Oct. 29, 2022
October 29, 2022 The following comments reflect my own personal opinions and are not on the behalf of any other entity. As someone who works in regulation and the IT that supports it, I understand the difficulty and hard work that goes into changing really anything. I appreciate the opportunity to participate in the democratic process and your time reading this. Together we can make this a better world to live in. It is my opinion that while short selling may be convenient to market makers looking for liquidity, it only really seems to destroy value or transfer it from public companies and their shareholders to the financial sector and the few with the means to move prices, leaving the public company effectively dead. On top of this, there are market makers and consulting firms that have near or direct relations with hedge funds, private/family firms, etc., and thus profit motive to abuse the shorting system for their own purposes. I see this potential for abuse of public companies through short selling as antithetical to the SEC's mission of protecting investors, facilitating capital formation, and maintaining fair, efficient, orderly markets. The fact that one can abuse short selling at all is contrary to fair markets. This leads to investors getting burned, or even just instilling the fear of getting burned, which ends in future public companies struggling to raise capital. Failing to address this problem will only end in the SEC failing it's sole duties as outlined in the SEC's mission statement. With that said, one has to ask if short selling in practice as a whole is really worth it. There are many other western democracies and more that prohibit it entirely. At the very least, because of this potential for abuse, short selling should be in complete view of the public for free. The US markets are not transparent at all until this data is available in it's entirety for free and in perpetuity from the SEC. To be clear, I want the standardization of ALL short selling activity (including single stocks, ETFs, etc.) and the transaction data publicly available for free in real-time directly from the SEC's website. Any short sale should have to be reported to the SEC before it is finalized. No one should be exempt from this reporting requirement. This way, all parties (the seller, the buyer, and the SEC) have a common tracking ID that uniquely identifies that transaction and it's data, including location of shares information. This would give the counter parties (the buyer/seller) a neutral third party (the SEC) to clarify any transactional disputes, the SEC would have concrete data to support further actions, such as regulation or pressing charges against parties that are breaking the law, and trends in the data can be analyzed to identify problems and bad actors sooner. Automated systems can be implemented to report this data in real-time, or at the very least, refreshed every minute. Short sellers would just need to submit some web form or API call to the SEC to complete the sale and get an ID for the SEC to track said transaction in a database. Short sales that don't have this ID should be considered not only 'naked', but also as an attempt to subvert regulation. The data can be archived into a more compressible format (like CSV) annually and be made available through the National Archive or some other US historical records agency, thus closing the SEC's retention loop. This process could be manual or automated as it only happens once a year. I personally would have staff manually put the annual report together, as it forces one to look at the data and further increases chances of catching things. Plus, this data can be helpful in other reports and teaching/developing SEC/financial investigations staff. If paying for said systems is an issue, I would recommend a licensing/transaction fee levied on the short seller to pay for the operation of the system, much like many professional licensing agencies do to maintain their operations. This kind of fee structure only impacts those who use the system, and has precedent for being a fair and acceptable way of funding public operations. The SEC could also change fines to a revenue percentage amount per violation instead of a flat rate per violation. This would discourage bad actors from repeatedly offending or even offending at all by dealing a significant blow to the profitability of said unlawful practices while effectively scaling the fine with the monetary amount unlawfully gained. Thank you again for your time. I hope that we can make the US financial markets a better and more inclusive space, for everyone. -Kolton