March 27, 2021
I am an individual investor and fully support the implementation modifications to Rule 4(A) of the NSCCs Rules Procedures (SR-NSCC-2021-801) with utmost priority to:
Calculate and collect SLD on a daily basis
Establish an intraday SLD obligation
Alternative calculation of SLD by pro rata allocation calculated for that Business Day
Simplify and improve the transparency of calculation, collection and treatment of SLD
Several stocks with high short interest have exhibited extraordinary volatility in the recent weeks, and have negatively affected individual investors, and have even wiped out some individuals entire portfolio. The volatility has exposed systemic risks including broker dealers suppressing specific stock purchase while allowing sales for retailers, while preserving institutional investors full ability to transact during such times. As you are aware, this is problem of such magnitude and public interest that there is an active congressional hearing.
The current method and frequency of SLD calculation is a best guess effort and exposes liquidity risk of least 5 business days to NSCC. The risk of member default is higher now then ever due to derivatives leverage, opaqueness around naked shorting, layered stock re-hypothecation, impact of ETF/ETN creation and redemption on underlying stocks, limited visibility to OTC/ATS data, and various factors, some of which have been submitted as comments on other SEC proposals.
The pandemic has brought about unprecedented change to lifestyles, consumer habits, and business operations. Market participants who took significant positions to speculate on outcome of pandemic are witnessing amplified gains and losses. As national economy tries to get back to normality with vaccine rollout, Federal stimulus and spending, and rebuilding of small businesses SEC needs to do all it can to avoid any unforeseen/unnecessary economic jolt that may be caused by amplified losses incurred by NSCC member(s).
The ongoing and proposed improvements to ensure sufficient liquidity of market, integrity of exchange platform, and measures to contain risk is timely, necessary, and urgent. This will promote public confidence in the market and further SECs mission statement:
Our mission requires tireless commitment and unique expertise from our staff of dedicated professionals who care deeply about protecting Main Street investors and others who rely on our markets to secure their financial futures.
Sincerely,
Sudarshan Chakravarthy