Subject: S7-22-21: WebForm Comments from Justin hill
From: Justin hill
Affiliation: It

Oct. 31, 2022

October 31, 2022

 Let me begin by clarifying an error in the factsheet posted to the SEC website. It states that
 securities loans are transactions that are vital to fair, orderly, and efficient markets. This is
 simply not true. Securities lending enables the multiplication of shares in circulation. When
 brokers lend the shares being held for retail investors, for example, it is equivalent to
 replacing the bought and paid for shares with an IOU. Securities lending ignores the
 investors right to vote in matters of corporate governance and to receive tax-qualified
 dividends. Further, a fail-to-deliver (FTD) that is closed with a borrowed share is not really
 closed  it leaves open that IOU with the lender. Therefore, securities lending harms market
 efficiency by inflating the number of shares in circulation, which hampers true price
 discovery by artificially increasing supply.
 I can think of no other industry in which anything of value is lent without a due date for its
 return. Why is securities lending different? Of course, none of this would be an issue if
 broker-dealers and banks kept track of whose shares they were lending. Nothing in this
 proposed rule fixes the problem that voting rights and payments in lieu of dividends
 continue to be allocated in processes that are completely opaque to investors.
 It seems likely that the Proposed Rule will increase the cost and reporting burden of
 borrowing securities, regardless of the reason for taking the loan (e.g., to cover short sales,
 to close a fail-to-deliver, to access voting rights, etc.). An unintended consequence could be
 to tilt the brokers cost/benefit analysis in favor of fails to deliver.
 The subject proposed rule enables and perpetuates on-going systemic problems. Real
 reform for securities lending must include:
 (1) Notifying the public about who is borrowing and lending shares (not just which
 companys shares are being borrowed or lent).
 (2) Notifying retail investors with street name shares that their shares are being lent,
 (because (a) they don't get to vote and (b) they don't get tax-qualified dividends). SEC must
 adopt a more consistent interest in regulating, monitoring, and enforcing rules that require
 brokers to keep accurate records of ownership.


 (3) Sharing any revenue earned from lending shares held for retail investors with those retail
 investors.
 (4) Eliminating Onward Lending completely (public companies and transfer agents have
 opposed this for decades, even pointing to it as a source of phantom shares and over-
 voting in matters of corporate governance).
 (5) Requiring every loan to have a due date (not just if applicable). When securities loans
 without due dates are tolerated, the loan may be allowed to remain unsettled indefinitely.
 The Dodd-Frank Act directed the SEC to seek transparency for brokers, dealers, and
 investors. But the retail investor has been given short shrift with this Proposed Rule. The
 disclosure of lending inventory and near-real-time position reporting will only make it
 possible for broker-dealers to discriminate against companies who are already bearing an
 onslaught of phantom shares in capital markets.