Oct. 19, 2022
Vanessa A. Countryman SecretaryU.S. Securities and Exchange Commission 100 F Street, N.E.Washington, D.C. 205499–1090 rule-comments@sec.gov Re: Release No. 34–94313; File No. S7–08–22 Short Position and Short Activity Reporting by Institutional Investment Managers Ms. Countryman: I appreciate the opportunity to comment on the US Securities and Exchange Commission’s (the “SEC” or “Commission”) release on proposed Rule 13f-2 (“Proposal”) under the Securities Exchange Act of 1934. The current system fails to provide timely and complete information on short activity, and the proposed rule must be stricter than currently proposed in order to promote fairness in the securities markets and protect retail investors, like me, from those who use the lack of transparency to gain an unfair advantage. The reporting lag must be eliminated and reporting made available to all market participants daily, if not in real-time. At the very minimum, reporting of short positions needs to be consistent with the reporting of long positions via 13Fs. The EU has adopted a short sale reporting regime that essentially requires “immediate public disclosure of large short positions,” and instead of falling short of this standard, the SEC can, and should, do better. Although far better than we have here in the US, the European threshold of 0.5% is being gamed and has loopholes for continued obscurity and abuse. The industry’s protests are antithetical to the Commission’s objectives with the Proposal and are a transparent effort to maintain the status quo of having an unfair advantage by obscuring positions rather than a good-faith argument. Investors, both retail and institutional, cannot properly exercise their right to choose investments, counterparties and other relationships without visibility into the firms that they are investing in or doing business with. An appropriate level of transparency is absolutely required to empower investors to act in their own best interests in an informed manner. The failure to include derivative exposure in this rule will inevitably result in firms exploiting the loophole and will drive more and more firms into the less regulated and less transparent space of derivatives. As the Commission acknowledges in the proposal, “trading in derivatives frequently leads to related trading in the stock market as derivatives’ counterparties seek to hedge their risk.” It is critical for institutional broker-dealers and for retail and institutional investors to understand the extent to which individual firms have short exposure to individual stocks or ETFs, regardless of whether that exposure is via equity, through the use of derivatives or through other novel mechanisms that the Commission has not considered. All short positions in ETFs should be banned outright. “ETFs constitute 10% of US equity market capitalization but over 20% of short interest and 78% of failures-to-deliver.” Authorized participants are incentivized to “operationally short” ETFs, and often fail to deliver these shares. It is also possible that market makers are using the market maker’s exception to avoid compliance with Regulation SHO and require additional oversight over any transactions made using the bona fide market making exception. Thank you for considering my comments and I would be happy to answer any questions or further explain any of the points. Sincerely, Andrew BushnellUS Citizen, Retail investor, Market participant