June 25, 2023
Subject: Urgent Concerns: Proposed Rule S7-06-22 - Safeguarding Voting Rights for International Investors
Dear Esteemed Members of the Securities and Exchange Commission,
As a concerned international investor with a vested interest in the success and integrity of U.S. capital markets, I write to urgently express my deep-seated concerns regarding the proposed rule S7-06-22. This rule, which deliberates on extending voting rights to derivative holders in publicly traded companies, has raised profound concerns among international investors like myself. While I appreciate the desire for inclusivity and representation, I firmly believe that this decision may expose the financial ecosystem to significant risks and potential repercussions. These risks include speculative voting, insurmountable conflicts of interest, dilution of voting power, disproportionate influence with limited capital, and the alarming potential for manipulation and abuse.
The notion of speculative voting raises red flags that cannot be overlooked. Derivative instruments, such as options or futures contracts, predominantly serve short-term speculative purposes rather than embodying long-term investment strategies. Should derivative holders be bestowed with voting rights, the immediate gains sought by short-term trading strategies may take precedence over the company's long-term growth and stability. Such an arrangement could undermine informed decision-making, jeopardizing the best interests of the company and its shareholders alike.
Moreover, the presence of conflicts of interest in this context demands utmost attention. Derivative holders often harbor conflicting interests compared to traditional equity shareholders. Their positions, including short positions and hedging strategies, may inherently diverge from the company's objectives. Granting derivative holders voting rights without rigorous safeguards introduces potential conflicts that compromise the fiduciary duty of the company and its management to act in the best interests of all shareholders.
The potential dilution of voting power held by traditional shareholders is a disquieting consequence that cannot be dismissed. Such dilution undermines the fundamental principles of corporate governance and shareholder rights. Long-term shareholders, who have demonstrated unwavering commitment to the company's growth, could find their ability to effectively influence crucial corporate decisions unjustly curtailed. Safeguarding the balance of power and ensuring equitable representation for all shareholders is indispensable to preserve the integrity of the decision-making process.
Additionally, concerns arise surrounding the disproportionate influence derivative holders could wield relative to their capital investment. Derivative instruments, such as call options, offer significant control over shares with minimal capital commitment compared to direct stock ownership. Granting voting rights to derivative holders without imposing commensurate capital requirements invites a lopsided distribution of voting power. Such imbalances imperil the democratic principles upon which our financial markets should thrive.
Lastly, the potential for manipulation and abuse necessitates our utmost vigilance. Leveraging options' voting power, coupled with reduced risk, creates an environment susceptible to strategic voting, malicious intent, and market manipulation. The implications of such abuse extend far beyond the fairness and integrity of the voting process, eroding trust and confidence throughout the entire market ecosystem.
Given the formidable concerns at hand, I implore the Securities and Exchange Commission to reassess the potential risks and unintended consequences associated with granting derivative holders voting rights. We must exercise prudence and foresight, ensuring that decisions made prioritize the long-term sustainability and stability of our financial system, rather than hasty pursuits of ill-conceived inclusivity.
I extend my utmost appreciation for the Commission's unwavering commitment to upholding the integrity and fairness of our financial markets. Your thorough evaluation of the feedback received during the comment period will undoubtedly contribute to informed decisions that best serve the collective interests of our stakeholders.
Sincerely,
N. Cornelius