January 12, 2022
Greetings to the SEC. I have noted that large organizations waited until the last moment to make their objections. I am writing to you now to first remind you that your duty is to US not to THEM, and your role is to REGULATE them, not to enable them. They have, by their objection, shown us all exactly where they are most in need of regulation. You must not back down the proposals in response to them. Instead, you must strengthen them still more severely in the very places they don't want you to look.
Next, I will specifically address a couple points made in the comment from Fidelity Investments. With regards to their comment on excluding short selling:
I am impressed that they have managed to construct such a contrived definition of securities lending as to not include short positions I would like to see them do the reverse and define short positions without using some synonym for borrowing, lending, or loan. Perhaps they wish to make the argument that short positions can be accomplished through means other than physical security lending, meaning trade contracts including options, futures, and forwards. I think this an excellent point and believe the proposed rule should be clarified to explicitly cover all short positions, not just those established through security lending. However, the wording of Fidelity's comment seems to suggest that including short positions was an accident or oversight by the Commission. This makes me concerned that the relevant parties at Fidelity did not actually read the proposal document, as it refers to short positions well over 100 times. I will include a couple excerpts here for any interested parties:
Specifically, the proposal would provide information that may provide a more timely view into short selling activity than currently exists. (pg 138)
The Commission recognizes a risk that the comprehensiveness of the data, and hence the benefits that accrue due to the comprehensive nature of the data, would be diminished if the proposal induces market participants to substitute repurchase agreements (repo) for securities lending agreements.246 This substitution may occur because a cash collateralized securities loan is economically very similar to a repo. While the Commission is unaware of short sales of equities currently being facilitated by repo contracts, the Commission understands that in fixed income it is fairly common for entities wishing to short sell a bond to facilitate that transaction with a repo instead of a securities loan. (pg 147)
The second excerpt is included to show the intent of the Commission to include alternative methods of establishing short positions beyond securities lending. Here I will reiterate that the Commission should make explicit in the proposed rule change that this covers all methods of establishing a short position, either through lending securities or implicit short positions due to contractual agreements.
It appears to me Fidelity is arguing that, since short positions are not currently treated as securities loans for financial reporting purposes, short positions should be excluded from the proposed rule change to treat short positions as securities loans for financial reporting purposes. I assert that this argument flies in the face of the meaning of change.
Finally, Fidelity's suggestion that short positions be excluded because they are already regulated by FINRA is irrelevant, as FINRA is a private organization which ultimately falls under Commission regulations. If the Commission determines that more strict regulations are needed than the ones currently enforced by FINRA then that is their prerogative, as much as I'm sure Fidelity enjoys self-regulation.
On the reporting timeframe and scope clarification:
It should be clarified what \"effected\" means with regards to reporting deadlines.
I do not understand what the EU SFTR has to do with reporting requirements from the Commission, nor how that would cover reporting non-EU securities traded in US markets.
I would like to thank Mr. Gensler and the rest of the SEC for attempting to correct the rampant information asymmetry that exists between market participants and retail investors, purely to the detriment of the latter. In short, if market participants can benefit from privileged information on long positions by retail and make short trades accordingly, why are retail investors not afforded the same information on the short positions of institutions?