Jun. 25, 2023
Tobias Dehncke Muzenplaats 107 Nijmegen, Gelderland, 6525JB The Netherlands June 25, 2023 Dear Members of the Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule S7-06-22, which pertains to granting voting rights to derivative holders in publicly traded companies. While I understand the potential benefits of inclusivity and representation, I believe there are significant risks associated with allowing derivative holders to vote on company business, particularly in relation to speculative voting, conflicts of interest, dilution of voting power, increased voting power with less capital, and the potential for abuse. As an investor in US capital markets, this rule also applies to me even though I am not a US citizen myself, however, my concerns are valid in a broader scope. Firstly, I am concerned about the impact of speculative voting. Derivatives, such as options or futures contracts, are often used for short-term speculative purposes rather than long-term investments. Allowing derivative holders to vote could incentivize short-term trading strategies that prioritize immediate gains over the company's long-term growth and stability. This could undermine the company's ability to make informed decisions that align with its long-term interests and the interests of its shareholders. Secondly, the presence of conflicts of interest is a significant concern. Derivative holders may have conflicting interests compared to traditional equity shareholders. For example, they may hold short positions or have hedging strategies that oppose the company's objectives. Allowing derivative holders to vote could create conflicts of interest and potentially undermine the decision-making process. It is crucial to ensure that the voting rights of derivative holders do not compromise the fiduciary duty of the company and its management to act in the best interests of all shareholders. Furthermore, granting voting rights to derivative holders could dilute the influence of traditional shareholders who have direct ownership of the company's stock. This dilution of voting power may impact the ability of long-term shareholders to have a significant say in corporate decisions and governance. It is important to preserve the balance of power and ensure that all shareholders have a fair and proportional representation in the decision-making process. Another concern relates to the increased voting power that derivative holders could possess with relatively less capital. Derivative instruments, such as call options, allow investors to control a larger number of shares with a smaller capital outlay compared to direct stock ownership. This leverage could potentially enable derivative holders to amass a significant amount of voting power relative to their actual investment in the company. This concentration of power could skew decision-making processes and potentially undermine the interests of other shareholders. Lastly, I am worried about the potential for abuse in the system. The leveraging of options' voting power, coupled with reduced risk, could create opportunities for manipulation or strategic voting strategies. Derivative holders may strategically accumulate options positions to maximize their voting influence without committing significant capital. This potential abuse of the system could undermine the fairness and integrity of the voting process and compromise the trust and confidence of market participants. In light of these concerns, I urge the Securities and Exchange Commission to carefully consider the potential risks and unintended consequences associated with granting derivative holders voting rights. It is essential to strike a balance between inclusivity and the stability and long-term interests of publicly traded companies and their shareholders. I appreciate the Commission's commitment to ensuring the integrity and fairness of the financial markets. Thank you for considering my concerns on this matter. I trust that the SEC will carefully evaluate all feedback received during the comment period and make informed decisions that promote the long-term sustainability and stability of our financial system. Sincerely, Tobias Dehncke