Oct. 25, 2022
Ms. Countryman -- As a retail investor I support any place where we increase transparency in the stock market. The fact that institutional investors have more insight into the markets vs that which retail has does not make for a fair and equitable market. Unless the goal is to protect shortsellers, it does not make sense that a company needs to file and report long positions, however short positions, including derivatives are not disclosed as this is material information that market participants should have access to in order to make informed investment decisions. The lack of transparency around short positions, the inability to adequately quantify short interest, and the ability for firms to skirt regulation through derivative positions such as options and security-based swaps are making a mockery of our free and open markets. The inadequate ability to properly measure and understand economic short exposure leads to supply/demand imbalances in markets and affects trading prices. The protests of the industry in terms of the effort required to comply with the Proposal ring hollow given the Commission’s experience with interim temporary Rule 10a-3T - firms had no problem complying and the data provided was useful to the Commission. Indeed, the Proposal is easier to comply with, given the monthly rather than weekly reporting of interim temporary Rule 10a-3T. However, the Proposal does not go far enough. The Commission should require participants to provide the same level of disclosures and transparency for short positions as is currently done with long positions via 13F filings. None of the arguments for aggregation or lagged reporting are consistent with the reporting of long positions via 13Fs. Our markets already have a position disclosure standard, and that standard should simply be updated with short positions to allow retail and institutional investors to do the same kind of analysis regarding short positions as they currently do with long positions. It would make sense most likely for all parties involved, to have the commission mirror the standards in other jurisdictions such as Europe. As one would think that if participants have to disclose and follow certain practices in Europe, it would be easy and cost effective for those participants to do the same in the United States. However I am highly concerned that this rule does not include derivative exposure. We saw this from my understanding largely on the long side when it comes to Archegos, and to the Short Side with Melvin Capital. Both of those professional, large institutions shook the markets and created financial systemic risk due to non disclosed derivative exposure. Another issue with the current disclosure is that it does not address an issue that has become clear to me and that is of ETF exposure. It seems that ETFs are historically speaking higher portion of trading tickers that end up on REGSHO Lists. This is a sign that ETF Creation and redemption activities are involved in short selling efforts, as ETFs are 10% of the US Equity market capitalization, but 20% of short interest and 78% of Failures to deliver (https://jacobslevycenter.wharton.upenn.edu/wp-content/uploads/2018/08/ETF-Short-Interest-and-Failures-to-Deliver.pdf ) If this is the case then firms should have to report any short exposure they have through ETFs as well, and report this just like they would need to report long positions as well. As an example the ETF XRT thrroughout the course of the year has been reported as 100-700% short. With creation and redemption rules, there is no reason for the ETF to have a short position this large, nor should it be allowed. I also have issue with the use of the Market Maker Exemption in "Bona Fide Market Making" as a way around short positions and short position reporting. In todays modern markets, the idea that a market maker or any participant, should be allowed to sell a share that they do not have to provide liquidity to the market without price improvement does not make sense. Instead the price should be allowed or be required to go up first, to find liquidity naturally from the market and market participants. If prices rose to a level liquidity may be found that doesn't exist at current levels and market makers are trying to force liquidity by having prices go down, versus having prices go up to find natural sellers vs induced sellers. Thank you for your time, and for working to make the markets more transparent, and fair for all participants. Again I support the idea that all short positions should be reported just the same as a long position. The only reason a firm would be against such transparency or wants to delay implementation or compliance is if they are concerned with being over leveraged in a short position between the underlying and the transparency puts their position at risk. This is no more risk than a long position has that discloses it through a 13F as required under current regulations if someone wants to sell such position short. Why should short positions have an advantage that longs do not have? They shouldn't. Why should we create a system that is less transparent and fair for participants vs more? We shouldn't. Transparent markets allow all participants both short and long to be able to make money more safely. As if I was short I would want to know if the position was a crowded trade that could go against me if all participants tried to exit and were trapped in that short. You would think this would be information that the market would benefit from vs be a hinderance. Darik Eaton