June 25, 2023
I have serious concerns about the addition of the below paragraph. A cynical person might assume that the SEC is making this change to give derivative contract writers a boost in their sales.
The paragraph
\"We also are proposing to add new paragraph (e) to Rule 13d-3 to deem holders of certain cash-settled derivative securities as beneficial owners of the reference covered class. Holders of derivative securities settled exclusively in cash do not have enforceable rights or any other entitlements with respect to the reference security under the terms of the agreement governing the derivative. Under certain circumstances described more fully below, however, holders of such derivative securities may have both the incentive and ability to influence or control the issuer of the reference securities. Accordingly, the proposed amendment would deem holders of such derivative securities to beneficially own the reference securities just as if they held such securities directly.\"
The scope of abuse in voting that this opens up beggers belief.
If there is any ambiguity about whether a derivative contract holder can or cannot vote the shares in their contract then you can assume they will be voted anyway to influence cooprate governence. Even in cases where they shouldn't be allowed.
A fine after the fact (maybe multiple years later) will not be a deterrent.
Overvoting is already a problem. This will make it much worse.
With 100x leveraged contracts, every cooprate vote becomes a joke.
I expect that this will lead to votes coming from thin air
If an entity wants a derivative contract solely for the purposes for voting the shares, and their counterparty knows this, then there is no need for the contract writer/counterparty to actually hedge and buy the shares.
It will be a nightmare for household investors (not traders) who actually care about the governence of the company they've invested in. knowing that large entities can sweep a vote by buying up stacks of contracts without having to actually locate shares.
A fine for this behaviour will not be a deterrant.
Please, PLEASE stop giving these huge financial entites more ways to run the table at the expense of household investors like me.
They clearly do not care about the rules, the fines don't stop them from breaking the rules and the SEC doesn't even make them admit fault when caught out.
Thankyou for Reading