Jun. 27, 2023
Dear Members of the Securities and Exchange Commission, I am writing to express my concerns and support regarding 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 in allowing derivative holders to vote on company business. Firstly, I am concerned about the impact of speculative voting. Allowing derivative holders to vote could incentivize short-term trading strategies that prioritize immediate gains over the company's long-term growth and stability. Secondly, the presence of conflicts of interest is a significant concern. Allowing derivative holders to vote could create conflicts of interest and potentially undermine the decision-making process. Furthermore, granting voting rights to derivative holders could dilute the influence of traditional shareholders and impact the ability of long-term shareholders to have a significant say in corporate decisions and governance. Another concern relates to the increased voting power that derivative holders could possess with relatively less capital. 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. Derivative holders may strategically accumulate options positions to maximize their voting influence without committing significant capital. This potential abuse of the system could compromise the trust and confidence of market participants. However, I also support aspects of the proposed rule, particularly regarding hedge funds with heavy short positions. Increased transparency would make it harder for hedge funds to conceal their short positions and activities. Timely reporting of short position changes would prevent prolonged hidden short positions and enhance market oversight. The use of structured data would enable better monitoring of ownership data and provide deeper insights into market dynamics. The rule would discourage coordinated actions to keep stock prices suppressed, thereby deterring market manipulation. Transparency and accountability would create a fairer market environment, leveling the playing field for all participants. In light of these concerns and supporting arguments, I urge the Securities and Exchange Commission to carefully consider the potential risks and unintended consequences associated with granting derivative holders voting rights while acknowledging the benefits of increased transparency and accountability. If this is not granting voting power/rights to owners of cash-settled derivatives, but rather designating certain cash-settled options as beneficial ownership to file beneficial ownership reports, then you can disregard some of my criticisms outlined earlier. That is fine. However, I believe this fact should be made more clear that the rule is not diluting traditional shareholders instead. This is not clear, and depending on the actual makeup of the rule, my stance changes. As it stands, I support a re-clarification of this portion of the rule, to avoid misinterpretation. If it’s the former and granting voting rights to these derivatives, then I am against it, if it’s just for reporting purposes, then I am FOR the rule as per my supporting arguments. Thank you for your commitment to the integrity and fairness of our financial markets. I hope the SEC will thoroughly evaluate all feedback received during the comment period and make informed decisions that promote the long-term sustainability and stability of our financial system. It is about time retail investors are on a level playing field with investment funds in terms of information and reporting. Thank you. Sincerely, Hussain Shahabuddin