Aug. 20, 2023
Dear SEC, I am writing to support proposed rule S7-01-23 which would prohibit conflicts of interest for certain securitizations. Exemptions and loopholes in this proposed rule undermine the US financial system and securities markets and allow fraudulent and corrupt activities to go unchecked and unregulated. The exemption for risk-mitigating hedging activities gives market makers a blank check to commit fraud and rob the American people. This exemption allows hedge funds to engage in conflicted positions - taking positions that help themselves and harm the investing public in the name of hedging. This should NEVER be allowed, and represents an exploitable flaw in the proposed rules. The exemption for "bona fide market making" is similarly short-sided. It will allow securitizers to engage in the same kind of conflicted behavior in the name of "making a market". The lack of a market means that the owners of a security are unwilling to sell at a price that buyers are willing to pay. No more, no less. That's fine, if that's the true state of the market. During times of market duress (like now) the market becomes illiquid. But it's a false conclusion to say that liquidity will therefore solve the problems that created the illiquidity. It's the diseased regulatory framework around securities that is causing both. And putting market makers on a pedestal in the hopes that it will fix the framework is obviously counter-productive, because it makes the regulatory framework more exploitable and corrupt. The exception for certain liquidity commitments is bad policy. The motives to allow securitizers to make such commitments may be pure, but it will again be used as a loophole to create conflicted positions and allow hedge funds to deal against their customers. Thank you for your consideration, Nathan Barron, Concerned Investor