similar rules should be the norm.
The new reporting requirement for reliance on the bona fide market making exception pg 62 is helpful to \"provide valuable data to both the Commission and other regulators regarding the use of this exception by market participants, an exception which allows a broker-dealer (and consequently, a short seller) to avoid or delay certain requirements of Regulation SHO, including the locate and close out requirements\". As admitted by the Commission, market participants are utilizing this exception to avoid or delay certain Regulation SHO requirements, including the locate and close out requirements. While marking trades may provide valuable data, it does not address the underlying issues around market participants skirting Regulation SHO requirements.
There is no situation outside of Wall St where artificially increasing supply would be tolerated and significant penalties exist to deter and punish such behavior. Enforcing requirements for short sales to borrow stock is a natural solution promoting price discovery through costs to borrow and thwarting attempts to manipulate supply.
I strongly advise that this rule be implemented and enforced immediately.
Sincerely,
A Concerned Investor