Jun. 25, 2023
Dear Commissioners I am writing to express my deep concerns regarding the proposed SEC rule, S7-06-22, which aims to grant derivative holders the same voting rights as shareholders. While the objective of fostering inclusivity and equitable participation in corporate decision-making is commendable, I believe that implementing this rule would have several negative consequences for the stability and integrity of the financial markets. Allow me to outline my concerns: Misaligned Interests: Granting voting rights to derivative holders would create a misalignment of interests between shareholders and these derivative investors. Shareholders bear the direct risks and rewards of their investments, and therefore should retain exclusive voting privileges. Allowing derivative holders to vote on matters that may not directly impact their economic stake could lead to conflicting objectives and hinder sound corporate governance. Dilution of Shareholder Influence: By extending voting rights to derivative holders, the influence of traditional shareholders could be diluted. This dilution may undermine the principles of democratic decision-making, as derivative holders might have short-term objectives or speculative interests that do not align with long-term shareholder value creation. It is crucial to protect the rights and interests of genuine shareholders who have a vested interest in the company's long-term success. Complexity and Administrative Burden: The proposed rule would introduce significant complexity and administrative burdens for companies and their investors. Determining the voting rights and priorities of various derivative holders, tracking their positions, and ensuring accurate and timely voting procedures would be challenging and resource-intensive. This additional burden could divert attention and resources from core business activities, hindering corporate growth and efficiency. Potential for Market Manipulation: Allowing derivative holders to vote on matters that impact the underlying securities could open the door to market manipulation and abuse. Derivatives, by nature, are highly leveraged instruments and can be utilized for speculative purposes. Enabling derivative holders to influence corporate decisions may lead to strategic voting or coordinated actions that exploit market vulnerabilities and disrupt fair and transparent market dynamics. Investor Confusion and Lack of Accountability: Extending voting rights to derivative holders could create confusion among retail investors who are not well-versed in the complexities of derivative instruments. This confusion may erode trust and confidence in the markets, as investors may struggle to understand the true ownership structure and decision-making processes within companies. Furthermore, holding derivative holders accountable for their voting decisions becomes challenging, as their economic interests may not be aligned with long-term value creation. Considering these concerns, I strongly urge the SEC to reconsider the proposed rule that would grant derivative holders the same voting rights as shareholders. While inclusivity and engagement are important principles, it is crucial to maintain the integrity, stability, and transparency of the financial markets. Instead, I encourage the SEC to explore alternative means to enhance shareholder engagement and promote responsible corporate governance. Thank you for considering my perspective on this matter. I trust that you will carefully evaluate the potential implications of this proposed rule and make a decision that upholds the best interests of the investors and the markets as a whole. Sincerely, Andrew Beck