October 8, 2021
To summarize rule 56 of proposed SR-NSCC-2021-010:
SFT's are a tool which allows securities to be lent to NSCC Members who have open positions (naked shorts, FTDs, Naked Options) and can be counted against those positions for the time that the Secured Funding Transaction is active.
Agent Clearing Members are allowed to lend securities on behalf of their customers in an SFT without that customer's knowledge as long as there is an agreement in place between that Agent Clearing Member and their customers (The 500 page Terms and Conditions in legal jargon that 99% of people don't read).
So essentially, customers of Broker Dealers can have their shares lent out through SFT's without their knowledge to satisfy margin requirements of Institutions that hold massive short positions and are strategically failing to deliver in the securities that retail investors hold.
The only reason having these SFTs centrally cleared through the NSCC is to satisfy these open positions and CNS Fails, even if only to temporarily meet margin requirements.
If passed, Rule 56 will allow even greater leverage and margin debt to build up in the financial system while simultaneously putting retail investors at a disadvantage. Because the very shares that they believe that they are holding are being lent to institutions to satisfy margin requirements on short positions that they hold, it will allow those (short) institutions to further depress price through otherwise unsustainable short positions.
If the SEC truly believes in doing what is best for the retail investor and American businesses, they will not approve this rule change.