Oct. 29, 2022
October 29, 2022 RE: S7-32-10 As an individual investor I welcome the opportunity to comment on this Proposed Rule. I fully support the SEC's efforts in this Proposed Rule including all aspects of: a) Prohibiting fraud, manipulation, and deception in connection with security-based swaps, b) Preventing undue influence over Chief Compliance Officers, and c) Position reporting of Large Security Based Swap Positions. If adopted, these rules would improve market transparency, close a number of critical loopholes being exploited by certain investors, and reduce systemic risk. They would achieve this by: 1) reducing the number of days investors have to disclose a 5 percent stake in a public company from 10 days to 5 days 2) requiring disclosure of derivative positions to ensure that they are not used to hide a stake in public company or a large position that could destabilize financial markets and 3) clarifying the circumstances under which two or more investors have formed a group, with a combined ownership stake would need to be disclosed if it exceeds 5 percent. Additionally, by limiting the ability of market participants (primarily activist hedge funds with short-term investing strategies) to abuse outdated reporting requirements, these rules will also benefit workers and retirement savers while preserving the ability of shareholders to engage with corporate management regarding environmental, social, and governance (ESG) matters, if they so choose. For these reasons, I support the proposed rules and encourage you to finalize them swiftly. It is crucial the SEC not only duly investigates attempts to violate or actual violations, but also sets deterrent penalties for violators of the proposed rule. SEC fines are ridiculously low compared to the financial power of most violators. As a result, current fines are merely a cost of doing business for large participants. It seems likely that the Proposed Rule will increase the cost and reporting burden of borrowing securities, regardless of the reason for taking the loan (e.g., to cover short sales, to close a fail-to-deliver, to access voting rights, etc.). An unintended consequence could be to tilt the brokers cost/benefit analysis in favor of fails to deliver. The subject proposed rule enables and perpetuates on-going systemic problems. Real reform for securities lending must include: (1) Notifying the public about who is borrowing and lending shares (not just which companys shares are being borrowed or lent). (2) Notifying retail investors with street name shares that their shares are being lent, (because (a) they don't get to vote and (b) they don't get tax-qualified dividends). SEC must adopt a more consistent interest in regulating, monitoring, and enforcing rules that require brokers to keep accurate records of ownership. (3) Sharing any revenue earned from lending shares held for retail investors with those retail investors. (4) Eliminating Onward Lending completely (public companies and transfer agents have opposed this for decades, even pointing to it as a source of phantom shares and over-voting in matters of corporate governance). (5) Requiring every loan to have a due date (not just if applicable). When securities loans without due dates are tolerated, the loan may be allowed to remain unsettled indefinitely. The Dodd-Frank Act directed the SEC to seek transparency for brokers, dealers, and investors. But the retail investor has been given short shrift with this Proposed Rule. The disclosure of lending inventory and near-real-time position reporting will only make it possible for broker-dealers to discriminate against companies who are already bearing an onslaught of phantom shares in capital markets It is the SEC commitment to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. Since the 2008 financial crisis, the SEC has failed in achieving this. Non-disclosed swaps allow over-leverage to stay hidden. Another global financial crisis is at our door. Some aspects of the markets lack an adequate regulatory framework. It is now time to do the right things for fair markets for everyone.