Aug. 16, 2022
August 16, 2022 Dear SEC, Thank you for proposing this excellent rule that will bring more transparency to the markets. As a retail investor, I see this as a benefit to all investors, companies and funds. Transparency is NEVER a problem, only for those who want to hide in the dark. As a retail investor, I have limited access to information, unlike accredited investors or large institutional investors and services like banks or funds. This is even more true if they are international investors from the EU, as I am. Transparency is even more important when a company wants to go public and understand how the market values the company. As a company founder, I fear for the day when my company decides to open a branch or subsidiary in the U.S. or perform an IPO on the U.S. securities market. At this time, we have no plans or forward-looking statements in this regard. However, looking at how innovative high tech companies are being traded, one must indeed think twice about whether an IPO in the U.S. is the right choice. The proposal will level the playing field and make information accessible that is already available (to some degree) to institutional investors. More importantly, it will allow retail investors and smaller funds to better assess the fundamentals and market situation of an investment. I, as a small investor, rely on the validity and accuracy of public information. Further, if funds can continue to short sell without properly reporting, companies will never be able to adequately defend themselves and will always be late to respond. With no way to properly address these issues, no way to recall shares from the DTC(C), and a prohibition on advising investors to register their shares directly, companies are forced to tolerate and endure continued short selling. At most, they can arrange for a reverse stock split or merger - but that only delays the ultimate demise. It is true that short selling helps \"purge\" the market of unsuccessful or 'delinquent' companies. But conversely, this mean s that many more 'innocent' companies suffer. Many innovative companies fail because of predatory short-selling activities. Investors are kept in the dark and are therefore unaware of the risk. Even if I believe in a company, I must be aware that large institutional investors are betting on the bankruptcy or depreciation in value of companies. This information is of utmost importance to small investors who want and need to take care of their own individual financial plans. In essence, these investors are the exit liquidity for institutional participants who make their money by driving companies into bankruptcy. These funds and institutions produce nothing of value to society. Innovative companies, such as those in biotechnology, are often shorted because they are unable to develop significant \"products\" within a quarter. They may be ahead of their time, or researching technologies that will not bear fruit for several years. Family businesses suffer just as much as innovative start ups or scale-ups. A small number of funds are short selling and seem to think they know best what the fundamental value of a company is. The value of a company cannot be assessed on the basis of quarterly figures alone. Especially when it comes to future technologies such as semiconductors, electric vehicles, medicine, or environmental technologies, far more than just financial knowledge is necessary to understand value. As far as I know, fund managers are rarely experts in the field of biotechnology or other high-tech advances. And in my experience, innovation rarely happens within a quarter or a fiscal year. The introduction of a 15-minute rule for reporting, as opposed to the alternatives of T+1 or (currently) biweekly, is to be supported, as is the requirement to report transactions individually, as opposed to aggregates. There are many different ways to hide or disguise short activity. The simplest way is for certain market participants to use overnight swaps or even to offload their own short positions through total return swaps. These practices, which enable overnight swaps, can be used to evade T+1 reporting. Other institutions short certain companies through exchange-traded funds and hold all but one of the underlying securities others act through operational shorting or by virtue of being authorized participants that can create or redeem shares in an exchange-traded fund. These practices are sometimes used over several years, and a huge amount of FTDs are accumulated. In the age of digital information technology, there is no excuse for FTDs. Intraday reporting allows maximum transparency and prevents some loopholes in reporting short positions. Forcing participants to report every trade is also better, as aggregates can be used to hide certain positions within the aggregate. The formation of information aggregates is a destructive process, i.e., it cannot be reversed by the public and thus hinders actual price discovery and information about a company's market fundamentals. Aggregates are not transparent and provide only superficial information, just as a mean or median provides some information, but impedes the extraction of real insights by examining the underlying data. As a side note, this can be seen in the volume of trades made on lit markets in contrast to actual volume to total trades. The argument regarding the complexity and cost of intraday reporting of individual transactions does not hold merit. We live in the digital age where blockchains can capture every single and atomic part of every transaction. Funds are spending large sums on developing algorithms for high-frequency trading or building fast connections to profit from a wider spread - we are talking about millisecond speed gains here. The claim that intraday messages are not possible is at best a misunderstanding and at worst a blatant lie. From a technological perspective, implementing automated reporting or report generation is far from impossible. Moreover, funds are already paying fees for not producing reports and in case of rule breaking. The SEC has imposed fines on participants who have violated regulations for example in cases where funds have not marked trades as \"short\" or have made other errors in trading, reporting, or fulfilling their fiduciary duties. An adequate automated reporting system will help funds properly report short sales without risking being fined by the SEC. The 15-minute rule for each transaction will lead to greater efficiency, and funds will be able to focus on their work of creating value rather than reporting. The SEC will be able to fulfill its mandate to monitor short sales and market participants at no additional cost. The public will be able to correctly assess the fundamental value of companies, correctly assess risk, and correctly understand market sentiment - whether among institutional investors or retail investors. Institutions already have the ability to monitor public forums and thei r sentiment towards specific stocks. Here we can already find a great asymmetric information imbalance. In January 2021, we experienced a very volatile market, with reports of short interest of certain securities exceeding 200%. The SEC described in a recent report that there was one stock that had idiosyncratic risks. Shorting companies can lead to unlimited losses. It is of utmost importance that short positions are properly regulated and reported in detail. An inefficient market will lead to a loss of confidence in the markets and jeopardize the dollar's position as the global reserve currency. I believe that the SEC's proposal regarding reporting should be implemented as proposed. The free market thrives on transparency and equal opportunities. Yours sincerely, Peter Alexander Kopciak