Apr. 20, 2022
Dear SEC,
The complexity of these rules create extreme opportunities for Wall Street participants to take advantage of retail investors. The SEC has a unique opportunity to save US market perceptions and increase retail engagement to a level that was likely, previously, thought impossible. The only thing the SEC has to do is empathize with retail investors and our experiences thus far by earnestly reviewing both these suggested rules AND the comments thereof.
If I understand correctly, the NSCC explicitly understands that there are significant FTDs, Naked Shorts and similar that need to be cleared. This rule proposes a service to “avoid” those pesky obligations. It does so by introducing a new transaction layer that “novates” (replaces) old obligations between an NSCC member lender / short sellers / prime brokers / etc. with a new obligation between a member and the NSCC itself as the new counterparty. This novation is done with even more lending of securities.
Why is the NSCC persistently trying to introduce rules to help their members manipulate the market by bypassing Regulation SHO as well as critical market feedback loops for naked shorted securities? Naked shorting is illegal. Regulation SHO is supposed to be the SEC's vessel for ensuring this practice doesn't continue to steal from retail investors and thus damage the reputation of the markets, it's executors, it's regulators, and the United States of America. While Regulation SHO does still require future improvements of it's own to close arbitrary loopholes ('market making' schemes, etc) the SEC should not allow the introduction of new rules that enable bypassing Regulation SHO altogether. I believe doing so would perpetuate signficantly more fraud.
It is crucial for the SEC to rebuke these attempts to establish new clearing services which are intentionally over-complex, further erode price discovery, disadvantage all retail investors, and eliminate obligations to produce a security. This rule is unacceptable for retail investors. The NSCC is trying to create it's own 'program' for FTD's. This program involves allowing it's participants to, at will, borrow any number of shares they are required to deliver as FTDs at what could be $0. It then allows them to use those shares to reset the age of FTDs they owe without having to go into the market and buy them. This means exponentially increasing share lending without accountability for bad actors making poor choices and putting everyone else at risk. They should not have an opportunity to circumnavigate their responsibilities to market investors, the market, and price discovery.
FTDs are already "reset" through a variety of methods such as using deriviatives not allowing them to reach their 30 day mark where the security needs to be "delivered." This creates a method better than all the others and effectively ends Regulation SHO.
This is very frustrating to see rules like this being proposed that only favor reckless institutions. Hopefully you'll consider the words of retail investors more with your decision making on regulations.
Thank you for taking the time to read this.
Grynch
Retail Investor