April 20, 2022
I am disappointed this rule is being proposed, given it totally and utterly disadvantages certain parties invested in the US Stock Market, and gives significant advantage to others.
It's clear the proposal would allow the avoidance of proper price discovery on shorted, excessively shorted, and abusively (naked) shorted securities. Onward lending is something which basically allows a party short on a security to escape the position in lieu of another, essentially removing much of the risk of being short on a stock anyway. If you are a fund/party/market maker short on a security, and if you genuinely speculate that the value of the security is going to decline, then you should be aware of, and accept the risk that may not be the case and you may lose on that trade. NOT get a 'get-out-of-jail-free' card to continue this behaviour. Also, what about the leverage being given by prime brokers - does this carry over like-for-like to new/onward positions? Overall this is just another way for short entities to move around their positions when they go wrong.
If we assume shorting exists where there is no location of the shares to borrow and sell (naked - it does exist), and a mountain of FTDs accumulating constantly due to this practice, then this proposal removes the infinite risk of naked shorting entirely. We have seen many companies vanish from our malls, shopping parades and online because of aggressive and abusive shorting, including companies with novel medical/pharmaceutical treatments that could save lives. By approving this proposal we are essentially paving the way for this to continue, if not worsen.
It's frustrating to see rules being proposed that basically allow certain parties to continue with risky, speculative trades and ridiculous amounts of leverage. Not only that, but could it be that the rule is being proposed BECAUSE there is so much risky speculation, overleveraging and abusive shorting? If you knew the rules and you backed yourself into positions that now cannot turn out well, then you should face the consequences of that and not be bailed out by a changing of the rules.