Oct. 31, 2022
October 31, 2022 I would like to express my support for the proposed rule changes regarding S7-32-10 and the dire need for increased transparency related to security based swaps. I am gravely concerned that security based swaps are being used to hide large short positions and subvert rules related to shorting of securities. The proposed rules are a necessary starting point to address the legal loopholes that allow these large hidden short positions to exist and threaten our national security and finances. To illustrate the danger of hidden swaps lets look at Archegos. A family fund with significantly over leveraged short exposure via swap positions led to global market turmoil as their positions imploded and became publicly known. The fallout of this one family fund going insolvent had a major impact on their backing financial institutions (including Credit Suisse) and as a result has threatened the solvency of major international banks. Archegos represents only one family fund, presumably the number of family funds, hedge funds, and institutions with similar exposure is quite significant and the risk for global market disruption likely is as well. The risk of hidden shorts can not be overstated. Throughout history market depressions have been caused and exacerbated by short sellers assuming inappropriately large short positions - in fact it was as a result of these risks that the Frank-Dodd act was passed. Of note, the theoretical risk of short selling is infinite whereas the potential profit is limited. By allowing firms to operate in darkness we knowingly enable them to take on this infinite risk with the assumption that their risk departments will prevent them from putting the company (and global market at risk). When the positions of these firms eventually come to light and the damage becomes clear the mantra becomes, too big to fail and their positions are paid for by the tax paying public - a bailout. As a tax paying, law abiding citizen I wont stand for it. I am stating as loudly and clearly as possible that we need these proposed rules as a minimum, and honestly need even more strict reporting requirements. To help mitigate the risks associated with hidden short positions through security based swaps we need significantly improved disclosure of these positions. I suggest looking at whole swap portfolios rather than parts while determining reporting requirements (following the precedents set forth in Rule 13h-1). By taking this more holistic approach we have a better understanding of the true risk versus looking at only specific parts. It should also be said that these should be PUBLIC disclosures to ensure true transparency. I do not want my tax money used to bail out bad actors who purposefully hide their crimes as they harm American investors and companies for their private profit. It happened in the last financial crisis and it can not happen again. We need transparency and we need to let them fail when they take on too much risk, that is a free market. While I support the proposed rules, what would be even better would be to lower the threshold for reporting swap positions to a 100million gross requirement. This could help prevent hiding of swap based activities by institutions spreading out the swaps (to stay below the reporting requirement threshold). I support the Commission's proposed definition of security based swaps and encourage the SEC to maintain a broad definition of it (e.g. ETFs must be included in the reporting of security based swaps positions because they can be used to synthetically short securities and circumvent reporting regulations). This can help to prevent other loopholes from being used to continue hiding (evading reporting by an overly specific technical definition of security based swaps) these dangerous positions. I believe the SEC should use its authority (section 10B(d) to disclose to the public the reported swap based positions. As previously mentioned, throughout history we have seen these hidden positions cause global instability in the markets. I understand there are limitations to the SECs ability to monitor for fraud, and unfortunately fraud appears to be widespread throughout the market. By publicly reporting the swap positions the public can help monitor for abuses / fraud and prevent market disruptive events from occurring (thereby allowing retail investors to help protect themselves). I also support the Commissions recommendation for daily based swaps reporting or better yet even more frequent reporting requirements. Unfortunately, aggregated data can still be used to hide risky positions. By requiring even more frequent reporting of swap based positions we can help to mitigate some of the risk (versus less frequent reporting - such as monthly - which allows for more time to obfuscate the positions). Reporting should be AT LEAST DAILY, and it should honestly be way more frequent. As a retail investor I am asking the SEC to help protect us, or at least provide us with the information so we can help protect ourselves. Please note that these rules should apply both to American companies as well as international companies. Again, my concern is that if the rules only apply to American companies then the rules will be circumvented by moving the positions to international companies without the reporting requirements. I am an American tax paying citizen. I am a long term investor in companies and these bad characters with hidden short positions hurt average people such as myself in addition to the companies they short. They can cause international economic instability and they malignantly destroy companies for their own profit. I am encouraged by the rule proposals and I hope that the Commission passes more such rules in the future. Hopefully we can increase the transparency within the market and make it safe for all investors. Hopefully we can improve the American stock market back to a point where investors have confidence in its legitimacy and safety. Thank you