December 16, 2021
I am in favor of revising the laws around securities loan reporting to make a fair free market structure for all.
This rule addresses a key disadvantage for retail investors, namely access to data regarding true short interest.
If retail does not have access to the complete picture of how many shares (real, synthetic, derivative, naked) are short, in real time, then they cannot make the kind of informed decision that will drive the best outcome for the marketplace as a whole.
Please find below my specific comments:
1) The DTCC should publish the full derivative chain from primary ownership, through derivative chains and ETF ownership of stocks on every stock every day or even more frequently if technically possible. The service should be free to retail with a user interface that facilitates discovery. This will have the double effect of eliminating the ambiguity of the DTCC role as well as providing tools for all investors to understand the market sentiment of their investments. All non-retail investors should be named in the documents. There should be substantial penalties and legal trading liability failure to update the data in a timely manner. The commitment to retail for complete transparency is critical.
2) The lending of a single retailers shares often happens without clear understanding that it is happening. Brokerages should affirmatively tell me when my shares are being loaned. They should give me a substantial share of the money earned for shorting shares retail would then learn more about the benefits of shorting and could participate more in that market. Every loan must have a defined closing date and the retail user should affirmatively be told that the loan period is expired and the shares are theirs again. Shares should only be allowed to be loaned once - from me to the borrower. Borrowing rules are standardized across many industries with clear protections for all parties involved. Why is it not the case for securities?
3) The most affirmative ownership action a shareholder can take is to register themselves as the Beneficial Owners of the shares with the Transfer Agent or Custodian. Brokerages should be required to ask during the purchase transaction if the customer would like to have their shares registered with the transfer agent after the close period. This would reinforce the second point above and ensure that this valuable option is known and understood by traders. If the brokerage is doing good service for the retail user then you would not expect more shares to be registered with custodians.
4) Failures to deliver are toxic to the entire market. If I ordered a product and it did not show up at my house, I would demand a refund. The same should be true of shares. If financial organizations choose to provide poor service by failing to deliver, this should be visible. Require brokerages and their fulfillment chain (market makers, etc.) to provide FTD data before a share is purchased, allowing retail to either choose to put their order on a different stock exchange, different market maker or different broker. This information transparency ensures retail can choose the broker with good FTD discipline and allow differentiation among brokers and market makers.
Thank-you very much for taking my comments seriously. These recommendations would go a long way to ensuring all market participants are equal, that good messaging to companies about their performance reaches them, that capital efficiency is maximized.