How Short Sellers Could Evade the New NSCC Rules

The National Securities Clearing Corporation (NSCC), which handles a huge percentage of all stock trades, may soon increase capital requirements for firms 25-fold:

DESCRIPTION OF THE PROPOSED RULE CHANGE
Currently, NSCC requires each Member to maintain a minimum Required Fund Deposit amount of $10,000. NSCC proposes to increase each Member’s minimum Required Fund Deposit amount to $250,000.

This change could make it more difficult for hedge funds to engage in naked short selling, a generally illegal practice that allows them to drive down a company’s share price without ever actually having any shares. There is substantial evidence that such sales have artificially driven down the share price of AMC Entertainment Holdings, Inc. among others.

But there may be ways around this new rule, and I’m sure the hedge funds are scrutinizing them at this very moment. From law firm Norris Mclaughlin:

After a period of consolidation from the 1980’s through 2010, seven SEC-registered clearing agencies remain, of which NSCC is both the oldest and the biggest.

One wonders, however, whether the size of the proposed increase will cause some, especially smaller, less active Members to leave the NSCC and seek other, alternative trading systems to close transactions.

So, the increase in required capital may not be big enough to dissuade the large firms from continuing to trade as they have. And smaller traders may leave to other, friendlier venues.

The SEC may need to make more comprehensive rules to stamp out illegal short sales. And as it happens, they’re looking for public comments on the rule now here.

Let the voice of the people be heard!

More on AMC:

AMC HAS 35,000 TIMES THE FAILS-TO-DELIVER OF AMAZON

AMC ON THE THRESHOLD LIST: STRONG EVIDENCE OF NAKED SHORT SELLING

EXPLOSIVE CLAIMS IN LAWSUIT AGAINST ROBINHOOD

Photo: “Thief” by elizaIO is licensed under CC BY-SA 2.0

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