Western Alliance 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. (Reporting by Andrea Shalal Editing by Shri Navaratnam)
(Adds detail, comment and context)
By Andrea Shalal
WASHINGTON, May 4 (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 , 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."
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.
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