How to Fix the Stonks

This is the first paper we have seen that not only makes sense of the madness of GameStop/Robin Hood/reddit, but has clear, sensible proposals for how to remove the distortions and disincentives that create this inefficiency and volatility.

James J. Angel: GameStonk: What happened and what to do about it

The price dislocation in GameStop highlights several leaks in the plumbing of the US equity market that need to be plugged or else similar dislocations will happen again. The antiquated T+2 settlement cycle needs to be shortened to reduce risk and attendant collateral needs in the system. Institutional short positions should be disclosed on SEC Form 13F just as long positions are. The frequency of short interest disclosure should be increased to daily from the current biweekly. The SEC should implement the Congressional mandate in Dodd-Frank §984 to increase transparency in the stock lending market by implementing a ticker tape for stock lending transactions. Short positions should be marked to market yearly for tax purposes yearly to eliminate the tax incentive to delay covering short positions. SEC rules 204 and 15c3-3 need to be modernized to help prevent spikes in prices far beyond any reasonable levels. Rule 606 should be extended to require brokers to report retail execution quality.

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