SBAI Response to SEC on Short Position and Activity Reporting S7-08-22

The SEC has proposed reporting for short positions and short activity. We agree with the SEC's assessment on the importance of short selling but note that the proposed framework is not fit for purpose and that the focus should be on adapting existing reporting.

Proposed Short Position and Short Activity Reporting by Institutional Investment Managers (File No. S7-08-22).

SBAI position:

• We agree with the SEC’s assessment of the important role of short selling, and also agree with the SEC’s assessment of potential risks of short position disclosures, notably reduction of “incentives to gather information about the market-place and specific securities”, “copycat trading”, risk of “short squeezes”.
• We highlight that the proposed new form SHO data collection framework is not justified from a cost benefit perspective, given that it provides only very limited additional relevant insight compared to currently available data. The implementation will incur significant cost on investment managers and ultimately end-investors. Focus should instead lie on making the existing Consolidated Audit Trail (CAT) reporting fit for purpose.
• We also highlight that the SEC gives the impression that it will have the ability to “respond to significant market events“ in the future, but it is unclear how it establishes what constitutes a disorderly market (and distinguishes it from a justified price correction) and how the SEC will intervene. We highlight that by creating the expectation of regulatory intervention in markets to “protect” investors, regulators might inadvertently be encouraging more risk taking by market participants, who will start to rely on such protections.