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U.S. bankers urge SEC to probe short sales, reduce 'abusive' trading

Published 05/04/2023, 09:58 PM
Updated 05/04/2023, 10:16 PM
© Reuters. FILE PHOTO: The seal of the U.S. Securities and Exchange Commission (SEC) is seen at their  headquarters in Washington, D.C., U.S., May 12, 2021. Picture taken May 12, 2021. REUTERS/Andrew Kelly/File Photo

By Andrea Shalal

WASHINGTON (Reuters) -The American Bankers Association on Thursday urged federal regulators to investigate a spate of significant short sales of publicly traded banking equities that it said were "disconnected from the underlying financial realities."

In a letter to U.S. Securities and Exchange Commission Chair Gary Gensler, the lobby group said it had also observed "extensive social media engagement" about the health of various banks that was out of step with general industry conditions.

"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," the group said.

"These measures include, at a minimum, a clear message and appropriate enforcement actions against market manipulation and other abusive short selling practices."

The ABA call came as shares of regional banks resumed their slide this week after the collapse of First Republic Bank (OTC:FRCB), the third U.S. mid-sized lender to fail in two months.

Short sellers raked in $378.9 million in paper profits on Thursday alone from betting against certain regional banks, according to analytics firm Ortex.

Reuters reported earlier that U.S. federal and state officials are assessing the possibility of "market manipulation" behind big moves in banking share prices in recent days, as the White House vowed to monitor "short-selling pressures on healthy banks."

ABA President and CEO Rob Nichols told Gensler that short selling could be a legitimate financial tool, but his group was "unalterably opposed to short selling practices that distort the markets through manipulation and abuse."

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He called on Gensler to send a clear message to market players and take appropriate enforcement action against market manipulation and other abusive short selling practices.

"The harm caused by short selling that runs counter to economic fundamentals ultimately falls on small investors, who see value destroyed by others’ predatory behavior," he said.

The ABA includes small, regional and large banks that together employ more than 2 million people, safeguard $19.2 trillion in deposits and extend $12.2 trillion in loans.

The S&P 600 bank index dropped more than 3% on Thursday. PacWest Bancorp shares tumbled over 50% after it confirmed it was exploring strategic options.

Western Alliance (NYSE:WAL) Bancorp saw its saw plunge more than 38% after the Financial Times said the bank was exploring a possible sale, a report the bank later denied.

Given the potential for damage to investors and the "perceived health of banks" targeted by short sellers, the SEC should reinforce and publicly highlight its efforts to address abusive, market-distorting short campaigns, Nichols wrote.

Gensler on Thursday said the agency would go after any form of misconduct that might threaten investors or markets.

Latest comments

What about long buyers?
funny I didn't see these bankers voice any concerns when pumpers pushed their stock prices to all times highs. funny how the attitude changes when the pendulum swings. maybe they should have practiced better risk managed and not tried to disclose massive unrealized losses from the public.
Not traders fault the Fed destroyed the value of these banks’ collateral.
Sure, let us blame stock market traders for the fact that we (as banking officers) made high risk bets on commercial real estate that tanked once interest rates skyrocketed. Banking company executives have no one but themselves to blame for their plight. They got rich on easy money from the FED, then refused to change their business model when money got tight.
Haha- we made bad investments- our stock is sky high- Can you save us from a free market?? No mercy Go drain your account tomorrow- because they sure won’t hesitate to confiscate it
Banks that essentially abuse customers on a daily basis by requiring them to jump through hoops just to get basic banking services and force customers to become their employees are complaining about unfair trading activities. Really? Any politician who wants to support the banking industry in its abuse of the American people should absolutely get voted out of office, as they clearly place themselves in the back pocket of the bankers instead of the constituents that they are supposed to represent.
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