FINRA requested comments on (i) potential changes to its short interest reporting requirements, (ii) a new rule that would require clearing agency participants to report information on allocations to correspondent firms of fail-to-deliver positions and (iii) additional requirements concerning short sale activity.

FINRA is considering:

  • streamlining the publication of short interest data that it receives from firm reports for listed and unlisted securities alike;
  • requiring firms to segregate into separate categories the short interest held in proprietary accounts and short interest held in customer accounts, and to provide such information as of the close of each settlement date;
  • mandating that firms, for nonpublic regulatory purposes, report short interest position information by account level to assist in, among other things, the enforcement of Regulation SHO;
  • requiring that firms' short interest reports be reflective of synthetic short positions, e.g., short call and long put;
  • requiring that firms report outstanding stock borrows by customers in their arranged financing programs as short interest in order to be more reflective of "actual short sentiment in the stock"; and
  • increasing the frequency of required short interest data reporting to be either daily or weekly instead of bimonthly.

Additionally, FINRA is considering the adoption of a new rule that would improve its short sale reporting program by requiring that clearing firms submit, for nonpublic regulatory purposes, a report pursuant to Regulation SHO Rule  204(d) regarding the daily allocations of fail-to-deliver positions to correspondent firms.

FINRA is also considering revising procedures as to certain of its own activities. Currently, while FINRA collects short interest information as to both listed and OTC equities, it publishes only the OTC information and leaves the exchanges to publish the listed information. FINRA proposes to publish information on listed shorts going forward. Additionally, FINRA is considering publishing, in conjunction with the short data, information as to a security's outstanding amount and public float, as well as whether the security is a threshold security for purposes of Regulation SHO. Finally, FINRA would accelerate the timetable on which it disseminates information that it has received from members.

Comments on the proposed enhancements must be received by August 4, 2021.

Commentary Steven Lofchie

The FINRA proposals are significant not only as to the volume of information required to be reported, but also as to the technology that will be required to deliver this information to FINRA and for FINRA to sift through and organize it. While there is no doubt that certain of this information will benefit the regulators in better understanding the market, firms should consider what the costs will be of providing the information, and whether there is a subset of the information that would satisfy FINRA, but that might be less costly to provide. Firms should also consider the costs of providing the information on the schedule and with the frequency that FINRA is proposing.

FINRA might want to consider whether it can really use all of the information that it proposes to require.

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