Oct. 31, 2022
October 31, 2022 I thank you for this opportunity to offer comments and suggestions regarding the Proposed Rule under file no. S7-32-10: Prohibition Against Fraud, Manipulation, or Deception in Connection with Security-Based Swaps Prohibition against Undue Influence over Chief Compliance Officers Position Reporting of Large Security-Based Swap Position. I strongly agree with the Commission's granted rulemaking authority pursuant to Section 9(j) of the Exchange Act in the re-proposed Rule 9j-1 and its general antifraud, anti-manipulation provisions. Such prophylactic provisions will help in providing the Commission the ability to respond through enforcement mechanisms to fraudulent, deceptive, or manipulative misconduct interfering with the proper functioning of the market and ensure its integrity. However, one provision included in the re-proposed Rule 9j-1 gives rise to concern. Re-proposed Rule 9j-1(f)(1) would preclude liability to a person for performing binding contractual rights and obligations under a security-based swap on the basis that they came into possession of material non-public information prior to those actions. Being unaware of the possession of material non-public information should not protect, through this safe harbor, a person from being liable for their actions. Performances of completely non-volitional, contractual requirements, of a contract that was entered into, and allowing a person to demonstrate that they had no prior knowledge of possession of material non-public information does not indicate or provide proof whatsoever that it was performed without fraudulent, deceptive, or manipulative intent. Re-proposed Rule 9j-1(f) is arguably unnecessary. This provision should be entirely revised and repurposed to be consistent with re-proposed Rule 9j-1(a)(3) to not shield a person from liability by extending to a person that is at least negligent, e.g. when a person possesses knowledge or reasonably should possess the knowledge to not take actions based on material non-public information, and thereby becoming liable. Giving a blanket safe harbor for those seeking insulation from liability would facilitate and immunize fraud or manipulation by way of deliberate use of recently acquired material non-public information, and will potentially lead to exemption abuse. Moreover, this provision is not consistent with the prohibition of antifraud and anti-manipulation provisions. The outcome and consequences of a person's actions do not change whether they had prior knowledge or not. Simply said, the damage was done and the individual causing it should be liable for their actions and not safeguarded. Instead, what should be discussed is whether re-proposed Rule 9j-1(f) should be consistent with re-proposed Rules 9j-1(a)(1) and (2) in requiring scienter or the non-requirement of scienter of re-proposed Rules 9j-1(a)(3) and (4) but extended to negligence. By excluding certain security-based swaps transactions from the prohibition against fraud and manipulation through re-proposed Rule 9j-1(f), a person will be allowed to circumvent the liability of their negligence, or their fraudulent, deceptive, or manipulative conduct or intent, and the consequences of their actions. In regard to re-proposed Rules 9j-1(a)(3) and (4), I heavily agree with the non-requirement of scienter, being consistent with Sections 17(a)(2) and (a)(3) of the Securities Act. It would broadly cover any person engaging in fraudulent, deceptive, or manipulative acts, and not become a limiting factor in holding a person accountable. Furthermore, the inclusion of attempted conduct in the re-proposed Rule 9j-1(a) is welcomed and will purposefully serve as an additional deterrence and enforcement measure in protecting the security-based swap market from defraudation or manipulation. Likewise, the Commission must have oversight in the lifespan of security-based swap transactions, enact rules allowing the enforcement of such legislation, and ensure the compliance of SBS Entities to fully encompass the nature of the security-based swap market to preserve its integrity. I, indeed, support the Commission's wording of re-proposed Rule 9j-1(a) in applying to actions to exercise or any actions related to performance pursuant to any security-based swap, along with the structural change outlined and specified in paragraphs (1) through (4) of the re-proposed rule. The Commission must finalize the Proposal with proposed Rule 15Fh-4(c). Chief Compliance Officers perform a critical function against illicit activities at an SBSD or MSBSP. Preventing fraud and manipulation by SBS Entities and their personnel are tasks that may threaten the business of a for-profit company. Empowering CCO in their critical duties will help in preventing illegal conduct. More importantly, CCO must be protected to ensure the effectiveness of internal compliance by prohibiting interference with their obligations. The proposed Rule 15Fh-4(c) is wholly adequate as put forth, vital, and a necessity in preventing undue influence over CCO. Regulation SBSR requires real-time public reporting to SBSDRs and public dissemination of security-based swaps information. This information, denoted by the Commission, includes security-based swaps transaction data, but without position data. The Commission possesses the regulatory authority pursuant to Section 10B of the Exchange Act to require the public reporting of security-based swaps positions as well as its public dissemination akin to 17 CFR 242.902 (\"Rule 902\") pursuant to Regulation SBSR. Some have argued the Commission's lack of authority or brought position limits pursuant to Section 763(h) of the Dodd-Frank Act as an argument against the absence of regulatory authority and the disclosure of security-based swap positions while being completely oblivious to the actual facts. Section 763(h) of the Dodd-Frank Act, entitled \"Position limits and position accountability for security-based swaps and large trader reporting\" added Section 10B to the Exchange Act. Despite the apparent misdirection of the commenter and fundamentally incorrect opinion, the Commission possesses the rulemaking authority to require reporting of large security-based swap positions: \" under this section to report such information as the Commission may prescribe regarding any position or positions in any security-based swaps \" pursuant to Section 10B(d). Similarly, they argued that the Commission has not provided persuasive evidence in the necessity of public disclosure of position information, yet used certain Commissioner's concurring statements and citations to oppose the Proposal while mentioning that statements of individual Commissioners not included in the Proposal do not represent the view of the Commission itself. Notwithstanding their opposition, with the goal of increasing transparency, oversight, and enforcement in the security-based swap market in which I am a major proponent, feel compelled to bring a recent and notorious case. Notably, the Archegos case. Specifically, document no.38 of the case: United States v. Sung Kook (Bill) HWANG, et al. (1:22-cr-00240-AKH), District Court, Southern District. New York. In Indictment 52, Paragraphs 52(a) through 52(c) allege several misrepresentations of Archegos's concentration of their portfolio and false claims to representatives of Credit Suisse, UBS, Mitsubishi UFJ Financial Group, Goldman Sachs, Nomura, Deutsche Bank, Macquarie, BMO, and Mizuho. Several counterparties were affected due to material misrepresentation, causing billions of dollars in losses for its dealer counterparties, and could still present additional liabilities. With public disclosure under Proposed Rule 10B-1, such information could have alerted market participants, including counterparties, issuers of securities, and their security holders, and prevented any potential harmful consequences given their ability to take appropriate action. One commenter mentioned that Archegos's dealer counterparties\"already\"had \"access to non-public information from Archegos that revealed that Archegos had concentrated exposure to the same single-name positions aggregated across the Street.\" and that Archegos's counterparties failed to act on that information and properly risk manage their exposure. This statement strictly shares a narrowed perspective through the lens of involved parties: Archegos and its dealer counterparties. Hence, it does not take, unsurprisingly, the investors or the public into account and the harm it caused to them, or the simple fact that they are not on the same level of playing field. Investors have been left in the dark due to the lack of public disclosures and transparency and they need to be able to assess risks concealed behind non-public information. The nonexistence of preventive measures against hidden risks that are outside the control of investors and the public has clearly spelled trouble in the past. Notably, anyone can recall the financial crisis of 2007-2008. How can the public act and properly risk manage their investments under such circumstances? Being subjected to these systematic risks without any recourse because of the greed and recklessness of financial institutions has shown that investor protection must be enhanced through publi c disclosures and transparency. Needless to say, this case demonstrates the significant risks it poses, the losses it caused to market participants and investors, the disruption and heightened distrust of the market integrity amongst the public, and ultimately the significance of public disclosures and transparency. Enacting proposed Rule 10B-1 will empower the Commission in the oversight of unsupervised positions in security-based swaps, allow the evaluation of potential risks within the security-based swap market, and provide a clearer overview to market participants and investors, and thereupon should obviate potential harmful consequences. The Archegos case provides ample evidence based on logic and facts, not \"sheer speculation\