June 25, 2023
I respectfully request that the Securities and Exchange Commission consider the exclusion of cash-settled derivative holders from retaining voting rights (Rule 13d-3) for the following reasons:
Lack of Economic Interest: Cash-settled derivatives, by their nature, do not confer an economic interest in the underlying security. These derivative instruments are primarily used for speculative purposes or hedging strategies, rather than for long-term investment or ownership. Consequently, granting voting rights to cash-settled derivative holders could result in a misalignment between voting power and economic interest, potentially undermining the principles of shareholder democracy.
Risk of Conflicts of Interest: Cash-settled derivative holders, due to their speculative nature, may have conflicting interests with the underlying company and its long-term shareholders. Granting voting rights to these holders could introduce potential conflicts of interest and compromise the integrity of corporate governance. It is crucial to prioritize the voting power of shareholders who hold an actual economic stake in the company's success and are aligned with its long-term objectives.
Maintenance of Transparent Ownership Structure: Beneficial ownership reporting requirements serve the vital purpose of promoting transparency in the market and allowing investors to make informed decisions. Excluding cash-settled derivative holders from retaining voting rights helps maintain a clear and accurate picture of the true ownership structure, thereby facilitating a more transparent and accountable corporate environment.
Alignment with Existing Regulatory Framework: The exclusion of cash-settled derivative holders from voting rights would be consistent with existing regulatory frameworks that focus on granting voting rights to shareholders with genuine economic interests. It would also align with principles of corporate governance that emphasize the importance of long-term ownership and commitment to a company's success.
Unless the underlying asset is 100% required to be delivered, which is antithetical to the nature of a derivative contract, there should be no basis for which any derivative holder should be allowed voting power on the underlying asset, cash-settled or otherwise. Due to this and the reasons stated above I cannot in good faith support the implementation of this proposed amendment and would seriously encourage the Commission to remove this from further consideration.
Kind Regards,
C.H.