Apr. 20, 2022
To whom it may concern:
I am writing to express my concerns over this proposed rule. It is my understanding that it has been written to prevent fire sales should a large institution face liquidation, but does nothing to address the scenarios that lead to the liquidation.
Further more the concept of SFT, as I understand it, allows for those with failure to deliver to temporarily substitute another security of 'equal value' or an 'equal value' of another security in place of the security that was a failure to deliver. However, it does not give a definite time when the FTD security MUST be provided. This reads like a potential bait and switch for retail investors. If retail is not allowed to know what it is actually purchasing or when it would arrive, it raises the concern over how to estimate the underlying value of any security. I am also concerned about who and how the SFT security is determined to be of equal value. I struggle to think of a situation where any investor would try to purchase a security such as APPL and be content to accept an equal dollar amount of BLIAQ until such time as the broker or market maker "got around to" filling the order for AAPL
Furthermore, allowing institutions to avoid buying securities at market value and instead provide SFT until such time as it is financially beneficial to them is high risk for allowing "pump & dump" scenarios allowing retail investor to buy high abut not deliver the security to retail until the price has fallen to a fraction of the purchased price, allowing brokers and market makers to pocketing the difference. This would lead to clear conflicts of interest in turn negatively affecting the faith in a "free and fair market". This would also lead It would also lead to price suppression by simply not purchasing the security and instead providing SFT until the company goes bankrupt and the security never needs to be purchased.
Time would be better spent in prosecuting those institutions that violate the rules meant to ensure a free and fair market and making the fines/punishment for breaking those rules sufficient to act as a deterrent for then behavior that would lead to the liquidation of large institutions. In closing the term "Too big to fail" is a concept that only breeds corruption. Rules changes like this are only going to prevent institutions from making responsible decisions as they will never face meaningful consequences of their actions.
Sincerely,
Joshua Stacy