ABA calls on SEC to investigate manipulative short selling of bank stocks

Noting that recent stock market activity for several banks seemed disconnected from underlying fundamentals of bank health, the American Bankers Association yesterday urged the Securities and Exchange Commission to investigate short selling of bank stocks.

ABA noted that “short sales have followed relatively favorable earnings reports from some of the banks in question and from peer institutions.” While ABA acknowledged a role for short sales in generating liquidity and price discovery, the association said that the harm caused by short selling that runs counter to fundamentals falls on small investors.

As a result, ABA reiterated that it is “unalterably opposed to short-selling practices that distort the markets through manipulation and abuse. 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 association called on the SEC at a minimum to take “appropriate enforcement actions against market manipulation and other abusive short-selling practices.”

SEC Chairman Gary Gensler issued a brief statement reiterating that the SEC continues to monitor market activity. “In times of increased volatility and uncertainty, the SEC is particularly focused on identifying and prosecuting any form of misconduct that might threaten investors, capital formation, or the markets more broadly,” Gensler said.