Mar. 14, 2022
Summary: - The SEC should require approval before lending - 30 days should be shortened to nightly - Violations of regulations should be met with 100% profit confiscation through the violation period - *All* information should be publicly available at all times - No exceptions for market makers, family funds or hedge funds - Should include all counter-parties for lending including the Federal Reserve if applicable - The rules should apply to all securities traded on all exchanges, derivatives, stocks etc. - This should be required to be back-dated for all current lending; no hidden "legacy" deals that are underreported Securities lending is fraudulent - not just opaque. The SEC has consistently turned a blind eye to fraudulent securities lending - lending not-yet-settled, and then failing to deliver through the DTC. The NMS today fails investors by allowing trading, lending, through opaque systems such as darkpools (read malfeasance). The SEC should require all security lends to be verified through a central or decentralized public registrar in the effort to avoid circular and toxic leverage to be permeated through the market. If any example would show why this is valuable would be Bill Hwang - who in a "private family office" (read criminally under-regulated office) was able to lose over 3 billion dollars on what was at least 20x leverage. This proposal is in spirit a good change, but realistically, trading happens so quickly in today's technological age that monthly reports allow the SEC to do what it does best: nothing. To elaborate, by the time the monthly report is collected, the criminal behaviour could be skirted, hid, manipulated into favor while the unsuspecting public (anyone with less than $1b in capital to have major market impact) is drained of their livelihoods. The SEC's proposal is too little too late - the fact that trades must not be vetted by a public entity and be available for all to inspect *daily* is quite frankly a sham. The technology exists to capture all the market data requirements by all parties 24/7 - yet we choose to give very large births to those who choose to act unscrupulously. 30 days is an eternity for those playing highly volatile derivatives and counterfeiting shares. Rehypothecation is the antithesis to a free market - and it is only available to those with the largest bank rolls - letting the tyranny of money oppress everyone who cannot continually be David vs Goliath. The ability for private family offices, hedge funds, and market makers to take on leverage via overseas debt, and bring it back into the US equities markets is disgusting - and should be illegal. In today's global markets it's easier than ever to create opaque trades; create leverage on equity via several disparate counterparties (like Bill Hwang) and recklessly gamble on derivatives products. This is not the purpose of building wealth and supporting thriving economies (which is the point of the stock market) it is a casino which is continuously deregulated. Reg SHO doesn't have enough teeth. Glass-Steagall was repealed (thanks Gary). Dodd-Frank is easily skirted. Until the SEC listens to the investing public and allows individuals not in the senate or congress to advocate for what transparency should be - it is all but useless. Furthermore, the rules in documents such as these are overly specific and this creates inefficiencies in the rules themselves - we have the technology to support simpler rules such as: all lends must be verified through a centralized or decentralized but immediately public authority. Today the biggest challenge the public faces is information dichotomy and opacity; why is there different information available to the regular public, compared to what is available to public office, and to private equity. If the WallStreetJournal is good for anything it is to reveal that information submitted to the SEC is available instantaneously to insiders and then later revealed to the public at opportune moments - this is precisely the kind of information dichotomy that allows bad actors to abuse the public. Simpler rules. Same day reporting. (De)Centralized public registrar available to all. You want to protect retail investors? Give us the same privileges, tools and information that the revolving regulatory capture door at the SEC provides the cronies and finance "bros" at the boys club. And also make the fines match the person doing the crime (since the SEC cannot criminally investigate). The fine should be 100% of all profits (realized or unrealized) if found in violation of such serious and hazardous activity. Addendum: - Credit Suisse (known money launderer; as well as fined billions for criminal activity related to lending) - Barclays (LIBOR and other rate scandals for borrowing); - Citadel (Naked shorting and PFOF abuse; a form of lending) - Ken Griffin (CEO of Citadel MM and HF; perjured or willfully misled congress) - Steve Cohen (Criminal allowed to run private equity funds; guilty of criminal insider trading) The list could go on indefinitely but are responsible for irreparably damaging trust in the American equities markets and should be banned from participation - laughable as Citadel executes over 55% of all trades in US markets. Since the SEC is powerless in criminal activity - why not raise the stakes? The average person who commits these crimes pays for life - as they are never able to expunge the damage to their personal lives. For every ill-gotten gain received, the fine should match 100%. 100% of all profits (realized and unrealized) players who lend illegally or irresponsibly are stripped - it would greatly decrease the willingness of managers to provide such ludicrous leverage and/or illegal lending.