Wall Street regulator to strengthen disclosures, boost transparency around short selling - Reuters

WASHINGTON, Feb 25 (Reuters) - The U.S. Securities and Exchange Commission (SEC) on Friday unveiled a pair of proposals that would broaden the data short sellers, who bet that stocks will fall, disclose to investors and the regulator in a bid to boost transparency around such trades.

The new rules would offer the public visibility into aggregated data around large short positions for individual equity securities, the SEC said.

The proposals would also impose a "buy-to-cover" mandate for brokers to identify sales as "long, short or short-exempt," said the SEC in its release, which added that the classifications would only be required if a purchaser has any short position in the same security at the time of order, and would further amend the national market system plan to include a report of such "buy-to-cover" information.

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Friday's measures, which are subject to public consultation, comes after SEC chief Gary Gensler told Congress last year he would step up scrutiny and mandate expanded disclosures following the January 2021 GameStop (GME.N) saga and the meltdown of Archegos Capital. read more

It also follows moves by the Financial Industry Regulatory Authority (FINRA) to change its short-interest reporting requirements and a probe by the U.S. Justice Department into suspected manipulative trading by short sellers and hedge funds. read more

Short selling, where investors bet that the price of a stock will fall, is permitted at hedge funds and is often seen by investors as a sort of check on corporate America by allowing shareholders to express concerns by doing more than selling a stock. The practice, however, has also fanned emotions in the investment world with some saying that so-called short sellers are unfairly ganging up on companies by publishing research that sends a stock price lower.

The proposals by the Wall Street regulator would specifically apply to institutional investment managers with a short position of at least $10 million, or the equivalent of at least 2.5% of the total shares outstanding, the SEC said. It would also apply to those who hold a short position of at least $500,000 in an equity security of a nonreporting issuer.

The proposals are meant to force investment managers to exercise discretion over short positions and would provide more visibility into their behavior, said Gensler. The agency would analyze the raw data to better understand the role short selling may play in market events before aggregating it for the public's eyes, he added.

"It's important for the public and the Commission to know more about this important market, especially in times of stress or volatility."