Oct. 28, 2022
To whom it may concern, I would like to express my support for the increased reporting of securities loans (File No. S7-18-21). The SEC requires accurate data reporting to properly regulate market participants. Although many of the comments against this proposal emphasize costs for compliance, they are submitted by market participants, who prioritize short term profits for themselves rather than overall market efficiency and stability. This is unacceptable and precisely the reason increased reporting should be made mandatory for all participants. This will ensure that the SEC has all the necessary data to regulate effectively. Additional transparency in the securities lending market will have the added benefit of improving price discovery by eliminating information asymmetries for investors and will promote market efficiency by increasing the need for strong risk management practices, thereby increasing market stability overall. The fundamental problem requiring action, and which requires additional transparency to address, is that of Failures to Deliver. The number of Failures to Deliver are growing because borrowers are frequently using them to make delivery on a short sales or to settle a transaction that has failed. Failures to Deliver occur when a party is unable to deliver at settlement a security previously sold. As this is the case, they have no place in an honest and efficient market. There is no other market in which a Failure to Deliver on a fully paid item would ever be tolerated. We should not allow a party to use securities lending transactions to indefinitely borrow for delivery a security they previously sold. Not only is the unlimited risk potential for a growing number of indefinitely open short sales risky to the financial system as a whole, but these securities lending transactions serve as a Band-Aid encouraging parties to take on increasing risk with increasing leverage which will ca use another avoidable financial crisis. If a fully paid for security Fails to Deliver, there must be a hard requirement to buy-in and close that transaction. This is clearly within the regulatory power and scope of the SEC, who in the midst of the 2008 crisis issued new (interim) rules against abusive naked short selling primarily to protect troubled financial institutions. See 2008-204 SEC Issues New Rules to Protect Investors Against Naked Short Selling Abuses (Sept 17, 2008). The SEC should bring our financial markets in line with every other market and eliminate Failures to Deliver completely. Sincerely, William Bloxham