Wall Street Authority Proposes New Rules for Short Positions and Equity Lending

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Signs visible outside FINRA offices in Manhattan, New York, USA, September 11, 2020 REUTERS / Andrew Kelly

The Financial Industry Regulatory Authority (FINRA), Wall Street’s self-regulatory body, has proposed changes to the reporting requirements for short-term interests to make the information more useful.

The proposed changes to Rule 4560 will increase the frequency of reporting short-term interest rates from bi-monthly to weekly or even daily. The change will require clearing firms to report synthetic short positions – bets placed against equities through derivatives – in the accounts of firms and clients.

The move underscores increased control over short-selling, betting against stocks in order to profit if they fall amid continuing volatility in meme stocks. This is because retail investors are banding together to restrict hedge funds that bet against GameStop.(GME.N) AMC Entertainment Holdings Inc.(AMC.N) and other promotions.

The changes will also require clearing firms to provide FINRA with certain equity borrowing information that facilitates short rates “for regulatory purposes, but with an eye on possible public dissemination,” amid other changes, the observer said. The offer was posted late Friday night.

“These potential changes could improve the usefulness of short selling information for FINRA, other regulators, investors and other market participants,” FINRA said in a statement.

FINRA is an industry-funded, self-regulatory organization controlled by the US Securities and Exchange Commission (SEC).

The proposed changes, which are subject to public comment, are likely to increase the burden on clearing firms and major brokers, which are primarily responsible for reporting short interest rates in line with current requirements, FINRA said.

The agency currently collects and publishes this data, but it is not easy for many investors to access it. This proposal is aimed at solving this problem.

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