Investigate Naked Short Selling and Counterfeiting of Securities
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 caused the markets to come to the brink of collapse in January. In particular, questioning the actors that make up the component parties of the Depository Trust and Clearing Corporation (DTCC) and its subsidiaries like the NSCC. These actors are accused of having allowed rampant illegal naked shorting and counterfeiting of securities despite SEC regulation banning the practice. Regulation SHO was passed by the SEC in 2008 to protect our markets and the American business community from predatory short selling tactics. Unfortunately, enforcement is so toothless that regulation SHO goes almost completely disregarded by the members of the DTCC. An analysis of several episodes since 2008 shows that rampant naked short selling has been facilitated by the DTCC, generating great profits by the hedge funds making these bets at the expense of those companies targeted by the illegal practice. However, the bet against GameStop turned out to be a bad one. The hedge funds and market makers found themselves quickly accumulating losses and forced to buy back their illegal naked short positions at ever increasing prices in mid January. Unfortunately for GME shareholders, instead of paying the check on their bad bets in the ensuing ‘short squeeze’, the DTCC members simply pressured Robinhood and other brokerages to turn off the tap of buying pressure from retail traders while market makers and hedge funds used manipulative price tactics to double down on shorts, buy synthetic long positions, move their shorts into ETFs, and drive the price down to hide the extent of real short interest in GME. This is still a ticking timebomb that could cause massive losses across the globe. More troubling, however, is that this episode could cripple faith and accountability in American markets and make our businesses easy prey for naked short selling. If Melvin Capital, the DTCC, and the banks 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 banks, the DTCC, NSCC, and relevant hedge funds, market makers, clearing houses, and prime brokers to testify on record, report any naked short positions and synthetic long positions to the SEC, and talk about their actions leading up to and through Jan 28th. The American people deserve regulators and lawmakers 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 February 21 by Concerned Citizens on Market Reform
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