Oct. 25, 2022
Ms. Countryman, Thank you for the opportunity to comment on the proposed rulemaking regarding Security Lending. Securities lending is opaque, often by design of the participants that engage in it. I believe that all lending of publicly held securities should be public information. As an investor it should be my right to know who is lending what security and how much of it. I do agree that end of business makes sense for timeframe to help limit costs. Any argument by anyone in the industry about costs of businesses has an option, to not lend securities, and so I see this as just a go to excuse to keep the commission from trying to increase transparency in the markets and help all market participants. As transparency, and trust are key tenets of any successful market. Also, any broker that does not want to share how much of a security they have borrowed or loaning out as an investor makes me question whether I would want to do business and trust my business with such a broker. So why should a broker such as fidelity get to hide their short position with how many shares they may be short in a security to their own clients? Does that really give market transparency? Is that a fair and equitable market as Fidelity has the information about how short they are but no one else in the market does. Why should that be allowed to happen? Also as an investor, if my cash is held in a broker, and the shares I have bought in heory have rights to, I should immediately receive notification if those shares I have bought are lent out. As I should know that I will not receive voting rights in any company business. Or if the shares I own were delivered through lending agreements that results in not being able to partake in company voting actions or that I will receive cash in lieu vs traditional dividends and the tax ramifications there of. How can the SEC truly understand how many shares are outstanding of a company, without understanding share lending? How many shares are lent by whom, to whom, for how long, and what kind of rate? This information needs to be collected and remitted to a central agency and should be publically available. As all of the shares that are being lent out by a market participant are a liability to that participant should the borrower become insolvent or otherwise be unable to deliver the assets back to the lender. Each step of the process should be included. This means that if a broker dealer loans shares to a third party, who in turn loans shares to the market that needs to be understood. As without that both the companies who shares are being lent as well as all market participants are being injured through rehypothication of shares. In comments I saw recommendations to limit this to US Companies and US trading firms. If the security is governed by US Securities Laws, then I believe it should be covered by any future rulemaking efforts. It should not matter if the shares are being loaned out in the Bahamas, Germany, Panama, Russia, or New York. None of that matters. What matters is understanding that there SHOULD be a finite number of shares of every company being traded on United States Stock Exchanges. Lending agreements increases the amount of shares as there can be two owners of the same share legally speaking. All market participants should understand this information as well as the SEC in order to protect the markets, investors, and the companies that participate in them. Lastly, lending, to satisfy Failures to Deliver should never be allowed. Instead forced buy in should be the only solution. As a retail investor if I don't have money to buy a security either cash or margin, the purchase doesn't go through. However large market participants can fail to deliver stock either knowingly or unknowingly due to brokers overlending their stock and all that results is a failure to deliver. The idea that one can just endlessly borrow stock to satisfy should not be allowed. Any efforts to stop this from happening or limiting the scope should be looked at closely. If companies don't want to spend money on the effort this would take does that mean they are currently overlending shares? If they aren't you would think the cost of compliance would be minimal as this is all information that the lenders should have already. As they should already know how many shares they have access to, and who they lent them to and for how much money. If companies do not want this information publicly available, why is that? Do prime brokers or brokerages that private investors use do not want their clients to know that they do not actually own the shares, but really have lent shares from another party, and therefore do not get the rights to vote and receive actual dividends vs cash in lieu? Do large firms not want their clients to know that they are making billions of dollars annually in lending out the shares that they buy and are being held at that firm? Thank you for the opportunity to comment and do look forward to seeing more publically available information regarding security loans and security lending. As without it, how can investors trust the market that we are participating in? Darik Eaton