Apr. 20, 2022
Hello, If I understand correctly, the language in this proposed rule would allow certain self-regulating bodies to absorb losses on behalf of market entities (such as market makers) to prevent them from experiencing catastrophic loss from particular turbulent market scenarios. Furthermore it is my understanding that these protective contracts, called SFTs, would allow entities to cover their losses gradually over time instead of instantaneously. This behavior is fundamentally contrary to market mechanics. Why is this necessary? The following footnote, citation 20, summarized appears to say: "Our rule proposal would violate regulatory policy, so we didn't already implement it, but if this rule passes, then we will." NSCC decided at this time not to incorporate a direct model for institutional firm clearing into the proposed SFT Clearing Service because in its experience with a similar model in FICC (the CCIT Service), the requirements that a clearing agency, such as NSCC, would be required to apply to an institutional firm that participated as a direct member ( e.g., Clearing Fund and loss allocation) would, as a general matter, not likely be compatible with the regulatory requirements and investment guidelines applicable to many of the regulated institutional firms that NSCC anticipates would be interested in participating in the proposed SFT Clearing Service. If I had to guess, I would say this rule has been drafted in an effort to internalize a potentially catastrophic position and avoid paying the investors what they are owed. Finally, it seems to me that rule SR-NSCC-2022-003 is merely another attempt at passing SR-NSCC-2021-010, a similar rule that appears to be designed to achieve the same effects. This rule should be dismissed with prejudice. Thank you for your time. Sincerely, Aaron Krohn