MFA President and CEO, Bryan Corbett, sent a letter to SEC Chair Gary Gensler advocating against a short selling ban.

The letter notes that a ban would be:

• Unwarranted;
• Harmful to investors, markets, and issuers;
• Counterproductive, by increasing market volatility, hurting price discovery, and delaying a recovery in regional banks’ prices; and
• An impediment to the ability of banks to secure new capital, such as by issuing convertible bonds.

Key quotes:

“[A] short sale ban on select bank stocks… is unwarranted and would cause greater harm to investors, markets, and the very issuers subject to those restrictions. We write to urge the Commission to refrain from imposing any short sale bans.

SEC data from 2008 and numerous academic studies show that short selling bans are harmful and are counterproductive to their purported end goals. Banning short selling will only increase market volatility, hurt price discovery, and delay a recovery in regional banks’ prices.”

…

“Further, a short-selling ban would have the unintended consequence of harming the banks themselves. Research of the 2008 ban by Choi, Getmansky and Tookes shows that banning short selling impaired the ability of banks to raise the capital needed to weather the storm.1 Considering their findings, a short sale ban would impede the ability of banks to secure new capital, such as by issuing convertible bonds.”

Source: MFA