Financial Industry Regulatory Authority proposes increased clarity on short positions

In a significant development, Wall Street’s self-regulatory body, the Financial Industry Regulatory Authority (FINRA), has proposed changes to its short-interest reporting requirements. The added disclosure is aimed at making the information more useful.

The proposal seeks to amend changes to Rule 4560 to increase the frequency of short-interest reports from bi-monthly to weekly or even daily. The change would require clearing firms to report synthetic short exposure – bets made against shares via derivatives – in firm and customer accounts.

The move marks an intensification in the scrutiny of short-sellers, who bet against shares to profit if they fall, amid ongoing volatility in “meme stocks”, which is driven by retail investors banding together to squeeze hedge funds that bet against GameStop AMC Entertainment Holdings Inc and other stocks.

The proposal will also require clearing houses to report to FINRA certain information on the stock loans that facilitate short bets “for regulatory purposes, but with an eye toward eventual public dissemination,” amid other changes, said the watchdog.

“These potential changes could improve the usefulness of short sale-related information to FINRA, other regulators, investors and other market participants,” said the FINRA.

FINRA is an industry-financed self-regulatory organization overseen by the U.S. Securities and Exchange Commission (SEC).

“The proposed changes, which are subject to public consultation, would likely increase the burden on clearing firms and prime brokers, who bear the primary responsibility for short interest reporting under the current requirements,” said the FINRA.

Currently, although the agency collects and publish this data it is however not easy for many investors to access it. The proposal aims to remedy that.

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