April 20, 2022
NSCC understands that SFTs provide liquidity to markets and facilitates the ability of market participants to make delivery on short-sales, and thereby avoid failures to deliver, naked shorts, and similar situations.
This rule is yet another in a long line of rules that helps bad actors avoid their delivery obligations. Any such market participant can easily acquire the needed shares by purchasing them on lit exchanges. This is how markets are supposed to function.
As always, the provision of liquidity will be framed as a key benefit of this rule. Theres a simple method of providing liquidity that renders this rule totally unnecessary, it is called raising the price until people start selling. That method, however, would only benefit actual investors supporting companies they believe in, and not those selling shares they dont have/wont borrow, so it will be avoided at all costs.
Willing buyers and sellers of legitimate shares should determine the value of a companys stock, not rule changes. If a market participant chooses to treat shares outstanding as a meaningless number, they should suffer the consequences of their poor risk management. If we continue down this road, why would anyone ever risk investing in our capital markets?
Retail wants true price discovery. Stop the manipulation.