Jun. 27, 2023
Esteemed Members of the Securities and Exchange Commission, I am writing this letter to express my apprehensions regarding the proposed rule S7-06-22, which pertains to the granting of voting rights to derivative holders in publicly traded companies. While I recognize the potential advantages of inclusivity and representation, I firmly believe that significant risks accompany the allowance of derivative holders to participate in company decision-making. These risks include 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 affects me even though I am not a US citizen. However, I believe my concerns hold relevance on a broader scale. Firstly, I am concerned about the potential impact of speculative voting. Derivatives, such as options or futures contracts, are frequently utilized for short-term speculation rather than long-term investments. Permitting derivative holders to vote may encourage short-term trading strategies that prioritize immediate gains over the long-term growth and stability of the company. This, in turn, 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 possess conflicting interests when compared to traditional equity shareholders. For instance, they may hold short positions or have hedging strategies that contradict the objectives of the company. Granting derivative holders voting rights could give rise to 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, the extension of voting rights to derivative holders could dilute the influence of traditional shareholders who directly own 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. Preserving the balance of power and ensuring that all shareholders have fair and proportional representation in the decision-making process is of utmost importance. Another concern arises from the increased voting power that derivative holders could possess with relatively less capital. Derivative instruments, such as call options, enable investors to control a larger number of shares with a smaller capital outlay compared to direct stock ownership. This leverage could potentially allow derivative holders to amass significant voting power relative to their actual investment in the company. Such 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 within 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 substantial capital. Such potential abuse of the system could undermine the fairness and integrity of the voting process and erode the trust and confidence of market participants. Given these concerns, I urge the Securities and Exchange Commission to carefully evaluate the potential risks and unintended consequences associated with granting derivative holders voting rights. Striking a balance between inclusivity and the stability and long-term interests of publicly traded companies and their shareholders is essential. I genuinely appreciate the Commission's commitment to ensuring the integrity and fairness of the financial markets. Thank you for taking my concerns into consideration. I trust that the SEC will thoroughly assess all feedback received during the comment period and make well-informed decisions that promote the long-term sustainability and stability of our financial system. Sincerely, A Concerned Household Investor.