May. 07, 2022
Public Comment for the SEC regarding the proposed rule change for the National Securities Clearing Corporation - SR-NSCC-2022-003. It’s ironic that the Wall Street Reform and Consumer Protection Act of 2010 which designated the NSCC as a systematically important financial market utility would propose these changes to protect institutions from their own abuses regarding SFTs. If NSCC takes on the risk management, central clearing, collateral requirements, and orderly ‘unwinding’ of SFTs; then doesn’t that ultimately encourage the risky behavior of the naked shorting and hedge fund/ Investment banks borrowing of shares? I agree that the NSCC could play a key role in regulating the SFT market activity, but why all the loopholes for: Novation on FTDs to assume the risk Limiting liquidation to “Net Positions” Allowing a “buy-in” to offer other equities of ‘equal’ value The underlying risk of the nearly $3T pool of SFTs could easily cascade into another market collapse on par with 2008. How on earth can the NSCC backstop this aggressive risk taking if the lending institutions won’t charge commensurate interest rates / while borrowers seem willing to flood the market with synthetic shares to suppress price? Why can’t these Investment Firms and Hedge Funds buy Puts or sell Calls on the open market if they truly believe that a company’s market price will fall? Why is NSCC and the SEC proposing to ‘transfer’ this considerable risk to the entities that did NOT contribute to the crisis? In short, who gets left holding the bag when stock prices inevitably swing? Taxpayers, Retail Investors, NSCC, Trading Platforms? We’re playing with fire here and not addressing the root cause. If the SEC won’t outright ban short selling (which retail investors aren’t able to do anyways) then we need more controls like the Uptick Rule, or Transparency of so called “Dark Pools”, and oversight of stock manipulation. à You know, like fines and jail time for shenanigans and greedy risk taking… not safety valves for the perpetrators. We’ve already seen the sizeable, short interest in the market balloon recently (Bill Gates has $500M in shorts against Tesla?!), and Hedge Funds are our next Bear Sterns & Lehman. I think this proposed rule change is evidence that the SEC is concerned about the growing risk. Please remember the general public, taxpayers, retirees, individual investors, employees and families that have no say in leveling the playing field for long term investors. Also, keep a track of those comments in favor of this rule change and where its coming from. NSCC would be at risk of becoming the next ‘bagholder’ of FTD contracts like AIG or Citibank back in the day of CDOs. Thank you for your consideration of these comments, Average Citizen, Worker, Taxpayer, Long Term Investor and father of two. Adam Sanchez