January 4, 2022
Hello,
First I would like to personally thank the SEC for beginning to finally address the massive issues of failing to deliver a stock.
I'm incredibly concerned at the lack of transparency in the US Stock Exchange and very much appreciate that FTD data will now be more accessible and transparent to the public.
Although I'm incredibly thankful that the commission is going to bring light to FTDs, I'm more concerned with the lack of proper enforcement behind these FTDs.
I have 2 major concerns that are causing my continual lack of trust in the US stock market and find them both hard to reconcile, as they severely disadvantage retail investors, whom the SEC is supposed to protect.
My questions are:
1) If anyone is failing to deliver a stock, but the cost of the fine is less than the profits made from failing to deliver, does this not directly benefit the person committing the crime? If the fine is less than the profits made, or less costly than delivering the stock, why would a entity EVER not choose the less costly of the 2? It seems to me the SEC regularly fines corporations pennies on the dollar for their FTDs, effectively making FTDs (crime) a part of most large entities business model.
The SEC is directly putting retail investors at a disadvantage to large corporations by making the fine for FTDs non-proportional to the crime. If I were to rob a bank and make $100, but the fine was $1 and no jail time, I would rob banks for the rest of my life.
The SEC has enabled large entities to take advantage of retail investors with virtually 0 repercussions, and easily enabled illegal FTDs to become a regular part of most trading models from hedge funds and other large entities in the market.
2) Why are FTDs not punishable by jail time and a temporary or permanent ban from the market based on severity of failing to deliver? In a free country I find it despicable that retail investors can be regularly cheated by hedge funds and other large entities through FTDs, yet those entities are still given permission to participate in the market. It's grossly negligent to not hold these entities and the people behind them responsible for cheating the market. A fine IS NOT enough, especially a minuscule fine compared to the cost of the crime, when it comes to cheating the market. I fully believe that a criminal sentence should accompany a much larger fine when FTDs are discovered. It's baffling that corporations can cheat regularly with no punishment. The SEC needs to step up enforcement with FTDs, as there is currently no reason to not take advantage of the system as there is no accountability.
As already mentioned, if the punishment for a crime is less costly than the price of the crime, you are failing to protect retail investors and in fact, are actively a part of the system used to put retail at a severe disadvantage. Entering the market against entities that are effectively being allowed to participate in the market with no criminal punishment for failing to deliver is asinine and completely contrary to what would be considered a fair market.
With this information, I find it incredibly hard to believe that retail investors are capable of participating in a free market, while criminals that FTD are still allowed to participate at the same time.
You have made FTDs a cost of doing business, and until there are fines that outweigh the benefit of failing to deliver, crime will continue as is is effectively just the cost of doing business. Jail time and a ban from the market would also be beneficial, as people that are cheating the market currently lack accountability.
Thank you for your time and allowing us to comment. I sincerely hope that accountability increases and criminals are held accountable for their actions soon. Please fulfill your duty of making the market a fair place and stop allowing cheating to be a cost of doing business for the people that can afford it. Retail is severely disadvantaged currently, and I truly believe people will lose trust in our markets if a real change isn't made soon.