Subject: Comment Letter for File Number S7-08-22 Short Position and Short Activity Reporting by Institutional Investment Managers
From: Justin Safier
Affiliation:

Oct. 26, 2022

 


To whom it may concern, 


My name is Justin Safier and I would like to say my thoughts on the proposed ruling. I'm emailing you not on behalf of any company but as a concerned US citizen.  


First, I would like to thank Gary Gensler and the rest of the SEC staff for bringing this to legislation. As someone who's had to work his fair share of jobs where it's me versus someone or people way more powerful than me, I understand the limitations that you are facing.  


Secondly, since at this point there are tons of comments, I would like to focus my response on the response of Virtu Financial. I have found through reading it a few times that there are multiple inconsistencies with their arguments that I would like to point out for you. On page 1 of their response, it states 
"Specifically, the Proposal estimates that compliance costs to update systems necessary to capture and report the information required for Proposed Form SHO could be as much as $156,309,5003 - a staggering number by any measure -and will further burden firms with ongoing annual compliance costs of up to $52 million.".  


First of all, that number was a worst-case scenario written by the people who wrote this and more importantly, on page 2 of their report it states  


"Under the Proposal, the threshold for reporting is triggered when an "investment manager" (which would include many broker-dealers and potentially many buy-side entities) has established for reporting issuers a gross short position in an equity security with a collective U.S. dollar value of $10 million or more at the close of regular trading hours on any settlement date during the calendar month, or a monthly average gross short position as a percentage of shares outstanding in the equity security of 2.5 percent. For non-reporting issuers, the threshold would be a gross short position in an equity security with a collective U.S. dollar value of $500,000 or more at the close of regular trading hours on any settlement date during the calendar month. We strongly believe that the dollar value thresholds referenced in the Proposal are significantly lower than is necessary" 


So, while I'm not a lawyer or a wall street tycoon, the fact that 10 million cash minimum in order to report is too low PER SHORT POSITION but the fact that it costing a one time charge of up to 156 million which at maximum is the total value of 16 short positions that would need to be reported by said rule is outright absurd.  


The next part of Virtu's comment that I would like to comment on is there concerns about the cost to implement buy to cover in their current systems. Now for starters, if you look at Virtu's latest 10k filing with the SEC (0001592386-22-000041 (d18rn0p25nwr6d.cloudfront.net)) page 79, their net income per year is over a billion dollars and their communications and data processing expenses are under 300 million USD. That expense could double and they'd still be incredibly profitable. Also worth mentioning is that in the event of a short position that they then close, they have to let their accounting software know that the original short position has been closed so that there books are accurate. All buy to cover is telling people when that happens. This part of the rule especially will help clear up a major point of confusion and make it obvious after enough time if short selling manipulation is occuring.  


The last part I would like to comment on is both Virtu's concern of how this effects market makers especially unfairly as market makers need to be short on stocks as part of market making. There is a clip online found at https://youtu.be/K064hJQ7fdI where the CEO of Virtu Financial claims that by them selling stock they don't own (short sale) they provide infinite liquidity. For starters, infinite liquidity is impossible without infinite capital. Second, what is to say that they'll get real legitimate liquidity to offload their effectively-short position? 


Once again I thank you for taking the time to read this comment and I look forward to seeing it passed.