July 12, 2014
Release No. 34-67177; File No. S7-05-12
STATEMENT OF GENERAL POLICY ON THE SEQUENCING OF THE COMPLIANCE DATES FOR FINAL RULES APPLICABLE TO SECURITY-BASED SWAPS ADOPTED PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934 AND THE DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT
page 4, footnote 10
10 See section 3C(a)(1) of the Exchange Act, 15 U.S.C. 78c-3(a)(1). See also Process for Submissions for
Review of Security-Based Swaps for Mandatory Clearing and Notice Filing Requirements for Clearing Agencies;
Technical Amendments to Rule 19b-4 and Form 19b-4 Applicable to All Self-Regulatory Organizations, Release
No. 34-63557 (Dec. 15, 2010), 75 FR 82490 (Dec. 30, 2010) (“Clearing Procedures Proposing Release”).
under no circumstances should security trades be placed in swaps that have been shortsold and not bought in.
shortselling should adhere to market deadlines. while i am against shortselling in general, the SEC seems to
allow shortselling trades to execute despite:
1) impaired title passing at the time of the trade
2) increase in the shares of stock allowed to be traded, however temporarily
3) selling a share that was not previously owned but only imagined by the seller. selling an imaginary
shares tends to decrease price in the supply and demand curve of the symbol.
4) the trade depends on deceiving the buyer as to the character of the purchase, since the buyer is buying an
IOU and not a share of stock. the buyer never consents to this substitution and is, many times, not aware
that they did not buy a share of stock.
5) the substitution of an IOU for a trade of shares creates a conflict of interest on the part of the buying
broker, since they receive benefit from accepting the IOU rather than a share of stock. this action
conflicts with their duty to their customer who thought they purchased a share of stock.
further, there should be no charge for extended the market deadline for buying in the shortselling because it authorizes brokers to pay the charge rather than buy in. a buy in should be mandatory within market deadlines.
swaps establish a deadline for clearing and this would extend the mandatory deadline for clearing shortselling transactions. therefore, shortselling should be prohibited from being included in any swap.
footnote 16 should also include these ideas.
page 7
i note that margin must be updated frequently within a specified time period because such swaps affect the underlying equity and/or indices. i think the frequency needs to be specified. you must also bear in mind that clearinghouses are on both sides of a swap and therefore they need sufficient capital to be able to clear swaps during a period of economic stress. while brokers and banks wish to minimize margin requirements, the regulators need to be aware that clearinghouses require sufficient capital to be able to operate. this also means that clearinghouses should not be an appendage of an existing financial business but should be required to maintain capital and resources dedicated to their purpose.
it would be important for the regulator, and each clearinghouse, to establish a plan for the bankruptcy of the clearinghouse. as such, it would be important to have a catalog easily available for all contracts that have been accepted.
page 14
the timeline for implementation is too gentle. i would urge the SEC to adopt deadlines sooner. while i understand the industry's need to have time to put systems in place, the implementation deadlines are too generous, in my opinion. the financial industry has had a long time period to contemplate all of these regulations and should be somewhat prepared to adopt operational procedures. i think the financial industry has sought to delay implementation of regulations unwisely, as it is guaranteed that regulation must be adopted to address the "innovation" from the financial industry. it is foolhardy to believe that no regulation is necessary, important or desirable.
page 27
i think the regulators should publish some criteria for fines/punishment. i have been frustrated with the regulators because the penalties have been very light for some time and this has not alleviated bad conduct. worse, some of the actions that have been taken by actors in the financial market appear to be fraudulent or criminal in nature. in order for the financial industry to win back the trust of the community, they need to begin working with regulators instead of deceiving investors and regulators or withholding information.
page 37
mandatory clearing. i believe this section should begin occurring upon finalization for all new swaps and older contracts should have the later clearing date.
page 43
i think the deadlines proposed are too generous.
generally, i continue to believe that the categorization of proposed SEC rules makes finding applicable rules difficult. perhaps a table of contents organized by deadlines with links to the appropriate rule and comment solicitation would be a better idea. categorizing rule proposals by SRO entity definitely does not work well, especially since the SRO exchanges tend to submit similar rules for similar products - and in this way regulators can ignore the market structure issues and just decide narrowly on that particular rule.
suzanne hamlet shatto
investor
mountlake terrace, WA