The Securities and Exchange Commission (SEC) has set new rules for hedge fund and other investors to report on the gross short positions in certain stocks by the end of each month. They also have to provide details on derivatives trading more regularly. The SEC will then publish information after aggregating positioning in equities obtained from several funds. These Friday rules are set to cause another clash between the federal regulatory agency and Wall Street.
As per the rules of the agency, a hedge fund has to file a report if it reaches a $10 million average short position during a reporting month or if it reaches a 2.5 percent gross short position when compared with its total shares outstanding.
The rules came into place after short selling has become controversial in the recent past especially during the pandemic when the practice thrived and market volatility was at a peak. One of the main reasons for the setting up of these rules was the volatility in Game Stop shares as reported by us.
Gary Gensler, the SEC chair, has not proposed a major overhaul of short-sales rules but the agency’s five commissioners have put forth rules that will make hedge funds share more information with the regulatory agency.
In a statement SEC Chair Gary Gensler said, “Given past market events, it’s important for the commission and the public to know more about short sale activity in the equity markets, especially in times of stress and volatility.”
The rules also expect banks, pension funds, institutional money managers and brokerages who lend shares to disclose some details of these transactions. Some of these details include the time of the loan, fees as well as the names of the company’s securities that are part of these transactions.
The recent collapse of mid-sized banks could have been avoided or could have been stopped if there had there been more transparency.
Gary Gensler said disclosures by banks, pension funds, institutional money managers and brokerages would increase transparency in the securities lending market that amounts to $3 trillion.
The SEC made changes in the final version including reporting loans a day after they go into effect instead of the original 15 minutes after they go into effect. There have been mixed responses to the new rules.
CWEB News Summarized Breaking, Business and Stock Newsletter October 17, 2023
