SEC Commissioner Jaime Lizarraga said on Friday that securities lending facilitates illegal trading.
The official SEC statement comes after regulators have been expected to adopt new market transparency rules that will shed light on short sellers and other market participants.
“As with securities lending, short sales, provided they are conducted in compliance with applicable rules, can play a valuable price discovery role in our capital markets.
That said, they can sometimes contribute to, or even cause, precipitous price declines, facilitate market manipulation, and generate market uncertainty and volatility”, said Commissioner Lizarraga.
“To minimize the gap between these benefits and downsides, the Commission’s action today strikes the appropriate balance between increased transparency for investors and regulators of short sale-related data, and concerns about real-time disclosure of trading strategies.
Currently, Regulation SHO is the primary rule governing short sales of equities.
Although this rule imposes some recordkeeping obligations on broker-dealers, it does not require market participants to track whether short-sellers cover their short sales or report bona fide market-making information on a regular basis.
Today’s rule will shine a light on short sale activity by institutional investment managers.
It fills gaps in the data these managers currently report about their monthly and daily short sale activities.
This data is essential for the Commission to assess and monitor risks related to large short positions, for reconstructing market events, and for deterring fraud, manipulation, and other potential market abuses.“
Today, investing communities have raised concerns of market manipulation in stocks such as AMC Entertainment, Meta Materials, FingerMotion, Global Tech Industries, Mullen Automotive, and many more.
Stock manipulation from short sellers, primarily hedge funds, is a topic that main street has been urging our regulators to tackle head on.
Also Read: SEC’s Director of Enforcement Now Under Investigation for Corruption
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For five years Citadel incorrectly marked short sales as long sales and vice versa according to the SEC’s latest report.
Retail investors have created an uproar on social media for two primary reasons.
- Citadel was only fined $7 million — which investors allege is merely a ‘pay to play’ fine.
- Citadel’s naked short selling “conspiracies” ended not being conspiracies, despite Bloomberg and WSJ journalists idolizing Citadel’s Ken Griffin.
For years now, retail investors have raised concerns over Citadel’s hedge fund and market making power, claiming there is simply too much conflicts of interest.
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.
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.
“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.”
Investors on social media say Citadel’s punishment is miniscule compared to the institutions massive gains it claims to have made, especially in the past years.
Keep in mind, Madoff never lost either.
Also Read: Judge Now Finds Broker-Dealers May Be Liable for Illegal Trading
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