Apr. 20, 2022
As a retail long-term trader, I stand in complete opposition to this rule. First, the fact that single rule requires 40+ pages to outline is plainly indicative of the problem. Second, and more importantly, this rule is abhorrent. Its intent is to allow an obligation to be fulfilled with another obligation. It's that simple. You call it "netting" I call it An IOU to settle an IOU. In what other aspect of our economy, especially what is available to retail, is this type of activity allowed? In fact, in almost every case, it's specifically disallowed. Look, this is getting ridiculous. If an entity is going to participate in the market, they're going to have obligations. Very simple obligations, in fact. Rather than allowing obligations to be settled with new obligations, we ought to be going the other way entirely. For example, If a market maker accepts a trade, and decides to, or is mandated to take the other side, and are unable to fulfil the obligation, then we need to address the underlying cause. The underlying cause is the requirement or willingness to take the other side of the trade WITHOUT reasonable belief it can be settled and delivered. It's that simple. The entire purpose for this rule change is to skirt the rules around settlement. The theory of calculating collateral requirements is garbage. Why? Because we've seen, in the case of Apex / Citadel / RobinHood, etc that these requirements can be waived freely by the DTCC and its subsidiaries. So as far as I'm concerned, including pages in this rule about collateral calculations is simply an effort to dilute this rule change in wall-speak. The theory of making it easier to adhere to The Basel III requirements is also insane. These market participants are already extremely over leveraged in increasingly illiquid equities, where shares are rehypothecated to a degree almost unfathomable. Should we be making it easier for them to maintain these positions, and help them skirt their obligations to deliver? Absolutely not. Finally, the mechanisms that would facilitate this proposed system would rely on a fee based on the difference between closing prices. Given the extremely obvious and high level of market manipulation that takes place on a day to day basis, that "fee" would be paltry compared to what it would cost member firms and agents to actually settle these transactions, which would likely result in buying on the open market. Here's the bottom line: you take a position; you have an obligation. If your position goes against you, requiring additional collateral, then CLOSE YOUR POSITIONS and take your loss. Full stop.