Oct. 29, 2022
Dear Vanessa A. Countryman, Secretary, Securities and Exchange Commission, I am writing to express my support for the daily reporting and public disclosure of Security-based Swap Positions to prevent fraud and manipulation. Securities markets have rightfully been derogatorily referred to as casinos for decades. This stigma is a black eye upon our markets and this rule is a good first step in the right direction to shining a bright light in a very dark corner of the markets. Security-based swaps represent a clear and present danger to the financial stability of not only the United States, but the global economy. Archegos is "Exhibit A" for the over leveraged contagion that is beginning to spread across Global Systemically Important Banks, such as Credit Suisse. Therefore, the SEC must look at an institutions entire swap portfolio, with particular focus on 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 recommend that the Commission should follow the precedent in Rule 13h-1, which identifies “large traders” using the trader’s entire position in all NMS securities. The overall picture of a trader’s 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 Commission’s prior rulemaking. The SEC is well founded in their definition of Security-based Swaps, daily reporting requirements and public disclosure of this data. 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. While the rule prohibits things like spreading a large swap position out to evade the threshold, institutions have proven time and again that they will game the system and identify loopholes to gain a competitive edge. Therefore, I ask the commission to update the rule and decrease the reporting threshold to $100 million / $200 million gross. By slightly lowering the threshold and, thus, providing the public with more data, more of this type of fraud may be 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). We do not want to see the rule watered down in practice. Upon this change, I believe the SEC should finalize and implement this rule without delay. The fate of our markets depends upon it. Respectfully, Aaron Maben