April 15, 2010
As proposed, the large-trader reporting system violates the fourth and fifth amendments of the U.S. Constitution.
First, for firms meeting the arbitrary thresholds proposed by the Commission, the rule conditions participation in national securities markets on a priori surrender of fourth amendment rights of persons to be secure against unreasonable searches and seizures. Order and trade data is proprietary and valuable - in short, it is property. Absent a valid search warrant based on probable cause and supported by oath or affirmation as required by law, the Commission has no more authority under the law to obtain and search such property than any other agency of government would have to search a person's home or other property without a warrant. Neither has the Commission posited any exigent circumstances that would justify a warrantless search or seizure. Surely if such exigent circumstances existed, the Commission would say so, and they would not implicate simultaneously the hundreds or thousands of persons or firms whose rights would be summarily abrogated by this proposal, each of whom is entitled to a presumption of innocence under the law. This rule would constitute a criminal fishing expedition by government agents.
Second, the rule amounts to a taking of private property for public use without just compensation, in contravention of the fifth amendment. If the Commission requires additional market data in order to fulfill its lawful mission, then it must purchase that data from willing sellers on the open market. In effect, this rule would deny persons or firms access to national securities markets unless they agree to a taking by government agents. The proposal is tantamount to a government agent telling the owner of beachfront property, "We want to use your land for a naval shipyard, without actually purchasing or leasing it from you. You will not be able to use any facility owned or regulated by the government unless and until you comply with our demand."
This proposal is unconstitutional and an affront to free people and markets. It will enable Commission employees to reverse-engineer valuable, proprietary trading algorithms, which they can then employ for their own profit. I respectfully encourage the Commission to withdraw it. I strongly encourage all market participants to oppose and refuse to cooperate with it.