Oct. 30, 2022
October 30, 2022 To whom it may concern: Thank you for the opportunity to comment on these critical developing changes in our markets. I would like to first frame my comment by giving some background on myself, in regards to our markets. I am not a high profile investor. I am not a financial advisor, nor have I ever been affiliated with any professional financial institutions, beyond my engagement with the markets through brokerages and transfer agents. I am an average citizen who, along the way, realized it may behoove me to use more of my precious, hard-earned income for investing, rather than simply saving or spending it. I made this decision to better my own life, and by extension to seek to improve the lives of those I love. So it was after the recession in 2020 that I saw an opportunity to enter the markets, creating my first brokerage account with TD Ameritrade, and making my first apprehensive stock purchases in companies like $WORK, $NVDA, and $CURLF. I would slowly begin to learn about the terms and mechanisms that governed our markets, learning about technical indicators, paying attention to news stories, and learning how to analyze a company's fundamentals. Most of my investments appeared to be sound: some were in reputable companies expected to recover well from the pandemic recession in time. Others, I recognized as more risky moves (as in $CURLF), but I stayed on top of developments and tried to adjust my positions wisely. It wouldn't be long before, in my education, I learned about short selling, and the risks involved with it. While short selling was clearly not for me, I learned quickly that it was often the bread and butter of larger institutions, especially hedge funds and market makers. Then, almost under my nose and past my notice, a grave error was made by those hedge funds and market makers, in concert with brokerages: these entities removed the ability to purchase stock in several companies, for the readily evident reason that not doing so would cause extreme turmoil in the markets. This tumultuous potential was created by the irresponsible extreme greed enacted by the aforementioned entities by way of naked short selling. These entities created the conditions for extreme short squeezes in several stocks, and after the smoke had cleared in late January 2021, I was voracious to acquire more knowledge about what had happened, why it happened, and what recourse there was for retail investors going forward. I was not alone, and my appetite for understanding was dwarfed by that of my contemporaries. Average people like myself began dissecting and peer-reviewing all available data and theories, and over the following months, a bevvy of well-researched, peer-reviewed articles were authored. These articles, dubbed \"due diligence,\" have not abated indeed they have refined and expanded, catalogued by those among us and most often corroborated by professionals in finance, not the least of whom include Dr. Susanne Trimbath, David Lauer, and Wes Christian. Very much to our chagrin, the research discovered things already known to market makers and regulatory entities: through various privileged mechanisms, short interest, FTDs, and even price discovery can be and are currently being masked, manipulated, hidden, and outright misrepresented, to the benefit of those entities doing so. Many of these mechanisms have been elucidated through the due diligence of average retail investors, corroborated and reviewed by hundreds of thousands, if not millions of people. The findings are sound, and concerning. The research suggests that one of the most prevalent means by which reporting of short interest, FTDs, and shares on loan can be obfuscated is through the use of various swaps. Short exposure can be circumvented from reporting requirements by offloading such risk onto other parties in the swaps. Unfortunately, much of this information is not available to the public, disenfranchising the very body of investors for whom the markets are supposed to work, in their unadulterated form. Not only does this behavior mislead the public about the state of various companies and investment environments, but it presents an existential threat to our civilization. Let me not understate that: the ability of privileged entities to hide and obfuscate short and FTD data to the profit of those entities incentivizes more and more of this behavior, compounding risky bet upon risky bet, all unknown to the public this creates a ticking time bomb not unlike the bogus MBS bonds that came to a head in 2008. Eventually, all borrowed positions must close out, else be supported ever more with additional cash and collateral, which must come from somewhere, and ultimately comes down on the American people. This all incentivizes \"cellar boxing,\" wherein high-frequency trading hedge funds, banks, and market makers drive a company's stock to near-zero, eliminating the requirement to ever close out their short exposure. The outcomes are but two: either the predatory shorting unto destruction of companies, or the collapse of the sum of the over-leveraging, should the short bet not play out. The people deserve to be aware of these risky bets played with their own money, and the risks to their livelihoods. To curtail the evasion of such reporting through swaps and similar mechanisms, I urge the SEC and any other relevant regulatory authorities to enact the following, post-haste: 1. Maintain the definition of securities-based swaps as put forth in the proposed rule, so that funds and firms cannot evade reporting requirements by using different types of complex financial instruments. Security-Based Swap Position must include all security-based swaps based on the same underlying security or reference entity, regardless of whether they are debt (including CDS) or equity-based. The definition must be appropriately wide to minimize evasion. 2. The Commission should absolutely utilize its authority under Section 10B(d) of the Exchange Act to publicly release data. Fraud is widespread, and the resources of the SEC are limited. By allowing the People to see potentially dangerous swap activity, they will be better able to assess the investments they make and observe the dynamics of the market. A more level playing field is absolutely in the public interest, and the damage that can be done via swap activity (e.g., Archegos) necessitates that investors be equipped to defend themselves and the markets they use. 3. The reporting threshold should be lowered to $100 million / $200 million gross. While the rule prohibits things like spreading a large swap position out to evade the threshold, this will be done and the SEC may or may not be in a position to detect it. By providing the public with more data, and slightly lowering the threshold, more of this fraud may be detected. It is important that the rule be hardened against evasion (eg by multiple actors colluding to build a large position through separately acquiring smaller positions that evade reporting requirements). 4. It is critical to consider the entire swap portfolio in determining reporting requirements, rather than just parts of it. The Commission should follow the precedent in Rule 13h-1, which identifies large traders using the traders entire position in all NMS securities. The overall picture of a traders appetite for excessive risk can only be formed by looking at their total swap position. Allowing large traders to take on excessive risk via swaps in many different individual securities while avoiding reporting requirements is against the spirit of the rule, and goes against the Commissions prior rulemaking. 5. I strongly urge the Commission to support international application of this rule. I would again like to thank the SEC for the opportunity to advocate for myself as an investor, as well as for the benefit of every American. I urge the Commission to enact this rule as soon as possible, and I hope to see more rules such as this in the near future, to create transparency and encourage public disclosure of information critical to diligent investing. Sincerely, James R Letourneux Senior Manufacturing Associate, Sanofi