April 19, 2022
For this proposed rule to be considered in good faith, the never-ending black-hole of FTDs must be reconciled in full prior to passing a rule like this.
The opposite reason is the purpose of the proposed rule. It is not marketed in good faith, and is specifically tailored in a way that promote abandonment of the risks that institutions directly took part in. The proposed rule is meant to allow 'sponsored' parties or code for \"Failing institutions\" to abandon their commitments to the market.
A perfect example of this is: \"Fire Sale Risk Mitigation\" - Fire sales should not be mitigated. This is a key event to releasing a kink to liquidity, and to 'mitigate' it, is to bottleneck the failure for which it was started by, in order to withhold the very liquidity that needs to return to the market. In the proposed rule, it is stated: \"which can harm not only the institutional firm lenders by potentially lowering the amount of cash they can raise in the sale of such securities, but also create market losses for all holders of such securities.\" - To which I ask if an institution cannot swallow the consequences of their own risk taking, then why should any institution be allowed to mitigate the event in which it needs to return liquidity to the market upon its own failure?
The answer is that, under no circumstances should the party-under-failure be allowed to have any influence in their own liquidation. This is a very clear conflict of interest for any party involved. Under a default event, a party should be forced to relinquish their ability to interact in the liquidation event whatsoever, and a neutral-at-minimum or party-that-gains-the-most-from-the-liquidation of any institution should be the party in charge or overseeing that they see the best returns, not the defaulting party. It is obvious the defaulting party would not act in the interest of the parties owed, but only to lower the loss of their own failures.
Further, this proposal goes on to state, \"Competing and disconnected sales of such securities could similarly create fire sale conditions and not only harm the borrowers to the extent the value of the securities decline, but also create market losses for all holders of the borrowed securities.\" - This is true, and it is a risk all parties knew when acting in a lending/borrow activity. Borrowed shares can be recalled, and if the lender fails to ascertain the risk of an event that liquidates the borrower, that is a risk they knew they would be taking by lending an asset to an institution that sells assets in which they do not own. This issue is only made worse when the institution fails to deliver the assets they are supposed to be responsible for, and then are allowed to continue participating in the market.
The proposed rule is meant to discriminate against non-institutional inventors and very specifically leaves them with the risks and losses that they aim to abandon with this rule. In fact, the words \"retail\" and \"fair\" are completely missing from this rule proposal, and that should be very telling to the intent of this rule.
Within 2 pages, this rule specifically details \"a registered investment company,
pension plan, sovereign wealth fund\" These types of funds are specifically detailed so assets purchased by investors within those categories are exposed to the subversion, manipulation, and risks instead of the parties proposing or detailed under this rule.
The proposed rule does not give benefit to the individual investors that gave these institutions their assets/money in any way. It does not seek to even receive permission from their investors to partake in the proposed rule. It speaks \"broadly\" using the same old guise of \"Liquidity\", when the market is overleveraged as it is. It is clear this rules intent is meant to proliferate the profound failures of institutions, but not at the cost of failure to institutions.
The proposed rule is written to misinform the public and rule-grantor of the intent of this rule. To further understand this blatant misinformation please refer to SEC Rule Proposal: SR-NSCC-2013-13.
The proposed rule is a relaunch of the NSCC/DTCC's stock borrow program that was discontinued in 2014. However this rule sets its sights much higher than that program. It aims to fracture a fundamental pillar of market trust by accelerating borrowing by fully and completely disregarding borrow requirements for all counterparties - not just specialized parties such as Market Makers. This proposed rule aims to create phantom shares on a scale that would balloon FTDs in a profound and unsustainable manner that would be equal or greater to the total number of FTD they owe. There is no reason to think that this proposal would not allow ,for example, 10 FTD to be increase exponentially 10 times. (Low estimate) Since the regulatory bodies do not seem to care of institutions fail to deliver, this is the easiest route for them to escape their obligations.
The proposed rule also aims to replicate the infinite source of money that has caused hyper-inflation via fungible means such as fed-banking sourced reversed-repo offers/awards. This is not out of the normal for the US market - given that our market and its participants continue to accumulate FTDs without participant disqualification or even forced to purchase the assets they failed on, in the open market.
The tolerance of FTDs must end for a rule such as the proposed to be taken in good faith, which it is quite clearly not. This rule should not be allowed to pass in any form or even as it is currently written, and should it pass, one of the few pillars of trust left to market investors will fracture.