December 3, 2021
Transparency is only bad in changing rooms and bathroom stalls. Sounds like hyperbole but theres a glimmer of truth to it. If there is one thing the rise of cryptocurrency has shown is that trust is the worlds most valuable commodity seeing as crypto has risen primarily due to peoples lack of faith ins standing financial institutions. I have truly become a fan of the concept of a public ledger that many blockchain protocols have come to use. It is less scary to jump into a lake when you can clearly see the bottom. My rambling amount to this, market transparency is never bad. This move is a good one for the market but it needs a few finite details.
1. People deserve to know who is borrowing and lending shares, this info needs to be reported publicly with steep (and i mean really steep) fines for violating said rule. Dark corners only breed bad behavior in our markets and in my opinion the lack of clarity about who is borrowing and lending securities only benefits those who would benefit from a lack of clarity and in my opinion make your job of enforcement more difficult than it already is.
2. People are entitled to know when their shares are being loaned and who they are being loaned to. It can interfere with their rights to participate on corporate governance additionally these people need built in guarantees that they will share in the profit of loaned shares at a fixed minimum rate. Access to margin in no way acts as compensation for allowing shares to be shorted on its own. Additionally there are issues involved with the issuance of dividends particularly non-cash dividends that will likely be more common in the future. In my opinion giving cash as equivalent for a highly speculative asset is a bad faith move.
3. These loans must have a stone etched due date that can only be pushed back by compensating the lender at a generous fixed minimum rate or higher. Allowing shorts to roll over into a future date could have disastrous exponential effects on the future of a company by diluting their value. With the allowances for the dtcc and certain market makers to create their own shares for the sake of liquidity these phantom shares could float out of nearly endless amounts of time. There is also high risk for the same shares to be shorted repeatedly, which i have been told there is a new system upcoming to prevent that, but i am dubious about it actually working.