Jun. 26, 2023
Dear Members of the Securities and Exchange Commission, I am writing to express my concerns about the proposed rule S7-06-22, which deals with granting voting rights to derivative holders in publicly traded companies. While I understand the importance of inclusivity and representation, I believe there are significant risks involved in allowing derivative holders to vote on company matters, specifically concerning speculative voting, conflicts of interest, dilution of voting power, increased voting power with less capital, and the potential for abuse. As an investor in the US capital markets, this rule affects me, even though I am not a US citizen. However, I believe my concerns are valid on a broader scale. Firstly, I am concerned about the potential impact of speculative voting. Derivatives, such as options or futures contracts, are often used for short-term speculation rather than long-term investments. Allowing derivative holders to vote could incentivize short-term trading strategies that prioritize immediate gains over the long-term growth and stability of the company. This could undermine the company's ability to make informed decisions that align with its long-term interests and those of its shareholders. Secondly, conflicts of interest are a major concern. Derivative holders may have conflicting interests compared to traditional equity shareholders. For example, they may hold short positions or have hedging strategies that oppose the company's objectives. Allowing derivative holders to vote could create conflicts of interest and potentially undermine the decision-making process. It is crucial to ensure that the voting rights of derivative holders do not compromise the fiduciary duty of the company and its management to act in the best interests of all shareholders. Furthermore, granting voting rights to derivative holders could dilute the influence of traditional shareholders who directly own the company's stock. This dilution of voting power may affect the ability of long-term shareholders to have a significant say in corporate decisions and governance. It is important to maintain a balance of power and ensure that all shareholders have fair and proportionate representation in the decision-making process. Another concern is the increased voting power that derivative holders could possess with relatively less capital. Derivative instruments, such as call options, allow investors to control a larger number of shares with a smaller capital investment compared to direct stock ownership. This leverage could enable derivative holders to accumulate significant voting power relative to their actual investment in the company. This concentration of power could distort decision-making processes and potentially undermine the interests of other shareholders. Lastly, I am worried about the potential for abuse within the system. The ability to leverage options' voting power, coupled with reduced risk, could create opportunities for manipulation or strategic voting strategies. Derivative holders may strategically accumulate options positions to maximize their voting influence without committing significant capital. This potential abuse could undermine the fairness and integrity of the voting process and erode trust and confidence among market participants. Given these concerns, I urge the Securities and Exchange Commission to carefully evaluate the potential risks and unintended consequences associated with granting derivative holders voting rights. It is essential to strike a balance between inclusivity and the stability and long-term interests of publicly traded companies and their shareholders. I appreciate the Commission's dedication to ensuring the integrity and fairness of the financial markets. Thank you for considering my concerns on this matter. I trust that the SEC will thoroughly assess all feedback received during the comment period and make informed decisions that promote the long-term sustainability and stability of our financial system. Sincerely,