April 20, 2022
There are 80 pages that essentially boil down to:
Banks, institutions, hedge funds, high frequency traders and other large institutions who have made huge risky bets want a way to get out of their bad bets with as little risk as possible.
This creates a sort of generic currency institutions can use to close short positions regardless of what company that value came from.
For example, lets say I'm short 1000 shares of google at $100 and the price of google all the suddenly goes up 100%. I might want to close my position because I'm getting my butt kicked on a bad bet. I go to the market to buy shares but there are non to buy because other short sellers are buying up shares to close their own positions.
This can happen because market makers have this special super power to short(sell) stocks they don't own which makes no sense, even in the name of liquidity. They are supposed to locate real shares, but due to an enormous amount of loopholes, their high frequency trading computers can skirt the locate requirement.
So I'm super screwed, I can't close and I get margin called.
What this rule proposes to do is to create this generic currency. Instead of needing to find 1000 google shares. I can go buy 2000 shares of say GE for $50 bucks and return those as this generic currency instead, because the monetary value is the same as my 1000 shares of google. I close my shorts without having to spend 100% of the cost i paid for google and google's price doesn't recover from the short action since I wasn't forced to buy in.
This makes no sense. This would allow companies to be shorted with zero risk to these institutions. As a retail investor with directly registered ownership in many companies, I doubt I'd ever be able to trust the stock market ever again. Which is saying something, since high frequency trading has already destroyed price discovery as it is.
This rule needs to be withdrawn. Short selling needs to be more transparent and loopholes need to be closed. No one should be able to sell a stock they don't own.
Liquidity is a poor excuse. I suspected all these complex derivatives that institutions use require unlimited liquidity to keep prices in sync based on what the derivative is tracking. Without unlimited liquidity, derivative mechanics will be forced to actually buy the stock instead of borrowing from all the little stashes, such as ETFs and 401k accounts.
This is a short term get out of jail free card for people who can't accept to lose. This short term bailout will be the death blow to the stockmarket as we know it.