Oct. 30, 2022
October 30, 2022
Vanessa Countryman, Secretary
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-0609
Re: Reporting of Securities Loans (File No. S7-32-10)
Dear Secretary Countryman:
I am writing in strong support of Prohibition Against Fraud, Manipulation, or Deception in Connection with Security-Based Swaps Prohibition against Undue Influence over Chief Compliance Officers Position Reporting of Large Security-Based Swap Positions
I am writing to support transparency for the PUBLIC disclosure of data related to this rule.
Simply put, if swaps can be used to create short positions, but are not required to be reported then it creates the opportunity to create a dangerously large short position that could pose systemic risk to the financial system (as shorting itself has the potential for infinite loss
https://www.investopedia.com/ask/answers/05/shortsaleloss.asp(https://www.investopedia.com/ask/answers/05/shortsaleloss.asp)
In fact, there is no limit to the amount of money you can lose in a short sale (in theory).
Given that there is NO limit to the amount of money that can be lost in a short position, then should the price of security being shorted continue to go up, the holder of the short position will have to continue to liquidate their other positions (causing a continuous sell off of other assets)
Therefore, excessively large swaps are a threat to financial and national stability (via the financial system) . I understand swaps are a reason that Archegos has gone out of business and that their swaps do not simply disappear, but rather are passed on to the next financial organisation to assume responsibility.
The way to reveal potentially dangerous large swaps is to make it a requirement to report data related to swaps.
I am requesting that the threshold be lowered to $100 million / $200 million gross. By providing the public with more data, and slightly lowering the threshold, possible fraud may be more easily detected. It is important that the rule be hardened against evasion (e.g. by multiple actors colluding to build a large position through separately acquiring smaller positions that evade reporting requirements). I do not want to see the rule watered down in practice.
Of course, I would like this rule applied internationally so funds and firms cannot use borders to evade the rules of the market.
I Suggest you look at the entire swap portfolio to determine reporting requirements, not just parts: The Commission should follow the precedent in Rule 13h-1, which identifies large traders using the traders entire position in all NMS securities. The overall picture of a traders appetite for excessive risk can only be formed by looking at their total swap position. Allowing large traders to take on excessive risk via swaps in many different individual securities while avoiding reporting requirements is against the spirit of the rule, and goes against the Commissions prior rulemaking.
I suggest that Security-Based Swap Position(s) include all security-based swaps based on the same underlying security or reference entity, regardless of whether they are debt (including CDS) or equity-based, so that funds and firms cannot evade reporting requirements by using different types of complex financial instruments.
I agree with the definition of security-based swaps and state that it must be appropriately wide to minimize evasion.
I agree with daily reporting and I praise the Commissions public release of the data. It empowers citizens to protect themselves from excessive risk and the companies they own from hostile actors. The Commission should absolutely utilize its authority under Section 10B(d) of the Exchange Act to publicly release data. Fraud is widespread, and the resources of the SEC are limited. By allowing the People to see potentially dangerous swap activity, they will be better able to assess the investments they make and observe the dynamics of the market. A more level playing field is absolutely in the public interest, and the damage that can be done via swap activity (e.g., Archegos) necessitates that investors be equipped to defend themselves and the markets they use.
Given the above, I am requesting the SEC to finalise this rule ASAP, and that I hope to see more rules like it in the future.
Sincerely,
A Concerned Investor
Securities Lending/Loaning Comment: S7-18-21