SEC charges IA with short selling fraud         

The Securities and Exchange Commission (SEC) has charged investment adviser Sabby Management LLC and its managing partner, Hal D Mintz, with fraud. The charges stem from a scheme that involved misrepresentations and violations of trading rules, resulting in illegal profits of more than $2 million. Sabby and Mintz allegedly engaged in unlawful trading practices, including “naked short selling,” where they sold stocks they hadn’t borrowed or located, and failed to deliver the shares on time. They also attempted to manipulate stock prices and concealed their fraudulent activities.  

Carolyn Welshhans, Associate Director of the SEC’s Division of Enforcement said: “The SEC alleges that Sabby and Mintz attempted to game the system and make an illegal profit. When someone uses naked shorts or other manipulative practices to cheat the market and investors, the SEC will ensure that they are held accountable.” 

CFTC expands RED list     

The Commodity Futures Trading Commission (CFTC) has added 45 unregistered foreign entities, many of which are crypto trading entities,  to its Registration Deficient List (RED List). The RED List is a public list of entities that the CFTC has determined are not registered with the CFTC and appear to be acting in a capacity that requires registration. 

The CFTC Director of Enforcement, Ian McGinley, said that the addition of these entities to the RED List is a reminder to investors to be cautious when trading with unregistered entities. “For nearly 10 years, the CFTC has listed entities on the RED List that have the potential to do irreparable financial harm to unsuspecting Americans,” McGinley said. “It is for this reason, we strongly encourage all customers to check the RED List before they trade because they may have little or no protections if they choose to trade with unregistered firms that operate outside the US.” 

FINRA consults on new liquidity rule      

FINRA is requesting comments on a concept proposal to establish liquidity risk management requirements. The concept proposal describes a potential rule, labeled Rule 4610, that is intended to ensure that members have sufficient liquid assets to meet their funding needs in both normal and stressed conditions. 

Although Broker-Dealers are required to comply with several rules to ensure liquidity, such as the SEC’s Net Capital Rule and Consumer Protection Rule, the briefing notes that: “one risk that may not be sufficiently addressed by these rules is liquidity risk, which is the risk that a broker-dealer will not have sufficient cash or liquid assets to meet its obligations as they come due. While the SEC’s Net Capital Rule generally requires that assets be convertible to cash within 30 days, the Net Capital Rule focuses primarily on the asset side of the balance sheet and a broker-dealer’s solvency rather than the characteristics of its liabilities.” 

The new proposal therefore outlines three areas where a potential rule might address liquidity risk, including liquidity stress testing, contingent funding plans and a requirement to maintain sufficient liquidity on a current basis at all times. 

Comments must be received by 11^th August 2023 

EBA annual report outlines priorities       

The European Banking Authority (EBA) has published its Annual Report, which sets out the activities and achievements of the EBA in 2022 and provides an overview of the key priorities for 2023. 

In 2022, the EBA operated in a challenging and uncertain environment, mainly triggered by the Russian invasion of Ukraine. Other disruptive factors included the lingering effects of the COVID-19 pandemic, inflationary pressures and increasing supply chain concerns, interest rate volatility, and the fallout from Brexit. 

Despite these challenges, the EBA continued to deliver regulatory products against its work programme, with particular attention to: 

• The full, faithful, and timely implementation of the Basel III framework to ensure the resilience of the EU banking sector. 
• Financial innovation and digital transformation, specifically the Digital Operational Resilience Act (DORA) and the Markets in Crypto-Assets Regulation (MiCAR) to ensure that the financial sector in the EU can stay resilient through a severe operational disruption, and to protect investors and preserve financial stability, while allowing innovation and fostering the attractiveness of the crypto-asset sector. 
• A sound regulatory and supervisory framework to support the transition towards a more sustainable economy, while ensuring that the banking sector remains resilient. 
• Making the most of banking and financial data to produce an evidence-based rulebook, perform impact assessments and risk analyses, and develop a harmonised and proportionate supervisory reporting system for banks and other financial entities. 

The 2022 Annual Report also presents the strategic priorities for 2023, which include: 

• Finalising the Basel III implementation in the EU. 
• Performing an enhanced EU-wide stress test. 
• Putting data at the service of stakeholders. 
• Working on digital finance and delivering on MiCAR and DORA mandates. 
• Enhancing capacity to fight money laundering and the financing of terrorism in the EU. 
• Executing the Environmental, Social, and Governance (ESG) roadmap. 

ASIC: ESG is driving huge disclosure changes       

In a speech at the Committee for Economic Development of Australia (CEDA) State of the Nation conference, Australian Securities & Investments Commission (ASIC) chair Joe Longo emphasised the significance of ESG in driving huge changes to financial reporting and disclosure standards. 

Longo outlined ACIS’s plans for preparing for greater ESG awareness, noting that nine out of ten ASX100 companies acknowledge climate as a financial risk, with three-quarters already reporting carbon targets and adhering to the Taskforce on Climate-related Financial Disclosures (TCFD) framework. 

Longo also advised the audience that the Australian Treasury plans to release a position paper on forthcoming International Sustainability Standards Board (ISSB) standards expected in the next few weeks which are expected to introduce more rigorous reporting requirements. 

Longo  added that ASIC has an ongoing targeted program of work to ensure compliance, including issuing guidance to help companies meet their obligations, reviewing sustainability-related products, and intervening to correct misleading disclosures, noting that the concept of “greenhushing,” where firms remain silent and fail to engage, is considered a form of greenwashing and is not a suitable response. 

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