Oct. 17, 2022
October 17, 2022 Vanessa A. Countryman Secretary U.S. Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 2054991090 rule-comments@sec.gov Re: Release No. 3494313 File No. S70822 Short Position and Short Activity Reporting by Institutional Investment Managers Ms. Countryman: I am commenting with my perspective as an individual investor on the impact of rule change proposed under cite code. Though the rule change is cited as reporting by institutional investors, contrary to industry opinion I submit that it impacts individual investors directly. It does so via the interaction with brokers through tacit, system-wide routing of their market and limit orders through the Payment for Order Flow (PFOF) protocol of market making institutional management. As you may be aware, there is also an accepted protocol of institutional management dealing with buy and sell orders of street name stock which allows for internalization of the order. The order can be book entried by routing it through a market maker's internal pool of settlement, rather than routing it through purchase or sale on a \"lit\" exchange. The process of moving orders through broker or multi-institutional management of individual investor orders are pooled like a risk pool in insurance. When a risk pool becomes other than neutral (net buy or net sell), liquidity is directed to whichever is deficient can be sought through a market maker with either a hard locate, a swapping of securities between counterparties with agreement of repurchase, or through synthetic shares using a neutral derivative spread. This aggregation of risk in pooling is claimed to have a curbing effect on price settlement by supplying the other side of the trade through a market making protocol of internalization. It swaps a hot ticker for cash, thus making a security available for a market borrow and sale when a pool sentiment on a security goes net buy. It can deliver cold tickers to money center banks for bundling as equity collateral for repos to money market funds, thus it removes sale supply. Also a neutral ticker is in demand by authorized participants to wrap into ETF creation units, a novel way of creating an alternative demand and removing sale supply on individual tickers. The forces that institutions use to manage the risks they encounter and/or generate by their trading are all exogenous measurable forces that can be captured and recorded (often in the aggregate) by the advanced technologies that do other functions efficiently (e.g. T+2 settlement, Level II book order routing). Borrowings and sales in the aggregate of each ticker can and should be captured, recorded and reported. It is capable of being done multiple times per hour of trading. The reporting to the SEC via the EDGAR platform, as stated in the proposal constitutes the bare minimum frequency required in disclosure by Dodd-Frank. It is capable and should be much more frequent and would not add much detrimentality to the burden of the process. ETF creation and unwrapping is captured and reported via premium market data providers. Each ETF is simultaneously a cross component and a microcosm of Cede and Co which is tasked with the holding of the entire market. The underlying components could outstrip the demand for the ETF and outstanding float could evaporate by share redemption, which could be met with resistance by shorting (borrow to sell) the underlying. Another method is via shorting the ETF and hedging by accumulating (buying) the tickers which are more risk neutral (to hedge the short). If the variable float across authorized participants (APs) can be tracked and estimated, much less would be required to record short selling for each single ticker over a more frequent period. In conclusion, I want to stress that transparency is the key to risk resolution. When the market makers can accumulate index ETF and take spreads in issue to introduce 3X bull and bear issues to sell. Then use said market securities in baskets for collateral in repurchase agreements invested in by institutional cash funds. Also sell structured notes on the index ETF with coupons based on the lower performance basis of a pair of issues. Seems like the institutions have enough resources to issue prospectuses to EDGAR on risk and term of investment and redemption, but do not want to disclose reporting of short securities even at the bare minimum time frame threshold of Dodd Frank.. Something is amiss with the priorities of the current regulating system and this proposal in a limited way addresses it. It should be approved and NO delay in its implementation. Thank you for the extended window for allowing my concerns to be stated. Sincerely, A Concerned Investor