Bankers are urging the SEC to looking into manipulative trading, particularly into abusive short selling.
Earlier this week, Reuters reported that the White House had vowed to monitor the possibility of illegal short selling as shares in the banking sector plunged.
Shares of PacWest Bancorp (NASDAQ:PACW) fell more than -50% on Thursday but recouped its losses on Friday.
PACW stock is still down more than -45% in the past week and more than -75% this year-to-date.
Now The American Bankers Association on is urging federal regulators to investigate significant short sales of publicly traded banking equities that it said were “disconnected from the underlying financial realities.”
Retail investors are raising concerns over the banking sector’s requests, stating that the SEC should address manipulative trading practices in individual company stocks too, not just within the banking sector.
“We urge the SEC to consider all its existing tools and to take measures to reduce the avenues for abusive trading practices and restore investor confidence,” the banking group said.
“These measures include, at a minimum, a clear message and appropriate enforcement actions against market manipulation and other abusive short selling practices.”
The Fight Against Manipulative Short Selling Grows
Short sellers made approximately $378.9 million in paper profits on Thursday alone from betting against certain regional banks, according to Ortex.
U.S. federal and state officials are assessing the possibility of “market manipulation” behind big moves in banking share prices in recent days, a source familiar with the matter said on Thursday, as the White House vowed to monitor “short-selling pressures on healthy banks.”
Increased short-selling activity and volatility in shares have drawn increasing scrutiny by federal and state officials and regulators in recent days, given strong fundamentals in the sector and sufficient capital levels, said the source, who was not authorized to speak publicly.
“State and federal regulators and officials are increasingly attentive to the possibility of market manipulation regarding banking equities,” the source said.
White House press secretary Karine Jean-Pierre said the Biden administration was closely watching on the situation.
ABA President and CEO Rob Nichols told Gensler that short selling could be a legitimate financial tool, but his group was “unalterably opposed to short selling practices that distort the markets through manipulation and abuse.”
He called on Gensler to send a clear message to market players and take appropriate enforcement action against market manipulation and other abusive short selling practices, per Reuters.
“The harm caused by short selling that runs counter to economic fundamentals ultimately falls on small investors, who see value destroyed by others’ predatory behavior,” he said.
Chairman Gensler on Thursday said the agency would go after any form of misconduct that might threaten investors or markets.
Investors Are Looking for Relief
Retail investors invested in several companies are looking for relief in the market.
Mullen Automotive for example just announced the company will be opening an investigation into potential market manipulation and illegal short selling of its stock, MULN.
“These steps include retaining outside counsel, which is working with Shareholder Intelligence Services LLC (“ShareIntel”) to undertake a comprehensive analysis of data derived from broker-dealers, clearing firms and other sources to provide actionable intelligence on potential market manipulation and illegal short selling,” the company said.
Investors in $GTII and now delisted ticker symbol $MMTLP have their own unique battles against manipulative short selling.
There are several companies who are experiencing manipulative trading by big institutions.
The question is whether the SEC will begin to enforce strict policy to keep these institutions in line.
Nearly 35,000 retail investors have signed a letter to the SEC published by We The Investors requesting improvements to market rules and new disclosures.
But Wall Street keeps fight back.
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Related: Big Hedge Funds Now Have to Report Losses in Real-Time
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