Oct. 14, 2022
October 14, 2022 Despite the pushback from industry firms who face increased compliance costs, I fully support the Commission in this rulemaking, and urge the Commission to go further with these disclosures. Our movement is born from frustration over the many complex and conflicted aspects of market structure, with a lack of transparency and visibility into the inner workings around short selling being a primary driver of our retail investor supporters. The lack of transparency around short positions, the inability to adequately quantify short interest, and the ability for firms to skirt regulation through derivative positions such as options and security-based swaps are making a mockery of our free and open markets. The inadequate ability to properly measure and understand economic short exposure leads to supply/demand imbalances in markets and affects trading prices. The protests of the industry in terms of the effort required to comply with the Proposal ring hollow given the Commissions experience with interim temporary Rule 10a-3T - firms had no problem complying and the data provided was useful to the Commission. Indeed, the Proposal is easier to comply with, given the monthly rather than weekly reporting of interim temporary Rule 10a-3T. However, the Proposal does not go far enough. WTI urges the Commission to provide the same level of disclosures and transparency for short positions as is currently done with long positions via 13F filings. None of the arguments for aggregation or lagged reporting are consistent with the reporting of long positions via 13Fs. Our markets already have a position disclosure standard, and that standard should simply be updated with short positions to allow retail and institutional investors to do the same kind of analysis regarding short positions as they currently do with long positions. We often lament the fact that regulators in other jurisdictions have done more, moved further, and advanced the cause of transparency far more significantly than we have in the US. As other commentators have noted, the EU adopted a short sale reporting regime that essentially requires immediate public disclosure of large short positions, by individual issuers. Despite this onerous disclosure regime that goes much further than the Proposal, we agree that a study of the impact of the EUs regulation finds no evidence that the disclosure requirements have resulted in increased coordination or have resulted in short sellers being targeted for short squeezes.5 The concerns from the industry and from the short selling community are simply not valid. Harmonizing the Proposal with European standards would provide significant benefits, both from a transparency perspective and from the short-selling investment managers perspective - it is far easier to comply with the same rule across multiple jurisdictions than to manage varying standards and rules from country to country. It is also important to note, from the perspective of how to set an appropriate threshold for disclosure that, as the Commission acknowledges, the European threshold of 0.5% is being gamed, and therefore setting a threshold substantially higher than that will lead to even further gaming of the threshold and disclosure avoidance. There should be little doubt that firms will attempt to game any threshold that is set, as has happened with 13F long disclosures for many years. Given the European experience with a very low threshold, we would argue that it is important to set the threshold as low as possible to mitigate any effects and impacts from firms attempting to game the threshold. Despite the constant concerns expressed in comment letters about reverse engineering trading strategies and the concern voiced in the proposal that there would be a risk of retaliation towards short individual sellers as well as the ability for market participants to engage in copy-cat strategies,6 the same can be said of current 13F disclosures. Indeed there is an entire industry that follows 13F and other similar disclosures (e.g., politician trades) and allows for copy-cat strategies. The value of transparency and the need for investors, both retail and institutional, to understand the holdings of investment managers, as well as to form an accurate picture of short interest and short trading dynamics should far outweigh these concerns. The Commission has agreed with this view in crafting 13F policies, the EU has agreed with this view with their disclosure regime, and the Proposal should be expanded to include robust public disclosure at the individual manager level of this information. Finally, I would further urge the Commission to set a goal to harmonize reporting timelines for all relevant disclosures, from 13F long and short disclosures to reporting timelines for FINRA and the SROs to ensure that data is released consistently, to avoid misunderstandings and misconceptions