New market transparency rules will shed light on short sellers and other market participants according Financial Times.
These rules are expected to be adopted by US regulators this week as part of a “broad regulatory push for greater market transparency.”
“Investors, typically hedge funds wagering that securities will fall in value — known as short selling — need to borrow stocks and bonds to make the bets before returning them to their owners.
Lenders of the securities profit by charging a fee for the borrowed assets.
Some $1.8tn of securities are loaned annually in the US, according to data cited by insurance regulators.
The US Securities and Exchange Commission on Friday is scheduled to vote on whether to push ahead with its disclosure rule.
As first aired in November 2021, the proposal would require securities lenders to report each loan within 15 minutes of the deal.
Information on the loans, but not the names of the parties involved, would be made public.”
What’s prompted these rules today has been primarily due to the aftermath of the 2008 financial crisis – a time when Wall Street celebrated with champagne as an angry public marched the streets of New York.
“Making the securities lending markets more transparent will make them more efficient, and that’s not great news for some banks’ business models,” said Tyler Gellasch, chief executive of the Healthy Markets Association.
The Investment Company Institute, which represents the funds that do most of the securities lending, has warned that the 15-minute reporting requirements will layer on costs and make the practice unprofitable.
They also warn rapid disclosures could make it easier for high-frequency traders to front-run investors, reports FT.
Also Read: SEC’s Director of Enforcement Now Under Investigation for Corruption
Other SEC News Today
The SEC has now charged Citadel Securities for illegal short selling violations according to an SEC filing published in late September.
The Securities and Exchange Commission says the market maker violated a provision of Regulation SHO, the regulatory framework designed to address abusive short selling practices, which requires broker-dealers to mark sale orders as long, short, or short exempt.
To settle the SEC’s charges, Miami-based Citadel Securities agreed to pay a $7 million penalty.
$7 million is merely a slap on the wrist to the market maker giant.
The gains Citadel collected over the years trump the SEC’s fine — retail investors allege it’s simply the ‘cost of doing business’.
According to the SEC’s order, for a five-year period, it is estimated that Citadel Securities incorrectly marked millions of orders, inaccurately denoting that certain short sales were long sales and vice versa.
The SEC’s order finds that the inaccurate marks resulted from a coding error in Citadel Securities’ automated trading system and that the firm provided the inaccurate data to regulators, including the SEC during this period.
“Compliance with the order marking requirements of Reg SHO is a key component of regulatory efforts to curtail abusive market practices, including ‘naked’ short selling,” said Mark Cave, Associate Director of the SEC’s Division of Enforcement.
“This action against Citadel Securities demonstrates that a broker-dealer’s failure to comply with the requirements of Reg SHO can have negative downstream consequences on the accuracy of the firm’s electronic records, including its electronic blue sheet reporting, depriving the Commission of important information about the markets it regulates.”
Related: For Five Years Citadel Marked Short Sales As Long
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