Rewrite RegSHO / Abusive Counterfeit Short Selling / Market Manipulation

Economy
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Overview

Regulation SHO was proposed on October 28, 2003, and implemented on January 3, 2005, primarily to regulate short selling practices. More specifically, it was implemented to curb abusive counterfeit “naked” short selling along with reducing “Failure to Deliver” (FTD) in the securities market, thereby promoting market integrity and investor protection.

The concerns in our capital markets are as follows, but not limited to. . .

  • Abuse of the Market Maker Exemption
    *** A more stringent structure for Locate & Borrow requirements.**
    • No more abusive counterfeit stock creation.
    • Make it illegal to create unlimited shares.
  • Failure to Deliver (FTD) to close-out trades must occur within 30 days of original transaction.
    • Disallow the use of ETF’s and/or any other mechanisms to roll FTD’s into the future to reset the settlement window. A tactic that, in effect, prevents the closing out of trades.
  • Unreasonable delays in reporting requirements
    • Reports need to be public by end of day or within two days
  • Unreasonable number of errors in those reports
    • There is no excuse for the large number of reporting errors. Set a max acceptable reporting error amount to 1% or less.
    • More stringent requirements for reporting any errors sooner.
  • Opaque or delayed access for retail investors to vital information to make informed decisions
  • Ineffective punitive justice for excessive errors or fraud is found. Fines are comparable to 0.01% of the revenue generated by the illegal activity
    • Example: JP Morgan was fined $45M for several years of illegal conduct that resulted in gaining $20B in assets. That is only 0.002% of the revenue or assets generated. Increase the fines so they are not simply a cost of doing business.
  • Complacency and lack of action of Self-Regulatory Organizations.
    • Some have suggested that these SRO’s are complicit in the matter of abusive short selling and allow excessive counterfeit stock creation to run rampant.
    • Create a section requiring Congress to hold the SRO’s accountable if they do not act on illegal activity.
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