Apr. 20, 2022
Good morning SEC, This proposed rule is located here: https://www.sec.gov/rules/sro/nscc/2022/34-94694.pdf and here: https://www.sec.gov/rules/sro/nscc-an.htm#SR-NSCC-2022-801 First of all - see page 11 note 20 for the following: 20 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. My emphasis added to the note which states plainly that this proposal was not modeled because the requirements are "not compatible" with regulatory requirements and investment guidelines. I am a humble retail investor but this is another way to describe unlawful behavior and indicative of a SRO creating a program for itself outside the boundaries of the law. This should not be allowed and is one of the reasons SROs are, frankly, a joke and need better enforcement. Second of all - the background and explanation for this proposal makes it clear that this rule would allow bad actors, the overleveraged, and those facing financial consequences to sidestep previous obligations and costs through the SFT central clearing and benefits only those bad actors. Top of page 5 continues and states that this will incentivize the use of such a program and that concerns me greatly. Why would NSCC encourage this behavior? Why create another method for Failure to Deliver and yet another way to protect bad investors? Third of all - NSCC frames fire sale risk mitigation as a net benefit but again this benefit is only being offered to firms and hedge funds at risk of liquidation, eases their margin requirements, and further incentivizes bad behavior. If the market needs a fire sale to correct their bad investing and other more fortunate or canny investors profit is that not the essence of fairness? This proposed rule would create further artificial conditions such that unfair practices and protection of hedge funds is exacerbated. Fourth and finally - NSCC on page 8 explains liquidity drain risk and wants to further protect large investors from their own decision making and paints the issue as one of confidence. They state, " Specifically, NSCC believes that having it clear SFT activity would provide confidence to borrowers and lenders that they will receive back their cash or securities and thereby lessen parties’ inclination to rush to unwind their transactions in a stressed market scenario." Proposing rules for the emotional feel goods of market participants is nonsensical. This proposed rule displaces responsibility and further obfuscates an already overly complex web of settlement rules and would add SFT to NSCC as a benefit to hedge funds and other rich investors only. Short version: This rule should be rejected and all future versions of this rule should be rejected. If a market participant makes a bad bet they should pay up and accept their losses, if they get liquidated then too bad for them, and if the market has a shock because numerous bad actors get liquidated and a fire sale ensues then that is a proper correction at work. Hedge funds and other institutions should not be allowed to replace former obligations and costs with this novation nonsense and NSCC should not be encouraging failure to deliver and short selling. Finally if the NSCC states as in note 20 that the proposed rule does not meet regulatory requirements they should not be allowed to propose it. Thank you.