For the second time in as many years, the Securities and Exchange Commission (SEC) – the agency dedicated to protecting ordinary investors – has given Wall Street’s elite short sellers a lengthy two-year extension.
The critically acclaimed Form SHO, designed to spotlight large short positions, has been postponed (again) until January 2, 2028.
Form SHO, part of the post-2008 Dodd-Frank reforms, is intended to bring secretive short-selling hedge funds out of the shadows.
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It requires the “whales” to confidentially disclose their massive short positions, which the SEC would then publish as aggregated, delayed data.
The data can provide critical insights for retail investors to spot potential stock manipulation, identify concentrated attacks and understand which stocks are being targeted.
Take for example the story of Melvin Capital And GameStop Corp. (NYSE:GME): Back in 2021, Melvin Capital, led by Gabe Plotkinhad a huge short position against failing video game retailer GameStop.
Retail investors on social media noticed that the stock was shorted more than 100% and coordinated a buying frenzy, causing a “short squeeze.” The stock shot up from about $20 to almost $500. Melvin Capital lost billions and eventually folded.
The form SHO would require hedge funds to disclose their short positions. Although the data would be aggregated, this could still increase transparency and help create a level playing field.
Instead, thanks to another lengthy delay, hedge funders can keep their short positions hidden for at least another 24 months.
“Bend the rules until they break“
The official reason for the huge delay? The Fifth Circuit Court of Appeals required the SEC to conduct a more thorough “cumulative economic analysis.”
Translation: Highly paid lawyers representing “trade groups” have successfully argued that transparency itself is too expensive or burdensome for them to manage.
The move was described by a dissenting SEC commissioner Caroline A. Crenshaw as a bureaucratic delaying technique.
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“It should not take two years to complete a narrow review of the Rules’ economic analyzes in accordance with the Court’s request,” Crewshaw said in a statement.
“This could be done quickly and concisely. But instead of following the Court’s limited guidance, the Commission is not so subtly indicating that no one should even worry about implementation; the rules will change,” she added.
As things stand, hedge funds have plenty of time to discover new loopholes, dismantle compliance systems, or simply wait for a political shift that could scrap the entire rule.
“Under the guise of compliance date extensions, we are attempting to camouflage a new willingness to repeatedly bend the rules until they are broken – eroding the rule of law,” Crenshaw said.
It looks like retail investors will have to wait a few more years (at least) to see how the powerful really operate.
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