Skip to main content

George Hadjichristou Comment On Regulatory Notice 21-19

George Hadjichristou

Any new rules to regulating shorts would be very welcome as a retail investor. As far as I’m concerned, these are the biggest problem in enforcing REG SHO and regulation of the shorting market is the T2 settlement period which obscures net positions for the average investor. And the other is the blurred line of market makers and hedgefunds. Hedgefunds can easily parade themselves as “bona fide” market makers to skirt Threshold list settlement, and legally issue naked shorts. As for other specific points, here are a few problematic and borderline illegal practices that are rampant: permitting important hedge fund clients to bypass the locate requirement when entering short sales, creating and distributing easy to borrow lists that improperly included threshold and hard-to-borrow securities to the firm’s proprietary traders and clients concealing FTDs through washed and matched trades, i.e. rolling over an FTD to another broker dealer transacting illegal stock sales in dark pools off the primary markets to avoid NYSE oversight and to maintain anonymity failing to reasonably supervise that locates were obtained and/or documented for short sales falsely marking short sales as long on order tickets to conceal naked short positions, falsely representing that they either possessed the borrowed securities or had located them for borrowing and delivery. failing to make legitimate or reasonable efforts to locate shares prior to short selling, entering into fictitious option contract to conceal naked short sales; using the DTCC stock borrowing program as a means to conceal naked short sales, submitting fake short interest and other reports to regulators; concealing their activity through falsely reporting shares created through illegal naked shorting as shares in brokerage statements of investors as if these assets were representative of real shares concealing their activity by issuing voting material to shareholders with nonexistent assets who have no corporate rights including the right to vote shares, failing to comply with responsibilities and duties to investigate and report suspicious transactions to regulatory authorities Elimination of the Uptick Rule And that is just to list a few. This system is not an even playing field in every aspect (starting with payment for order flow and high frequency trading). And it seems the SEC is more concerned with market liquidity than enforcing REG SHO.