Jun. 26, 2023
Dear SEC, As a retail investor, I appreciate the opportunity to comment on S7-06-22, "Modernization of Beneficial Ownership Reporting." I believe an extension of the comment period would be beneficial, considering the complexity of the proposal and the need for increased public review. Retail investors like myself may not have the same familiarity as financial industry insiders, so more time for review would be appreciated. I support the proposed amendments to revise filing deadlines, as technological advancements have improved information dissemination. Shorter deadlines can enhance disclosures, reduce delays, and minimize information asymmetries that can harm investors. Timely and adequate disclosure of material information, including significant equity ownership, benefits the public and all market participants. However, I am against the proposed amendments to Rule 13d-3 regarding the use of cash-settled derivative securities, particularly the addition of new paragraph (e). While the proposal aims to address situations where holders of derivative securities may have undue influence, it risks allowing derivatives holders to be deemed as beneficial owners, potentially granting them voting rights. This could lead to unintended consequences, with derivatives holders influencing the market without actually owning the underlying securities. Dr. Susanne Trimbath has raised concerns about this potential outcome, which the SEC should consider before adopting the proposed amendments. Cash-settled derivatives often result in cash payments instead of physical delivery of securities. There is no guarantee that rights to acquire the underlying securities will be exercised. Therefore, deeming certain derivatives holders as beneficial owners, without directly conveying voting rights or the power to dispose of the underlying security, risks diluting shareholder rights and further complicating the voting process. Derivatives holders should not be considered beneficial owners unless their derivatives explicitly convey voting rights or the power to dispose of the underlying security. Ownership rights should be obtained through owning the security itself. I am also against the proposed amendment to Rule 13d-3(e) regarding the determination of the number of equity securities deemed to be beneficially owned by holders of cash-settled derivative securities. The proposal suggests that only long positions should be counted, explicitly excluding short positions. This creates an advantage for more sophisticated market participants who can engage in fully hedged long and short cash-settled derivative positions, effectively neutralizing their positions while being deemed as beneficial owners. Retail investors, like myself, would be disadvantaged by this rule amendment. Netting long positions against short positions should be considered to avoid granting undue influence to derivatives holders. Again, derivatives holders should only be deemed beneficial owners if their derivatives directly convey voting rights or the power to dispose of the underlying security. Moreover, I am against deeming holders of certain cash-settled derivative securities as beneficial owners, as proposed in Rule 13d-3. Instead, I support separate reporting and public disclosure of significant derivatives positions, both long and short, by market participants. This would enhance transparency and allow counterparties to make informed risk management decisions. Conferring beneficial ownership rights to derivatives holders, without the direct ownership of the underlying securities, is unnecessary and can lead to unintended consequences. Transparency through reporting and disclosure is sufficient without granting additional rights to derivatives holders. It is crucial to prioritize reporting and making information publicly available, especially concerning potential defaults and their impact on counterparties, issuers, markets, and other market participants. Providing greater transparency to influence risk management decisions is essential. Granting beneficial ownership rights to derivatives holders only complicates matters. Lastly, while this comment letter may not address all elements of the proposed rule, it does not imply support or opposition to those elements. An extension of the comment period would have allowed for a more comprehensive review. However, if an extension is not possible, I believe it is in the public's interest to reject this rule proposal due to the significant risks and downsides associated with amending Rule