FINRA 21-19 represents a ground shaking step towards improving the transparency and ultimately the freedom of the United States' market. Up until now, FINRA's archaic short interest reporting standards have facilitated exploitative and irresponsible market practices that threaten both free competition and the stability of the market. Recognizing the abuse behind intransparent reporting is a decisive step towards tackling the issue; however, if this policy does not address loopholes such as those within arranged financing programs, and the transfer of securities to separate legal entities, then FINRA's intentions will be in vein (Evans et al. 2019). Use of dark pools are a further means by which short sellers can avoid regulation and target stocks (Boulton and Braga-Alves, 2020). As such, aiming legislation solely at lit markets is only fighting half the battle. If this policy is to be more than a token gesture then it must address the structural issues within the market that are so detrimental to market freedom and economic stability. Boulton, T.J. and Braga-Alves, M.V., 2020. Short selling and dark pool volume. Managerial Finance. Evans, R.B., Moussawi, R., Pagano, M.S. and Sedunov, J., 2019. ETF short interest and failures-to-deliver: Naked short-selling or operational shorting?. Darden business school working paper.
Luke Leszczar Comment On Regulatory Notice 21-19
FINRA 21-19 represents a ground shaking step towards improving the transparency and ultimately the freedom of the United States' market. Up until now, FINRA's archaic short interest reporting standards have facilitated exploitative and irresponsible market practices that threaten both free competition and the stability of the market. Recognizing the abuse behind intransparent reporting is a decisive step towards tackling the issue; however, if this policy does not address loopholes such as those within arranged financing programs, and the transfer of securities to separate legal entities, then FINRA's intentions will be in vein (Evans et al. 2019). Use of dark pools are a further means by which short sellers can avoid regulation and target stocks (Boulton and Braga-Alves, 2020). As such, aiming legislation solely at lit markets is only fighting half the battle. If this policy is to be more than a token gesture then it must address the structural issues within the market that are so detrimental to market freedom and economic stability. Boulton, T.J. and Braga-Alves, M.V., 2020. Short selling and dark pool volume. Managerial Finance. Evans, R.B., Moussawi, R., Pagano, M.S. and Sedunov, J., 2019. ETF short interest and failures-to-deliver: Naked short-selling or operational shorting?. Darden business school working paper.