His intervention echoes calls by the American Banking Association, a trade group, which called for the Securities and Exchange Commission to act against “market manipulation and other abusive short selling practices.”
The S.E.C. isn’t planning to ban short selling. But DealBook hears that there is growing pressure on the regulator to implement short-seller rules that were required under the Dodd Frank Act. Section 929X of the act requires the S.E.C. to adopt rules around the disclosure of short positions. The S.E.C. never fully followed through with that mandate, and there is some debate over whether it means revealing individual short positions or aggregate investments.
Proponents say this would add much needed transparency to the market, because other investors, the management of targeted companies and policymakers need to understand what is really happening when a stock is under attack.
Opponents say short sellers aren’t the real problem. They say disclosing who was shorting a stock would give companies a reason to avoid communicating with those investors, preventing important conversations. “There’s always been a worry that if you had short-sale disclosure, companies would use that as a weapon to not talk to people,” Jay Clayton, the former head of the S.E.C., told DealBook.
And, critics say, disappearing deposits are the real issue in the current crisis.
“Asset values decline when buyers are not willing to pay as much as they previously were willing to pay for an asset,” Chester Spatt, a finance professor at Carnegie Mellon’s Tepper School of Business, told DealBook. “This argument does not depend upon whether short-selling is allowed or disclosed.”