MFA responds to FINRA’s proposal to expand short-term interest reporting requirements – Finance and banking

House Financial Services Committee considers credit reporting legislation fair - Finance and Banking

Cadwalader, Wickersham & Taft LLP

07 October 2021

Highlights

  • In a comment letter responding to the potential expansion of
    short interest reporting requirements (FINRA Regulatory Notice 21-19), the
    MFA detailed its support, conditional support
    and opposition to various proposed enhancements. (See prior coverage.)


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it supports FINRA’s proposed consolidation of short
interest data publication, but does not support the inclusion of
data pertaining to synthetic short positions created through
options, as it is extremely difficult to provide such information
in “an accurate and standardized manner”;

it does “not support publication of short interest data by
market participant category, such as by proprietary and customer
accounts or institutional and retail investors, as such data could
be misinterpreted, resulting in harm to investors.”

it supports increasing, from twice a month to weekly, the
frequency of interest position data reporting to FINRA and
publication of the data;

account-level short interest position information should not be
reported and published because of the heightened risk to short
sellers of cyberattacks and confidential account information data
breaches;

it recommends that FINRA consider swap-related reporting and
information dissemination requirements only after Regulation SBSR(“Regulatory Reporting and
Public Dissemination of Security-Based Swap Information”) is
fully implemented so as to not confuse market participants and
negatively impact Regulation SBSR’s “transparency and
price discovery enhancements”; and

it would be difficult to establish a reporting framework for
stock lending activity.

The MFA explained that:

Primary Sources

MFA Press Release: MFA Supports FINRA’s Effort
to Improve Aggregated Short Interest Reporting and
Publication

MFA Comment Letter: Regulatory Notice 21-19 –
FINRA Requests Comment on Short Interest Position Reporting
Enhancements and Other Changes Related to Short Sale
Reporting

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