July 20, 2023
Dear SEC,
Im a foreign investor with my holdings in an American brokerage. File number S7-11-23 is a good step in the right direction but it leaves some room for improvements to make the rule requirements more simple and adaptable/flexible for the future.
Seperating the client assets/funds from the broker-deal should be done with an additional step of also seperating negative value investments, like shorting or swaps
- Positive securities/swap account
- Positive cash account
- Negative securities/swap account
This would give any institution or government agency a clear status of each of the broker-deal clients positive balance against their liabilities in a glance, without needing to resort to extensive accounting techniques.
Regarding the interval change from once per week to once per day is an improvement, but I sincerely advice making the required daily transfer of assets/swaps/funds to PAB accounts every next business day befor 1200 / 1300 EST, for the following reason:
- This would allow broker-dealers to settle the previous day transactions in the morning.
- Transfer the account holdings to their respectful PAB accounts at noon (1200 / 1300 EST).
- The main benefit is that it would disrupt any potential intra-day market disruptions with client assets or funds befor the client account has to be settled.
The time interval change should be implemented directly as these are automated systems that are already doing it currently and just need their operating timeframe changed to daily, preferably mid-day 1200 to 1300 EST for the mentioned reason of disrupting intra-day market disruptions.
The required reporting threshold should be changed from $250,000,000 and linked to FDIC+SIPC insurance coverage ($250,000 + $250,000), there are several reasons for this:
- Linking the threshold to FDIC+SIPC would allow reporting standards to be set dynamically without needing to amend any rules.
- Linking the threshold to FDIC+SIPC with a fixed modifier allows for amending the threshold in the future while still being linked to FDIC+SIPC insurance limits.
- This would allow broker-dealers to be regulated on a financial weight base with both their business performance and client performance teken into consideration.
When using this reporting threshold for any business dealing in securities, swaps or FOREX, it would be dynamically adjusted for financial risks that are outside of insurance coverage. The SEC wouldnt have to modify or amend reporting thresholds when risks arise. Instead FDIC or SIPC modify their insurance coverage.
When working with the CFTC to implement this FDIC+SIPC reporting threshold for securites, swaps and fiat currencies, it would allow for broader coverage to enforce rules and regulations from multiple enforcing agencies. Additionally it improves pooling of resources and cooperation of rule enforcements.
Any business or institution that wants to invest or operate in the financial system should be doing everything in their power to operate under the laws set in the past, current and future through increasing either man power, software updates or system upgrades.
It is crucial to emphasize that failure to implement stricter reporting regulations, as demonstrated by the recent Archegos Capital debacle, can lead to systemic failure. We cannot afford to ignore the lessons learned from such catastrophic events.
The proposed changes in s7-11-23 seek to address loopholes and vulnerabilities that enable high-risk practices and concealment of assets. Nobody interested in a fair market should oppose these changes and by doing that, for example some members of Congress are inadvertently allowing the continuation of practices that jeopardize the financial well-being of everyday investors.
I support your will for better regulations on security based swaps, and security loans, and stand firmly in support of transparent markets and the interests of household investors. The proposed reforms aim to level the playing field, reduce the potential for market manipulation, and ensure greater accountability for financial institutions.
Best regards,
Joerg Ette