March 14, 2022
A response to Q18, Proposal to ammend CAT:
Allowing market makers that engages in equity trading to determine if their activities qualify for the exception in Rule 203(b)(2)(iii) seems like a sure way to avoid transparency in those activities, and would potentially cost the commission a lot of time and resources to effectively and efficiently determine if those activities do in fact qualify for the exception. An exception like this compromises transparency in the markets, which are already so opaque, and could be abused by high frequency trading firms, also engaging in market making activities, to front run trades while avoiding reporting those activities. Besides this, it poses other problems. While market makers provide liquidity, their activities can also undermine price discovery due to the fact that operational shorting ensures a continues supply, even if there are no more assets available on the market, effectively creating naked shorts. If a market maker then qualifies for the exception, there is no real way for investors to predict sentiment in the market because the data is incomplete. Because of the fact that the commission needs to determine if it indeed qualifies for the exception, this data will not be available to the broader public until after the commission puts it's time and resources into that process. An exception to the locate requirement would furthermore suppress price discovery because because the reasonable grounds to believe that a security can be located may or may not reflect the sentiment around that security in the market at that time. Transparency is key. Market makers and high frequency trading firms have several ways of determining if a security is available on any exchange in a matter of milliseconds, supply and demand should determine the price. If supply is artificially created because there is a reasonable belief that the security can be located in the future, the price of that security would not reflect the reality on the markets.
note: not my phone number in the details, because we don't use that format in my country.