While it wasn’t their intent, stock exchange officials confirmed why transparency enforces the the Volcker Rule and its prohibition on banks making proprietary bets.

The officials took on anyone who would short-sell the stocks listed on their exchanges.

“It feels kind of icky and un-American, betting against a company,” NYSE Group President Tom Farley told lawmakers in Washington Tuesday. He added that because short-selling can actually improve markets, public companies don’t necessarily want to ban it outright — instead they want to see more stringent disclosure. “They say, ‘Let’s have a little more transparency,”’

And why would public companies want transparency into who was selling their shares short?

The NYSE executive has a built-in reason to defend corporations given his exchange is home to many of the world’s biggest companies, businesses that would obviously prefer to see their share prices rise. Short sellers profit when stocks plunge.

So what type of transparency would the exchanges like to see adopted for short sellers?

Unlike investors who buy stock, short sellers don’t have to publicly reveal their wagers, meaning they can use strategies to drive prices down in stealth, Nasdaq argued in a recent report. “The company should be aware of who holds the long and short positions,” Nasdaq Chief Executive Officer Adena Friedman said…. Currently, “investors have an advantage over the company,” she added.

So what do the exchanges think would happen if this type of transparency was made available?

Clearly, the exchanges think this disclosure would limit short selling.

If the disclosure of a short seller’s position limits the size of this position, wouldn’t disclosure of a bank’s proprietary bets also limit the size of these bets?

Of course.