An open letter to the U.S. Congress

Regulate Naked Short Selling

115 so far! Let’s get to 250 signers!

The initial hearings in the House Financial Oversight Committee were a good start to getting to the bottom of recent volatility in the market. However, as a constituent, I want to encourage you to dig deeper on the parties that have caused US markets to come to the brink of collapse. In particular, attention needs to be placed on getting the SEC, FINRA, and the DTCC to account for actors accused of rampant illegal naked short selling and the counterfeiting of securities. Regulation SHO was passed by the SEC in 2008 to protect our markets and the American business community from predatory short selling tactics. Unfortunately, Reg-SHO goes almost completely disregarded by the members of the DTCC. In fact, an analysis of several episodes since 2008 shows that rampant naked short selling has been facilitated by the DTCC, generating immense profits for those making these bets at the expense of companies targeted by the illegal practice. However, the bet against GameStop turned out to be a bad one. The hedge funds and market makers that had created naked short positions for themselves quickly found themselves accumulating losses in January 2021. Unfortunately for GME shareholders, however, instead of paying the check on their bad bets in the ensuing ‘short squeeze’, certain actors pressured brokerages to prevent buying pressure from retail investors while market makers and hedge funds used manipulative tactics to double down on shorts via ETFs, buy synthetic long positions, and trade shares in so called off exchange 'dark pools' in order drive the price down and hide the extent of their liabilities. While this staunched the bleeding for the nakedly short parties, it merely kicked the can of covering these liabilities down the road. Now this issue is still a ticking timebomb that could cause massive losses for hardworking Americans that entrust regulators and banks to look out for their interests. This episode of blatant naked shorting could also cripple faith and accountability in American markets and make our businesses easy prey for more bad behavior by these actors. If the parties involved in the naked shorting of GME are let off the hook, they will continue to use the same tactics to artificially devalue American companies for their own enrichment while the American public loses jobs and waits to bail them out when their risky naked shorting inevitably goes against them as it did in January 2021. Set the right precedent. Bring the SEC, DTCC, NSCC, and relevant hedge funds, market makers, clearing houses, and prime brokers to testify on record in an open session of Congress, report any naked short positions and talk about their actions. The American people deserve regulators who enforce the law equally. The voters haven't forgotten 2007, and we won't forget where lawmakers stand in 2021 on Wall Street corruption. Thank you for your time and attention to this important issue.

First sent on May 5 by Citizens for Wall Street Reform

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