Oct. 26, 2022
To whom it may concern, I am a retail investor who holds long positions in some retail securities. I grew up attending stores almost as a pastime, and being able to invest in these companies as they adapt with the times is both nostalgic and a solid investment opportunity. Their brands are mainstays that helped establish the culture I grew up in, and I want to see them preserved. This proposal in its original form did not go far enough. The modified form is substantially better for me as a retail investor. I dispute any claims by large investment firms that they know what’s better for me than I do—and in fact, the opacity surrounding securities lending is actively harmful to my ability to determine the risks involved with trading certain securities. It is my strong opinion that the SEC should require the maximum amount of visibility into share lending as possible. Requiring parties engaging in share lending to report each trade publicly, in detail and in a timely fashion, would go a long way towards clarifying the positions that large investment firms hold, and would help retail investors like myself to be able to properly evaluate the risk involved with holding positions that the larger firms are selling short. The problem is that current reporting standards are wildly inadequate, and keep short sale positions hidden from both the public and the SEC. Even moving to a position where they aggregate their share lending positions weekly is inadequate, as it is entirely possible to manipulate the numbers that are put out week to week and hide borrowed positions through any number of means. Specifically, the argument from Citadel that these reporting requirements on each lending transaction would cause financial harm to them by hampering their ability to make money on short sales seems flagrantly false. Speaking as a software engineer, it would take a mid-level engineer maybe three to six months to automate the entire process. They could hire an engineer on contract, pay less than $1,000,000, and have a system that complies with the new reporting requirements without introducing undue overhead to their trading algorithms. The latency caused by triggering an external system to manage these reports would also be minimal if they hired an engineer worth their salt, and the cost associated with maintaining the associated infrastructure would be a pittance compared to their purported profits and cash on hand. Nothing in these reporting requirements would prevent anyone from borrowing shares, or from engaging in short selling. If they are making good bets that some securities will see their prices fall, then they will still be able to cash in on those bet. The only way the argument that they would lose money would make sense would be in the supposition that exposing each share lending transaction would expose questionable practices that are introducing risk to the markets, and would cause them to either (1) stop these potentially abusive practices to avoid scrutiny, or (2) have to factor in the cost of fines associated with such practices. While any allegations of wrongdoing on the part of larger firms such as Citadel are based largely on circumstantial evidence, the fact of the matter is that we don’t have visibility into share lending and short selling practices. The proposed regulation would provide clarity to a part of the market that has the potential to introduce substantial risk to certain securities, and indeed the entire market. The plain and simple truth is that while many suspect Citadel and others of wrongdoing when it comes to short sales, the data for this simply isn’t publicly available. Since the SEC relies on the public to help it identify potential violations, and since the SEC’s purpose is to regulate the markets in the best interest of all investors, exposing all share lending transactions through this new rule would enable them to fulfill their purpose. By enabling the public to hold a light up to what, until now, has been hidden in the dark, they can once again rely on the public to help them find wrongdoing. The fact that there is currently next to no accountability in those areas means that they are hotbeds for potential abuse. Exposing this data would make any potential abuse much harder to hide, would allow retail investors to properly examine the risks involved in their investments, and would allow companies participating in the open market be able to properly defend themselves in the event of such abuse. I fully support transaction-by-transaction reporting. I fully support the fifteen-minute reporting requirement for shares lent. Thank you for your time. -Joshua Curtis