Apr. 19, 2022
I voice my objections to the promulgation of Proposed Rule SR-NSCC-2022-003 as follows. The Proposed Rule adversely affects price discovery by allowing stock short sellers to avoid the inherent market risk of failing to deliver ("FTD") stocks, namely having to locate and purchase on the open market the quantity of share(s) purchased by the purchaser. In a free market, the risk of short selling is infinite. That inherent risk should serve to deter short selling, particularly abusive, manipulative short selling, as well as naked short selling, even by market makers which already have additional, and unnecessary, leeway via Reg SHO in the purported interest of liquidity.
However, if passed, your Proposed Rule would reduce that risk by allowing the short seller an opportunity to avoid the inherent risk, and "kick the can" further to avoid having to immediately purchase the stock on a lit exchange. This skews the market dynamics in favor of the short seller, which, more often than not, is an institutional investor, rather than a retail investor. The institutional investor is already at a significant advantage over retail purchasers who do not benefit from Reg SHO, or have access to dark pools, hedging via option writing, and the like.
Further, an FTD delay allows short sellers to further manipulate the price of certain securities by keeping them artificially depressed. Requiring all market participants to timely deliver what they sell is necessary for accurate price discovery. Yet, your proposed rule delays FTD period, which avoids true price discovery causing all owners of that particular stock to suffer decreased market value, further reducing the inherent risk in selling short. Only when short sellers have to deliver the stock sold short, is the true market price discovered and reflected in the bid and ask.
Accordingly, the SEC should withdraw SR-NSCC-2022-003 with prejudice and instead consider rules aimed at reducing the delivery time of all securities to T+0, banning Payment for Order Flow, limiting short selling, limiting use of dark pools by requiring use of lit exchanges for retail and institutional transactions, and requiring transparency and real time reporting of short interest. That way all participants can have access to a fair market in which to buy, sell, and hold securities at their true market value.
C.B. Dodrill