Oct. 18, 2022
CAUTION: This email originated from outside of the organization. Do not click links or open attachments unless you recognize the sender and know the content is safe.
--BEGIN CLL METADATA--
{
"apiVersion": 1.0,
"commentMetadata": {
"comment":
" October 18, 2022
Thank you for reopening the comment period.
You Can't Regulate What You Can't See
Throughout this proposal, the Commission repeatedly highlights information gaps for both market participants and regulators. It is simply impossible for the Commission to regulate without visibility into the market. Thus, the SEC should err on the side of collecting and making public more data to increase transparency and close those information gaps for both market participants and regulators. To do otherwise would be willfully regulating blindly leading to uninformed decision making, ineffective regulations, and fostering unseen systemic risks.
Transparency is paramount for price discovery. As noted within the proposed rule \"while short selling can serve useful market purposes, it also may be used to drive down the price of a security, to accelerate a declining market in a security, or to manipulate stock prices\" (pg 5). Short selling is a position with theoretically unlimited risk potential, and thus, a lack of transparency in these short positions increases the potential for substantial losses leading to systemic risks in our financial markets. As noted within the proposal even \"positions that may have previously appeared to have been hedged, and thus low risk, may no longer be as hedged as previously supposed, and in this case, large short positions that were initially hedged may become systemically important as the hedge breaks down due to unforeseen extreme market events\" (pg 163) with respect to a recent meme stock phenomenon revealing idiosyncratic risk in the securities market.
On the other hand, full transparency (the ideal situation) would enable market participants and investors to properly and effectuate market price discovery. A common rationale for short selling is that short sellers are incentivized to seek out fraud and bet against their success. Transparency into short positions highlighting these types of situations can improve price discovery by more quickly enhancing short selling activity and revelations of negative or inappropriate business behaviors thus \"short selling could help investors better value securities\" (Rel. 34-93613 S7-18-21 pg 154). Similarly, more transparency into short positions would facilitate capital formation through \"improved price discovery in securities markets and improved balance sheet management by financial institutions to facilitate improvements in the provision of capital\" (Rel. 34-93613 S7-18-21 pg 152) thus \"facilitating more effective discovery of negative information that in turn could lead to more ef
ficient allocation of capital\" (Id.).
As this proposal seeks to reduce information asymmetries between market participants, it seems prudent to not only reduce but instead minimize to the fullest extent possible any information asymmetries between market participants -- which includes full transparency into short activity and short positions. Moving towards full transparency would reduce inefficiencies in the securities market.
ALL short sale related data should be reported
In pursuit of an efficient market, full transparency should include reporting of all short activity and short positions to at least the same level of granularity and detail as long positions with the increased risk potential for short positions and short activity strongly suggesting additional transparency would be beneficial in reducing market risks. Whereas the current proposal limits reporting to institutional investment managers that meet or exceed a specified reporting threshold excluding a significant amount of unreported short activity by market participants who do not fit the criteria, all short activity and short positions should be reported market-wide. Otherwise, as is well known practice in the industry, short activity and short positions would accumulated in less regulated and less transparent areas of the market leading to yet another systemic risk situation. Whereas the current proposal limits reporting to a monthly basis, technology has advanced to allow near real-
time reporting and more frequent and accurate reporting is beneficial towards promoting an efficient market and stronger risk management. To wit, some market participants have leveraged information access asymmetry for capital extraction in opposition to the SEC's goal for capital formation, in part through effective capital allocation. The SEC has an opportunity to strike a beneficial balance incentivizing speedy information dissemination, capital allocation, and promote capital formation.
To summarize: short sale activity should be reported as quickly and as efficiently as possible in a manner at least equivalent to long position reporting (preferably with additional transparency due to their unlimited risk potential) to promote an efficient market, promote greater and more effective risk management, and reduce systemic risk.
Enforce \"buy to close\" in addition to reporting \"buy to cover\"
The new \"buy to cover\" order marking requirement is helpful to \"facilitate the collection of more comprehensive data on the lifecycle of short sales\" (pg 54) for the Commission. However, a known problem revealed by the 2012 Rolling Stone article \"Accidentally Released and Incredibly Embarrassing Documents Show How Goldman et al Engaged in Naked Short Selling'\" is that some market participants (including Goldman Sachs and Bank of America/Merrill Lynch) manipulated supply and demand by intentionally creating fails-to-deliver on a targeted list of stocks including, for example, Overstock. As a result, it is known that market manipulators have used fraudulent trades to extend fails-to-deliver by matching trades to \"sell into\" required buy-ins. While marking a trade as \"buying to cover\" may reveal information beneficial to the Commission, this marking does not address the underlying issues where market manipulators have been and very likely continue to skirt requirements to bu
y in to close short sales that failed to deliver.
Notably, there is no situation outside of Wall St where a fail to deliver would ever be tolerated. Could a consumer purchase a widget from a retailer, fully pay for it, and fail to receive it? No. Yet that is exactly what happens with a fail to deliver. Would said consumer accept a shipping company guaranteeing ownership of their fully paid for widget without delivery? No. Yet, that is exactly what happens with securities clearing -- the recipient is guaranteed delivery without having received the fully paid for security.
If a fully paid for security fails to deliver, there must be a hard requirement to buy-in and close that transaction. This is clearly within the regulatory power and scope of the SEC, who in the midst of the 2008 crisis issued new (interim) rules against abusive naked short selling primarily to protect troubled financial institutions. See 2008-204 SEC Issues New Rules to Protect Investors Against Naked Short Selling Abuses (Sept 17, 2008). Similar rules should be the norm.
Thus, the SEC should enforce \"buy to close\" in addition to reporting \"buy to cover\".
Enforce stock borrowing requirement in addition to reporting reliance on bona fide market making exception
The new reporting requirement for reliance on the bona fide market making exception pg 62 is helpful to \"provide valuable data to both the Commission and other regulators regarding the use of this exception by market participants, an exception which allows a broker-dealer (and consequently, a short seller) to avoid or delay certain requirements of Regulation SHO, including the locate and close out requirements\" (Id.). As admitted by the Commission, market participants are utilizing this exception to avoid or delay certain Regulation SHO requirements, including the locate and close out requirements. While marking trades may provide valuable data, it does not address the underlying issues around market participants skirting Regulation SHO requirements.
Basically, the requirement to locate without borrowing a security for a short sale increases the number of shares in circulation thereby artificially inflating supply. Utilizing the locate requirement for bona fide market making enables a short sale to occur without ever borrowing a share. The naked short share resulting from this transaction is simply unaccounted for and, as its source can not be traced back to any outstanding shares issued, its existence in the market artificially, and without any reporting or transparency, increases the supply of available shares. To reiterate, this is a known problem revealed by the 2012 Rolling Stone article \"Accidentally Released and Incredibly Embarrassing Documents Show How Goldman et al Engaged in Naked Short Selling'\" which leads to countless issues including over voting, shareholder dilution, and increased risks for short squeezes and market disruption.
Prioritizing liquidity over price discovery has predictably led to problems. There is no situation outside of Wall St where artificially increasing supply would be tolerated and significant penalties exist to deter and punish such behavior. Enforcing requirements for short sales to borrow stock is a natural solution promoting price discovery through costs to borrow with the additional benefit of simultaneously preventing attempts to manipulate supply.
Lastly, I am also supportive of comments submitted by We The Investors, Better Markets, and Concerned Investor (Oct 15, 2022 as shown here: https://www.reddit.com/r/Superstonk/comments/y4m7pe/my_comment_on_the_short_reporting_rule_13f2_no/).
Thank you for your patience as I borrow the comment of someone with much better and thorough understanding and one who can word my thoughts better than myself. Thank you
",
"commenterInfo": {
"lastName": "nationwide anesthesia associates",
"affiliation": "CEO",
"commenterAddress": {
"streetAddress": "6 covert court",
"city": "elgin",
"state": "South Carolina",
"zip": "29045",
"country": "United States"
},
"email": "masonwpk@gmail.com",
"phone": "315-882-2349"
},
"submitterInfo": {
"isThirdParty": "false",
"submitterName": "",
"submitterOrganization": "",
"isAffiliated": "true",
"affiliationName": "sec.gov"
},
"rulingInfo": {
"fileNumber": "S7-08-22",
"ruling": "s70822",
"rulePath": "/comments/s7-08-22",
"title": "Short Position and Short Activity Reporting by Institutional Investment Managers Notice of Proposed Amendments to the National Market System Plan Governing the Consolidated Audit Trail for Purposes of Short Sale-related Data Collection"
},
"commentDate": "October 18, 2022",
"htmlFilename": "s70822-nnnn.htm",
"uploadFilename": []
}
}
--END CLL METADATA--