Hedge funds will likely soon have to start sharing significantly more information about their short-sale transactions with the Securities and Exchange Commission, setting up another clash between the industry and Wall Street’s main regulator.
(Bloomberg) — Hedge funds will likely soon have to start sharing significantly more information about their short-sale transactions with the Securities and Exchange Commission, setting up another clash between the industry and Wall Street’s main regulator.
The SEC is set to finalize new rules on Friday that require hedge funds and other big investors to report gross short positions in certain stocks at the end of each month, and details on related trading activity — including in derivatives — on a more regular basis. The agency would then aggregate positioning in equities across funds and publish that with a delay.
Short selling has long been a fixture of the US equity market, but the practice has grown more controversial. The SEC has faced pressure to increase scrutiny after retail traders banded together via social media in January 2021 and bought up shares in companies like GameStop Corp.
SEC Chair Gary Gensler has resisted calls from critics calling for a major overhaul of short-sale rules, though he has repeatedly said the $26 trillion private funds market lacks adequate transparency. The plans to be voted on Friday by the agency’s five commissioners are the latest in a string of new regulations that require hedge funds to share more information with the regulator. The industry has pushed back on many of them.
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According to the SEC, the new short-sale reporting will help inform the market and regulators about overall short-sale activity. The new regulations are also meant to help distinguish between hedging activity by businesses and bets against a company.
In addition to requiring more detailed reporting on big bets against a stock, the SEC is also planning to require for the first time certain disclosures on securities lending — a key aspect of short sales. Banks, pension funds, institutional money managers, and brokerages that lend shares will have to disclose certain details about the transaction such as time of the loan, fees and which company’s securities are involved.
The securities lending would be reported to the Financial Industry Regulatory Authority, which would make some aggregate data public as soon as the next business day. Specific loan data would be released on a delay.
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