For the second time in as many years, the Securities and Exchange Commission (SEC) — the agency dedicated to protecting everyday investors — has gifted Wall Street's elite short sellers a lengthy two-year extension.
- GME stock is moving. See the price action here.
The highly praised Form SHO, designed to shine a tiny spotlight on large short positions, has been delayed (again) until Jan. 2, 2028.
Form SHO, part of the post-2008 Dodd-Frank reforms, is intended to drag 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 could 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 Plotkin, held a massive short position against the failing video game retailer GameStop.
Retail investors on social media noticed the stock was shorted more than 100% and coordinated a buying frenzy, triggering a “short squeeze.” The stock skyrocketed from about $20 to nearly $500. Melvin Capital lost billions and eventually shut down.
Form SHO would require hedge funds to disclose their short positions, though the data would be aggregated, it could still increase transparency and help to level the playing field.
Instead, thanks to another lengthy reprieve, the hedge funders can continue to keep their short positions concealed for at least 24 more months.
“Bend The Rules Until They Break“
The official reason for the massive delay? The Fifth Circuit Court of Appeals demanded that the SEC perform a more thorough “cumulative economic analysis.”
Translation: Highly paid lawyers representing "trade groups" successfully argued that transparency itself is too expensive or inconvenient for them to manage.
The move was described by dissenting SEC Commissioner Caroline A. Crenshaw as a bureaucratic stalling technique.
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"It should not take two years to complete a narrow revision of the Rules' economic analyses consistent with the Court's request," Crewshaw said in a statement.
"This could be done expeditiously and concisely. However, rather than following the Court's narrow directive, the Commission not so subtly signals that no one should even bother with implementation; the Rules will be changing," she added.
As it stands now, the hedge funds have ample time to figure out new loopholes, dismantle compliance systems or simply wait for a political shift that might 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 break — eroding the rule of law," Crenshaw stated.
It seems the retail investors will just have to wait a few more years (at minimum) to see how the powerful truly operate.
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