Oct. 10, 2022
October 10, 2022
Dear Secretary Countryman:
I am writing in strong support of rule 10c-1, Reporting of Securities Loans.
I strongly believe that transaction-by-transaction reporting is absolutely essential to the function of a free and fair market. In this day and age of technology, it is not only reasonably simple to implement, but it is essential for the transparency that is desperately needed to avoid continued crimes and violations that plague our market. Every large actor in the market either consciously or otherwise regularly commits large scale violations of law, and is allowed to hide exponentially more violations due to reporting requirements and aggregation. Advanced algorithms and high frequency trading allow many large actors to manipulate and distort both the market and their own positions as long as everything seems to balance out at the end of the reporting period. This is used as a way to make profits off the back of legitimate investors and retail, and is embarrassingly easy when we have access to so much technology in this day.
The cost and effort of implementing a 15 minute requirement are easily justifiable when preventing mass scale fraud and loopholes. The sheer amount of money that most SEC and FINRA violations are over is staggering, and the collection of fines as punishment is rarely successful, and very expensive. Working families are regularly victimized by financial predators that are allowed to pay fines as a cost of doing business, with next to no oversight due to extremely lax reporting requirements.
The same, if not more so, is true for companies that are attacked by these predators. The lack of true price discovery and naked short selling are allowed to destroy companies small and large, and harms competition, the economy, productivity, and advancement of society. Short sellers are not investors and do not contribute real assets to the world, and so they should not be given preferential treatment and lax requirements to be allowed to target any entity they want. Short sellers may be afraid of squeezes when their strategy is revealed, however forsaking transparency for this is absolutely unacceptable. Not only that, but general volatility and short squeezes will be less common, and the appetite for dangerous and systemic risk will be lower thus benefiting all investors and the market as a whole.
This increased transparency and stability helps retail understand and be willing to invest in the market. This helps everyone grow, and instills confidence in the US as an economic superpower. It also helps to avoid regular periods of economic turmoil and distress consistently caused by the abuse of the rules by large players. This cost is nearly unmeasurable in its negative effects and monetary drain on our society. The lack of confidence and accountability that the markets have are solely due to the lack of accountability of huge players, and fixing this will bring more people into the market by instilling confidence that their tangible investments are actually going to benefit the underlying companies as well as themselves.
Not only will all this accountability and confidence help the markets, but having more eyes on every transaction will benefit the regulatory bodies as well. This age is seeing massive increases in concerned investors putting in more research than ever before. This means more people serving as watchdogs than ever before in history, and having the paper trail to back it up makes the job of regulators such as the SEC much easier and less costly. The risks and issues we face today are almost entirely due to untracked and massive lending chains, and there MUST be more transparency to combat it. We are staring down the worst economic downturn in history, and it is nearly completely due reckless risk appetite and lack of oversight and transparency in Wall Street.
This behavior must be curbed in the name of retail investors, the market, regulators, as the economic stability of the country as a whole. To use the SEC's own words: the Commission, in proposed rule 13f-2, explicitly noted its awareness of the myriad ways in which short selling can be used to abuse individual investors and working families. In proposed rule 13f-2, the Commission said it is ...mindful of concerns that certain short selling activity can be carried out pursuant to potentially abusive or manipulative schemes. For instance, market manipulators may seek to spread false information about an issuer whose stock they sold short in order to profit from a resulting decline in the stocks price. The Commission has previously noted various other forms of manipulation that can be advanced by short sellers to illegally manipulate stock prices, such as bear raids.
This is but one way that lack of transparency and oversight harms all of us. Please do not allow the ones benefiting from the making of unfair and unethical rules to influence the opinion of the SEC. They must be held accountable for all of our sakes, as well as for the good of the SEC itself.
Sincerely,
A Concerned Investor