US bankers urge SEC to investigate short selling on banking shares
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The American Bankers Association has urged federal regulators to investigate a significant bout of short sales of publicly traded banking shares. The association said these short sales were disconnected from the underlying financial realities.
US bankers urge regulators to monitor short sales
The American Bankers Association sent a letter to the US Securities and Exchange Commission (SEC) highlighting these concerns. The letter was sent to the Chair of the SEC, Gary Gensler, with the lobby group saying that it had also detected significant social media engagement.
The social media engagement revolved around the health of some banks in the US, saying that the discussions did not reflect the conditions in the general industry. The group has urged the SEC to step up and restore investor confidence in the banking sector.
“We urge the SEC to consider all its existing tools and to take measures to reduce the avenues for abusive trading practices and restore investor confidence. These measures include, at a minimum, a clear message and appropriate enforcement actions against market manipulation and other abusive short selling practices.”
The association’s discussions come as regional bank shares continue to plunge. Bank shares have dropped this week following the collapse of First Republic Bank. FRC became the third-largest US bank to fail since March.
On Thursday, traders shorting bank shares made $378.9 million worth of paper profits after betting against some regional banks. Reuters had earlier said that officials from the US government were assessing the possibility of market manipulation in the banking industry. The White House said it was monitoring those short-selling healthy banks.
The President and the CEO of the American Bankers Association, Rob Nichols, said that short selling could be used as a legitimate financial tool. However, the association opposed short-selling practices that compromised the markets through abuse and manipulation.
Nichols has urged Gensler to ask market players to take the necessary enforcement action to prevent market manipulation and other exploitative short-selling practices. He added that short-selling pressures that went against economic fundamentals affected small investors.
The American Bankers Association comprises small, regional, and large banks. These banking institutions have employed over 2 million people, and together they protect $19.2 trillion worth of deposits while extending $12.2 trillion worth of loans.
US banking shares plunge
The S&P 600 bank index plunged by over 3% on Thursday. On the other hand, PacWest Bancorp shares have also dropped by more than 50% after saying it was exploiting strategic options.
Western Alliance Bancorp also saw its shares drop by over 38% after a report by the Financial Times said that the bank was exploring a possible sale. According to Nichols, the potential to cause damage to investors and the activities of short sellers demonstrated that the SEC needed to address abusive and manipulative market practices. Gensler has also said that the regulator would act against any misconduct that threatens investors.
