SEC needs to plug short selling data gap, says commissioner
18 May 2021 US
Image: stock.adobe.com/3dkombinat
US Securities and Exchange Commission (SEC) commissioner Caroline Crenshaw has questioned whether in the wake of GameStop, the regulator has sufficient information regarding short selling and the securities lending market.
In her keynote address at the 8th Annual Conference on Financial Market Regulation last Friday, Crenshaw — whose views do not necessarily reflect the views of the commission or its staff — said that the SEC needs to address gaps in its data collection.
In the speech to economists, Crenshaw explained that serious harm can come from regulating in the absence of relevant data. “Without information about the markets that the SEC regulates, we may fail to address problems in our markets, or even make them worse,” Crenshaw said.
“However, we need to be cognizant of the impact on market participants of reporting and disclosure requirements.”
Crenshaw highlighted that there had been many calls for the SEC to respond to the GameStop-related market activity that took place in January. “However, before we can respond to any market event, we need to understand what happened. Without good information about what took place, we may respond in ways that fail to address the real issues.
“And the key to understanding a market event like GameStop is a complete, accurate, and accessible source of market data,” Crenshaw stated.
The failure of the Archegos family office raised similar questions about derivative positions, and Crenshaw highlighted the importance of implementing the SEC’s long-overdue security-based swaps reporting framework. “We should also carefully assess whether the data reported under this framework is sufficient to allow us to detect the buildup and concentration of risk exposures.”
The SEC has required for several years the exchanges and their regulator, the Financial Industry Regulatory Authority, to build a Consolidated Audit Trail (CAT), in response to the fragmentation of equity markets.
Although the CAT was helpful in understanding the GameStop-related market activity, it still lacks the customer and account information needed to get a full understanding of what was happening in the markets at the time, Crenshaw said.
Crenshaw’s speech comes after heavyweight regulators testified before the third and final GameStop US House Committee on Financial Services hearing on 6 May.
Newly minted SEC chair Gary Gensler said that at its core, January’s events were driven by the significant short selling of a number of meme stocks.
“While FINRA and the exchanges currently publish or make available certain short sale data, Congress directed the SEC under the Dodd-Frank Act to publish rules on monthly aggregate short sale disclosures. I’ve directed SEC staff to prepare recommendations for the Commission’s consideration on these issues,” Gensler said.
In her keynote address at the 8th Annual Conference on Financial Market Regulation last Friday, Crenshaw — whose views do not necessarily reflect the views of the commission or its staff — said that the SEC needs to address gaps in its data collection.
In the speech to economists, Crenshaw explained that serious harm can come from regulating in the absence of relevant data. “Without information about the markets that the SEC regulates, we may fail to address problems in our markets, or even make them worse,” Crenshaw said.
“However, we need to be cognizant of the impact on market participants of reporting and disclosure requirements.”
Crenshaw highlighted that there had been many calls for the SEC to respond to the GameStop-related market activity that took place in January. “However, before we can respond to any market event, we need to understand what happened. Without good information about what took place, we may respond in ways that fail to address the real issues.
“And the key to understanding a market event like GameStop is a complete, accurate, and accessible source of market data,” Crenshaw stated.
The failure of the Archegos family office raised similar questions about derivative positions, and Crenshaw highlighted the importance of implementing the SEC’s long-overdue security-based swaps reporting framework. “We should also carefully assess whether the data reported under this framework is sufficient to allow us to detect the buildup and concentration of risk exposures.”
The SEC has required for several years the exchanges and their regulator, the Financial Industry Regulatory Authority, to build a Consolidated Audit Trail (CAT), in response to the fragmentation of equity markets.
Although the CAT was helpful in understanding the GameStop-related market activity, it still lacks the customer and account information needed to get a full understanding of what was happening in the markets at the time, Crenshaw said.
Crenshaw’s speech comes after heavyweight regulators testified before the third and final GameStop US House Committee on Financial Services hearing on 6 May.
Newly minted SEC chair Gary Gensler said that at its core, January’s events were driven by the significant short selling of a number of meme stocks.
“While FINRA and the exchanges currently publish or make available certain short sale data, Congress directed the SEC under the Dodd-Frank Act to publish rules on monthly aggregate short sale disclosures. I’ve directed SEC staff to prepare recommendations for the Commission’s consideration on these issues,” Gensler said.
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