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Nov 10, 2015

SEC paying ‘intense attention’ to possible short-selling disclosure

Commission chair’s comments follow calls for greater accountability for short-sellers in US

The SEC is paying ‘intense attention’ to the question of whether to create rules that would oblige investors to disclose short-selling activity, the commission’s chair has said.

When asked in an interview on Bloomberg Television whether the commission would consider requiring short-selling disclosures, chairman Mary Jo White said: ‘It’s a complex sort of landscape, but it is an issue that has our intense attention. Short-selling has a legitimate, positive purpose in the marketplace. That’s very different, though, [from manipulating] by short-selling.’

Under SEC rules, hedge funds with more than $100 mn in assets must report their long holdings to the SEC within 45 days of the end of each calendar quarter, but they don’t have to disclose short-selling. White’s comments follow a series of incidents that highlight the power of short-sellers to influence stock prices in their favor.

On Monday, Citron Research, a site organized by short-seller Andrew Left, sparked a 17 percent plunge in the shares of drug maker Mallinckrodt. Citron Research said on Twitter that Mallinckrodt shares could drop further than those of Valeant, which plunged last month after allegations of improper accounting, because it is a ‘far worse offender’ against the reimbursement system. The researcher promised more information would follow the tweet.

Last week, the SEC charged Scottish trader James Craig for allegedly sending multiple false tweets targeting two companies, Audience and Sarepta Therapeutics, in an attempt to affect the share price. The SEC says Craig’s first tweets prompted a 28 percent drop in the price of Audience stock before NASDAQ halted trading in it.

In a letter dated October 7, the NYSE and NIRI called on the SEC to force hedge funds to reveal their short positions to bring regulations in line with those with Europe.

‘We believe, overall, that investors would benefit through augmentation, increased accuracy and increased visibility of the currently available data regarding short sales and positions in individual securities,’ the letter states. ‘Importantly, short-sale reporting would allow investors to more accurately evaluate market movements.’