Subject: S7-32-10: Webform Comments from Aswin Joy
From: Aswin Joy
Affiliation: Retail / Individual Investor

Jul. 30, 2023

S7-32-10

Dear SEC / Other market participants,

Thank you for considering public opinion.

I would like to clearly state that I wholeheartedly support the rule
proposal ‘Position Reporting of Large Security-Based Swap Positions;
Prohibition Against Fraud, Manipulation, or Deception in Connection
with Security-Based Swaps; Prohibition against Undue Influence over
Chief Compliance Officers’ (S7-32-10) and hope that my comments can
provide evidence that the general investing public are extremely
supportive of further regulatory action by the SEC. 

As noted by the SEC this rule was originally proposed in 2010 on the
background of the then recent 2008 Global Financial Crisis (GFC),
directly influenced by a poorly regulated Securities swaps market. Now
13 YEARS later the proposed rule has reached the final rulemaking
stage. This rule has had more than sufficient time for public
comment/scrutiny and needs to be implemented NOW! 
I hope the SEC will not further delay this crucial rule and will
heavily consider the value of reopening comments after prolonged
periods of time rather than implementing an imperfect rule and
adjusting as required. Inaction has consequences as much as poorly
actioned rules and the further these rules are delayed, the greater
the very risks the SEC are trying to prevent grow within the system.
History has shown consistently that asking the industry to
self-regulate against their own interests has led to disastrous
outcomes and is not a sufficient substitute for an independent
regulatory body. I believe the SEC needs to be more active in their
enforcement and this rule provides the tools to both enforce against
fraud, manipulation and deception in the SBS market and more
importantly prevent these events from occurring prior to any
irreversible harm to investors/market participants.

As this particular comment reopening is seeking opinions regarding the
new rule 10B-1, I have included a section directly providing my
opinion on these questions. I truly appreciate the SEC valuing public
opinion; however I hope in the future the SEC would have a mechanism
to implement at least the functional aspects of the proposed rule
rather than delaying the rule in its entirety. Or at minimum have a
well-defined timeline for when these rules and any amendments can
occur. 

I have structured my comment into the following format:
-Why do I support this proposal?
-What are some counterarguments to this proposal?
-What changes or improvements can be made to this proposal?
-Opinions on Public reporting / SEC directed questions
-Final thoughts

Why do I support this proposal?

To my understanding this rule will contain three main components.
1. Introducing new Rule 9j-1 - aiming to prevent fraud, manipulation
and deception in connection with effecting transactions, inducing or
attempting to induce purchase/sale of any Security-based Swap (SBS).
Importantly there is an added provision that liability cannot be
avoided when utilising non-public information by transacting in SBS or
avoid liability in fraudulent SBS activity by transacting in the
underlying equities.

2. Introducing new Rule 15Fh-4(c) – Explicitly making it unlawful
for any officer/director/supervisor or employee of a security-based
swap dealer/participant from directly or indirectly acting to
manipulate/coerce/mislead or influence the Chief Compliance Officer
(CCO) of a SBS dealer/participant.

3. Introducing new Rule 10B-1 – requiring any persons or group with
Securities based swaps (SBS) positions above the specified threshold
to file a new Schedule 10B for public release. The included schedule
will provide information on the SBS position and positions in any
underlying security, loan, group/index or any other instrument
relating to the SBS.

The 2008 Global Financial Crisis was a devastating market event that
altered the lives of millions of people around the world. It is a
stark reminder of the impact that uncontrolled risk taking,
profiteering for short term benefit only and lax regulations can have
on the livelihoods of everyday people. A large proponent of this event
and the underlying topic of this final rule proposal is the Securities
Based Swaps (SBS) market. It is clear that despite what industry
officials say, the SBS market can have a significant detrimental
impact on the underlying equity market, the solvency of struggling
issuers and the economic prosperity shared within the real economy.
This is all the more reason to have strong regulation and active
enforcement by regulators who are willing to pursue any level of
manipulation, deceit or fraud. All aspects of this final rule proposal
aim to strengthen the enforcement tools available to protect
investors, increase market transparency and return the market to a
more fair and equitable position for ALL market participants. Fraud
and manipulation should not be accepted, especially when we have
clearly seen the effects that can occur from the 2008 GFC.

As this comment reopening is focused more on Rule 10B-1, the following
comment has a greater emphasis on Rule 10B-1. However, prior to
discussing this specific rule I would like to reiterate that I as a
member of the general investing public am EXTREMELY supportive of all
aspects of this final rule (Rules 9j-1, 15Fh-4c and 10B-1) and hope it
can be implemented immediately to prevent future crises.

As a brief discussion of Rule 9J-1 I agree with all the additional
provisions stated in the final rule. As stated by the commission, this
aspect of the rule has been in the making for 13 years! The time to
implement this rule is now! I wholeheartedly support the expansion of
the Rule 9J-1 to include anti-manipulation provisions and clarify that
liability cannot be avoided in scenarios where non-public information
is utilised by transacting in SBS or when transacting in the
underlying securities whilst involved in a fraudulent SBS scheme. The
final rule should maintain the broad coverage of all aspects of SBS
positions including prohibiting misconduct in the exercise of any
right or performance of any obligation. This rule should be applied to
ALL security-based swaps and not CDS alone. It is a sad state of
affairs when this level of distinction is required to deter market
participants from engaging in such practices.

In regard to Rule 15Fh04(c) I believe that this rule is crucial in
maintaining integrity of the role and the associated SBS
dealer/participant. It is human nature to avoid negative outcomes in
the short term with limited consideration of the long-term prospects.
This situation can result in even highly intelligent individuals to
seek to offset problems via deception, fraud and manipulation. The
Chief Compliance Officer (CCO) role is an integral role within each
financial organisation that requires accurate and reliable data to
perform their duties. This rule introduces significant risk for any
party that would seek to offset negative outcomes via deceptive or
fraudulent practices and minimises the risk of retaliation towards the
CCO if negative outcomes arise. This is a necessary rule that should
be maintained in the final rule.

Market transparency is a core tenant of the efficient market and one
of the central pillars of the SEC’s mandates. Rule 10B-1 addresses
risks in the SBS market and furthers this overall rule by provisioning
clear, concise and highly valuable data to SBS market participants and
investors in the reference securities. As stated by the SEC there is a
prevalence of opportunistic SBS strategies that rely on
deception/misleading SBS participants or actively being detrimental to
the issuers for short term benefit to certain SBS
dealers/participants. As can be easily surmised by any reasonable
individual, if the equity market is not actively benefiting the market
participants or the underlying issuers, who rely on the market for
corporate guidance and supplementary financial support, then there is
a fundamental problem. At the core of this problem is the information
asymmetry between the SBS dealer, SBS participant and the issuers of
the underlying reference security. This allows for manipulative
practices acting on non-public information by managing SBS
dealers/participants prior to the recognition of this information. In
the equities market acting on material non-public information would be
deemed insider trading and the need for such regulation is clear. This
information asymmetry also extends to the SEC as the current
regulation only requires transaction data, not position data,
essentially allowing SBS dealers/participants to remain anonymous to
the very regulators themselves! The new rule 10B-1 is a novel but
seemingly fundamental rule required to level the playing field between
these participants and actively deter this damaging and
counterproductive behaviour.

Fundamental to this rule and an aspect that should not be altered is
the requirement for disclosure of both SBS positions and positions in
any security, loan, group/index or other instruments
underlying/associated with the SBS. This information is the most
crucial for issuers and market participants to be aware of and the
most utilised method for opportunistic SBS strategies. This data
should be clearly demarcated in the filing and ideally grouped
together such that both regulators and investors can efficiently
assess these associations. Finance is rife with conflicts of interest
and although some situations are necessary it provides excessive
advantage to these institutions that should be reduced/eliminated as
much as feasible. 

In specifics to Rule 10B-1 I commend the SEC in creating an
appropriately encompassing rule for SBS reporting. I believe that the
specific language used should be included in the final rule and is
required to provide sufficient information to the public. This
includes classifying any person, entity controlled / controlled by or
under common control with such person or group of persons as required
to file. This is an essential component of the rule as in absence of
this, the provisioned data will be too widely spread between entities
giving a false impression of small SBS positions to the public despite
shared economic risk and fail to accurately capture entities that
would be above the threshold if aggregated. Throughout the decades the
market has become more and more interdependent and despite legal
separation or varying capital allocation, often shares economic risk
if its subsidiary fails. Allowing exceptions to this rule may
indirectly increase formation of alternative legal entities to obscure
positions, leading to decreased transparency to the public and more
importantly to the commission as aggregation will need to be performed
post-filing, if even filed at all. This is made all the harder if
these entities are formed internationally where the necessary
information to determine underlying controlling entities is not within
the purview of the SEC. Despite formation of alternative legal
entities, the underlying risk formed by these positions would not be
reduced, simply obscured and allows for elevated risks to occur in
absence of appropriate scrutiny/regulation. 

In conjunction with the above, I also believe that the following
language should also be included in the final rule:
- The inclusion of any contract, arrangement, understanding or
relationship
- The clearly defined statement of after acquiring or selling,
directly or indirectly ANY SBS
- Including any direct or indirect owner/seller of an SBS position
exceeding the threshold
These components similar to the above are essential in capturing all
participants with undue influence over the SBS market. Sadly it is
clear that allowing any degree of exceptions results in those
persons/entities or loopholes to be utilised if it allows for material
gain. I believe this set of language is robust enough to include a
majority of participants that may unfairly alter the due course of an
SBS at significant personal benefit. As a general member of the
investing public these statements within the rule proposal make clear
that the rule applies when above or would exceed the threshold and
only after acquiring/selling SBS positions, whether directly or
indirectly. If I am able to interpret these rules clearly then I would
expect the myriad of expert legal representatives and financial
experts within these financial entities to be able to apply the rule
without ambiguity as well.

I also agree with the timeline provided by the SEC for both the
required filing period and release to public. As stated in the rule
proposal the required filing period will be the end of the first
business day after executing the SBS transaction exceeding the
threshold and the public release will be immediate upon filing. This
is the epitome of market transparency as it provides the necessary
information in an appropriately timely manner where material positions
against the SBS participant or underlying securities/loans can be
assessed prior to harm to the investor. This level of transparency
also has a deterrent effect against potentially manipulative/deceptive
behaviour as it will be significantly more difficult to obscure this
data, especially in this timescale. The immediate release to public is
crucial and maintains that the data provided by the filings is time
effective and the underlying reduction of risk for SBS market
participants is optimal. 

Amendments are a necessary provision in this rule and should have a
clearly demarcated statement requiring identical filing
requirements/timelines immediately when the underlying
transaction/error is noticed with clear consequences to frequent or
intentionally misattributing amendments. I also agree that the filings
should be machine readable and should extend to all other filings to
allow for efficient and timely analysis/enforcement via the SEC.

In the final rule proposal, I would strongly disagree with allowing
offsetting/netting of SBS positions prior to filing. I believe all the
positions should be listed rather than only the aggregate/offset even
if they have identical terms/identifiers. Netting the positions could
allow entities to avoid the threshold and thus not have to file both
the initial Schedule 10B and any amendments. This may allow entities
to amass large quantities of swaps without raising awareness to the
regulators, other market participants and even the counterparties
themselves. Netting relies on equal levels of risk are gained/averted
by opposing positions however that may not always be true. In a market
crisis counterparties may not always be able to settle and
deteriorates this netting position. Also, by netting it removes the
participants capacity to assess whether a dealer is provisioning
excessive SBS positions and undertaking more risk than stated. This is
especially true if they no longer have to file if they fall under the
threshold. For the benefit of slightly more readable data I do not
believe the benefits outweigh the risks. As an alternative the filling
could also have an additional section for net position in addition to
the listed individual positions allowing the best of both worlds. 

What are some counterarguments to this proposal? 

Public disclosures will reduce SBS activity and deteriorate underlying
liquidity?

- The ultimate crutch for any new regulation is the undying protection
of liquidity. Is liquidity the main proponent that the SEC is meant to
protect? Should the SEC allow for manipulation, deceit and fraud if
the alternative is a reduction in liquidity? Is protecting liquidity
more important than protecting investors? This is the impression I get
from reading some industry leads on this comment reopening. Even to
the extent that a select few congress members have only a single
direct objection for public disclosure being a cost of liquidity!
Let’s not mention the personal liquidity provided to these very same
individuals by the finance industry.
- To my understanding the aim of a majority of these proposals is to
identify large SBS positions so that excessive or systematic risks do
not occur secondary to poor disclosure/regulation. This is even more
evident when one of the three components of this is rule is solely to
state that SBS transactions at any point cannot be used in fraud,
manipulation or deception. The very fact this needs to be said is a
statement of the condition of the SBS market and lack of regulation in
this space. Is this not one of the first rules that should have been
implemented when the market emerged?
- Should high risk positions be allowed without at least regulatory
awareness if it leads to a reduction in liquidity? Shouldn’t we
allow for the market to gauge whether they want to engage in high-risk
positions and signal these dealers/participants that the risk is
unreasonable via reduced liquidity? Is liquidity in the swaps more
important than the effects on underlying reference entities or
capacity to settle?
- This is not even mentioning that this rule proposal is not directly
affecting liquidity, simply providing disclosure on appropriately
large positions, similar to the equities market where there seems to
still be sufficient liquidity! Is it the SEC’s fault if market
participants make their own decision to reduce activity in these
positions to avoid public disclosure? No one is forcing them to avoid
public disclosure and the filings themselves are only disclosed one
business day after the terms have been set. Aren’t these terms meant
to be free from undue influence and reliant on the underlying
reference equity/debt anyway? 

SBS are necessary for hedging, how can we allow participants to accept
liability or consider whether they could have material non-public
information prior to the transaction?

- It is shocking that the consideration of whether the SBS
participant/dealer has non-public information at risk of manipulation
is not already in practice. This should be the stance that members of
ISDA and SIFMA should be supporting. This is true for the equities
market and the awareness of insider trading is expected of even the
most novice of investors. Why can we not expect the same of
individuals managing multitudes more capital and risk?
- I don’t believe that hedging or any reason for SBS investment
should excuse undue caution when transacting in SBS. It is not a bad
thing for participants to think first and consult colleagues prior to
performing a long-term transaction.
- Additionally, is SBS the only avenue for hedging risks? Is SBS even
the most efficient or reliable method for hedging? These rules do not
prevent these entities from utilising other forms of hedging and may
even encourage these discussions to occur. I believe the firms
themselves can perform their own cost-based analysis to determine if
SBS is the best method.

Data publicly released will be misleading / excessive for the
public/regulators.

- I believe that if all proponents of this final rule are upheld
including the presence of related securities, the inclusion of an
interim threshold for calculation, 1 business day timeline and
netting/offsetting positions is NOT allowed then the data will be
accurate. In this scenario to my understanding, the only way for these
positions to not be representative would be if there was a significant
change in positions in the 24hours prior to filing/public release.
Funnily enough the short 1-day timeline and not allowing for
netting/offsetting appear to be the major gripes industry leads are
against despite being major proponents of ensuring the data is as
accurate in both time and positions as possible. These aspects of the
rule should not change. The onus of other misleading data would then
fall on the reporting entities and should be a significant concern to
ISDA and SIFMA if they cannot be relied upon. Would industry leads
suggest even more data be presented to ensure the data is not
misleading?
- I am glad that industry leads are so considerate of the regulators
time when discussing the possibility of significant daily reports. As
addressed by the SEC, these filings will be machine readable and I
would suspect allow for rapid assessment of the individual positions
day to day. There will be a high influx with any new filing when
initially released. After the initial filings there will only be the
transactions that have occurred within the past 24 hours or any
amendments. A potential unexpected benefit of several daily reports, a
common complaint of industry leads, is that daily positions / trading
strategies may be less visible to the general public in the myriad of
other reports. However in this situation parties that know the terms
of the swaps or regulators can still easily review their specific SBS
dealers/participants as they can search for specific filings.
- Additionally, the very fact that ISDA / SIFMA expects high levels of
fillings, specifically created to identify/disclose high risk or
materially large position indicates the need for such oversight!
Doesn’t this alone show how high the risk is in the current system?

There are already regulations from CFTC and FINRA that do not require
public disclosure, why should this be different?

- As stated in these rule proposals, the SEC has the authority and
congress given mandate to both regulate and require reporting for
securities-based swaps. I do not believe that the SEC or other market
participants should look to self-regulated entities as the role model
on how to model or enforce regulations. To state that CFTC and FINRA
oversight has been lenient would be an understatement of near infinite
proportions. I can understand market participants frustrations when
facing any level of regulatory scrutiny when provisioned several
ongoing no action letters of relief on swaps reporting. Increasing
market transparency is a mandate of the SEC, even if it is not for
other entities and I believe the SEC should act in the best interest
of the public and not a select few market participants. Public
disclosure is already present for large equity positions and the world
has not yet imploded. I am sure market participants can shoulder the
burden of public disclosure on the public securities market.

Reporting positions will lead to costs thus the rule should be
delayed.

- Let’s for a second dismiss the fact that these institutions are
the most well-funded entities on the planet, with even more resources
spent on technology alone in a few months than the entirety of the
regulators (SEC) annual budget. Fraud, manipulation or deception
should not be allowed within the SBS market even if it results in some
temporary costs to current market participants. One aspect that does
not appear to be stated is the indirect savings that can occur from
preventing fraud, manipulation and deception which may outweigh the
costs on the market as a whole. I believe the savings in market
participants identifying high risk SBS dealers/positions will outweigh
the costs to these SBS dealers. If this rule does not proceed, the
‘costs’ that are saved will simply occur in victims of these
opportunistic SBS strategies.

The comment period has been too short, these rules need more time.

- Are you kidding me?! A large portion of this rule has been available
for analysis, comment and scrutiny for over 13 years. It is not the
SEC’s fault that market participants have not utilised this time to
assess or comment on these proposals. The core aspects of these rule
proposals have also been available since March 2022, more than 16
months! I may not be a large financial institution or organisation but
even I can tell you definitively, that 16 months is much greater than
the usual 90-day comment period required by the SEC. This rule does
not require more time and I would suggest it should be implemented
immediately!

The scope of these rule proposals should be reduced to US
individuals/entities only to prevent policy clashes with foreign
regulators.

- It is not an uncommon feature to utilise foreign entities to
offshore positions or risk. The suggestion of industry leads to avoid
international scrutiny is concerning and should encourage regulators
to proceed with the broad scope presented in these rule proposals.
Allowing entities to offshore positions to avoid the threshold for
Schedule 10B will lead to misleading data and encourage market
participants to engage in this behaviour. This is counter to
increasing transparency for both the regulators and investors whilst
not reducing the underlying risk. Foreign entities should not be
exempt. I am sure foreign regulators would side with US regulators if
needed.

How can I be expected to profit if I can’t use deceptive practices?
This is a free market!

- Fraud, manipulation and deceit should not be accepted and can be
highly destructive to the marketplace/economy as a whole. The SEC’s
mandate is most importantly to protect investors while ensuring a
free, fair and equitable market. It is clear that Congress has
provisioned these powers to the SEC to actively regulate and assess
the SBS market and these rules are a continuation of these powers. All
the encompassed rules in this proposal address all of these mandates.
- The SEC should not be utilised to prevent short term losses for a
small number of market participants but to consider the most
beneficial actions for all market participants including individual
investors, pensioners and the issuers who actively provision goods,
services and jobs. Financial institutions including SBS participants
are filled with the smartest people in the world in regard to
finance/money. If these organisations cannot profit without deceptive
practices despite such significant personnel or advantage then perhaps
this is the market identifying that you should not exist. Perhaps the
ordinary course of business needs to change.

What changes or improvements can be made to this proposal?
Rule 9j-1
The final rule should include attempts at manipulation in the
anti-manipulation statement.
- Prevention is of greater benefit than enforcement after the fact.
Provisioning that any attempt at manipulation hopefully provides the
SEC some teeth to seek and prevent active manipulation prior to
damaging investors/issuers.

Rule 15Fh-4I
Do not include safe harbor provisions for hedging or other scenarios.
- The crux of this rule relies on empowering CCO’s to act
appropriately at all times and receive timely/accurate information to
perform the role. Providing safe harbor via vague poorly defined
scenarios deteriorates this rule and is indirectly stating that the
SEC allows for manipulation, coercion or misleading information in
relation to these situations. Why does hedging scenarios require any
of the above? Additionally the need for this rule implies that without
such a concrete rule it is very difficult to identify and enforce as a
regulator without very clear and damning evidence. Providing loopholes
without very significant benefit will only make this rule harder to
enforce and ultimately not empower CCO’s as desired.

Rule 10B-1
Add a statement regarding timeline for amendments. Ideally should
follow the same timeline as initial filling – i.e. within 1 business
day of transaction/notification of error and released publicly
immediately
- I believe such statement would add clarity to amendments and reduce
the risk of malicious obscuring of data. The effect of this filing in
reducing risk to SBS participants/investors requires timely
information and any delay or obscuration significantly hampers this
rule. Both for effectiveness and consistency with the remainder of
this rule I believe that the amendments should follow the timeline of
the initial filings as above.

State amendments cannot be utilised to obscure filings and excessively
frequent amendments or intent to manipulate filings would be actively
regulated/enforced
- A clear statement would be consistent with the theme of this rule to
prevent fraud, manipulation and deception.
Rather than allow group fillings or individual members of group to
file, mandatorily make individuals file their positions and
mandatorily state any affiliated group/parties on a separate section
of the filing
- I believe this would add clarity to this rule and prevent ambiguity
on which party needs to file when above threshold. Additionally the
inclusion of the group on each filings allows investors/SEC to group
the filings and cross check with each filing if all parties of the
group are included. For example if a group decides to make individual
filings and one or more parties do not file who receives the
consequences? How would the SEC confirm that these parties were in a
group efficiently? This makes it so all parties must file and ensure
liability is shared with the appropriate parties.

Opinions on Public reporting / SEC directed questions
Prior to any comment on SEC directed questions, I have below outlined
my understanding of the thresholds at which the Rule 10B-1 would apply
and require filing.

Thresholds:
Equity-based SBS
Threshold is reached when one of the following is reached: (*Note that
the lesser of the two maintains the threshold)
- Notional value of SBS >$300 million gross (short and long
positions)
- Notional value of SBS >$150 million gross and value of all
underlying equity/delta-adjusted options notional value in relation to
SBS exceeding a total of $300 million (SBS + equity + options/futures)
OR
- Total number of shares in SBS as a percentage of outstanding shares
in underlying class of equities exceeds 5%
- Total number of shares in SBS as a percentage of outstanding shares
in underlying class of equities exceeds 2.5% and inclusion of all
underlying equity / options / futures /derivatives exceeds the 5%
total outstanding shares** (simplified for readability – exact
determinants of size of derivatives positions determined by
‘Security-Based Swap Equivalent Position’ calculation – pg.
80-81 of final rule proposal)
Debt-based SBS (CDS)
Threshold is reached when one of the following is reached: (*Note that
the lesser of the two maintains the threshold)
- Long notional amount of >$150 million (=Long notional SBS amount
– Notional long positions in deliverable debt security underlying
SBS)
- Short notional amount of >$150 million 
OR
- Gross notional amount of >$300 million

Debt-based SBS (Non CDS)
Threshold is reached when:
- Gross Notional amount >$300 million of non-CDS SBS and any
underlying debt-based security 

Any opinions on the Reporting threshold amount for each asset? I.e.
Equity SBS, CDS, Non-CDS debt SBS etc

- Overall, I believe the SEC has appropriately justified the threshold
for each applicable SBS and provides sufficient coverage of high risk
participants. CDS and Debt based SBS in the absence of utilisation for
hedging has perverse incentives to act against debtor’s best
interests and the SEC has finely crafted this rule to incorporate both
the consideration of hedging in long position CDS versus the less
incentivised debt based SBS. I appreciate that the SEC has included
gross notional amounts in its considerations as identifying increased
risk in large counterparties is important to disincentivise excessive
SBS positions, especially dangerous when market conditions rapidly
change and when counterparties are more reliant on each other than
ever.
- For equity securities I believe the final rule should maintain the
interim threshold at $150 million gross or when the percentage of
total shares within SBS exceeds 2.5% outstanding of the underlying
equity. A large proponent of equity-based swaps beyond hedging is to
allow for trading positions to be hidden from public purview.
Consistent with this behaviour to prevent public exposure of positions
I believe in the absence of this interim threshold there would be a
very high proportion of intentional avoidance of the threshold via
underlying equity or derivative positions. In this situation despite
not solely owning SBS, the overall risk profile remains elevated as
these entities are still largely exposed to the underlying security
via equity or derivatives and can still actively take related
positions to the SBS without public disclosure on non-public
information.
- The only consideration I may suggest for equity based SBS threshold
calculation is for the SEC to consider increased weighting for short
position SBS as the risk profile between long and short positions are
not equivalent. In the event that the SBS pricing moves away from the
desired target price for the issuing security based dealer, in a long
position there is a maximum cost whereas in a short position the
underlying security may appreciate greater than the dealers overall
equity and more rapidly deteriorate. Whether this component is a fixed
weighting such as 2x the short position or a variable weighting based
on recent price changes/volatility in a defined period of time could
be a point of consideration? Either way in determining high risk
positions that may require SEC intervention or assessment, the
disequilibrium of risk between short and long positions should be
analysed. I do not believe this is a critical aspect that requires
further delays to assess or implement and believe this could be
considered for future iterations of the actively functioning rule.

Should the final rule consider the related securities positions for
SBS participants when calculating the reporting threshold? In absence
of this consideration should the threshold be altered?

- I believe with the current thresholds including the interim
thresholds specific for equity-based SBS and CDS there is sufficient
coverage and inclusion of securities/derivatives positions in the
threshold calculation. If aspects of the final rule do not encompass
all components of this rule proposal such as the interim threshold,
determination of position for equity-based SBS, delayed release of
filings to the public or a reduction of any of required items in the
schedule i.e. listing positions in related securities/derivatives then
I believe the threshold should be lowered to $150 million rather than
$300million gross or related securities positions should be aggregated
in every threshold calculation. To level the information asymmetry and
provide regulatory analysis, the core component that needs to be
available is whether a large SBS position is occurring and whether the
SBS market participant has undertaken any conflicting transactions
such as opposing securities positions that may be secondary to
material non-public information. 
- As an additional provision if the net total number of shares in SBS
exceeds outstanding shares of a certain threshold, say theoretically
80% for all market participants that are subject to this rule, I
believe that the related securities positions/derivatives should be
considered for all threshold calculations, for all market
participants. In this provision it would prevent settlement failure
via SBS positions exceeding the available underlying shares as
entering such a state would impose stricter thresholds on all market
participants and possibly result in disciplinary action via other
market participants due to shared consequences. This would also
encourage smaller participants that may be close to the threshold
without such calculations to reduce associated positions and increase
underlying liquidity if settlement would be required.

Should the final rule allow for offsetting/netting SBS positions?

- No. I don’t believe offsetting/netting SBS positions to be an
excessively beneficial prospect in the context of providing market
transparency to SBS participants or regulators. There are two aspects
in which offsetting/netting may impact this rule. On the public
disclosure / Schedule 10B side, by listing only offset/netted
positions there is a significant reduction in the overall valuable
information provided to the SBS market participants/regulators as
participants will no longer be able to glean the overall size of gross
SBS positions and may even mislead investors by showing opposite
positions via matching non-identical terms as equivalent
risks/settlements. Even with identical terms/identifiers I believe the
marginal benefit of readability of data is outweighed by the further
risk of misleading, manipulating and deceiving investors with creative
accounting whilst also removing useful information necessary for
effective enforcement.
- On the other side, allowing offsetting/netting may unintentionally
allow market participants to avoid the thresholds required for filings
and encourage larger SBS positions to net/offset rather than reduce
SBS below the threshold. This will be especially true if the final
rule does not include interim thresholds or accommodate for gross
positions. Another concern will be whether increasing the size of SBS
positions via netting on a macro scale actually reduces the risk or
improves likelihood of settlement. In the current climate where SBS
has been regulated with only transaction data and not position data,
many participants may be already holding excessively large positions
even if overall net neutral. Encouraging a larger aggregation of SBS
positions may lead to events where the swap position exceeds the
underlying securities outstanding and actually be detrimental to
settlement / introduce a critical systemic risk.
- If offsetting/netting is required for readability, then I suggest
that a separate section in Schedule 10B is utilised whilst keeping the
individual positions to provide both forms of information to the
investing public / regulators.

Should the final rule allow for aggregation of SBS by any person /
group, even if separately legally established and capitalised or held
in another entity/persons account despite under common control of
initial person? If not aggregated should the threshold be altered?

- I believe that the final rule should require an aggregated threshold
calculation for any of the above. This rule relies on informing market
participants and regulators on misleading/deceptive transactions that
are common in opportunistic SBS strategies in an efficient and
accurate manner. By allowing participants to mask positions or avoid
thresholds via legal loopholes such as holding under differing
entities, this may result in false impressions of reduced risks or
lack of secondary transactions. This is especially true for regulators
where allowing for several entities to be assessed separately despite
sharing economic risk or reputational risk in event of failure, will
significantly increase the resources required to assess whether these
transactions occurred and efficiently cross reference prior filings.
As is not an uncommon practice, often these legal entities are created
outside of direct US jurisdiction and will reduce the SEC’s capacity
to accurately provide SBS position data. In the longer term this may
even encourage a larger exodus to such international legal entities in
pursuit of obscuring positions, overall reducing the transparency of
the SBS market and the underlying securities rather than improving it.
- In the event that the above cannot be aggregated for threshold
calculations then I believe some of the following may be partial
fixes. If SBS participants exceed a certain number of linked
subsidiaries / legal entities or have entities in high-risk locations
then they require aggregated calculations, a risk based modifier on
gross positions or reduced threshold requirements. Potentially
requiring the CCO to sign off on the Schedule 10B stating no other
transactions were made with other groups or entities, including
entities that are under control of the initial person may also
strengthen these scenarios. This solution however would require the
rule 15Fh-4(c) to be in effect to ensure accuracy of this statement
and appropriate liability/consequences.

Final thoughts

As a conclusion to this letter, I would like to once again reiterate
that I very strongly support the SEC’s rule proposal on ‘Position
Reporting of Large Security-Based Swap Positions; Prohibition Against
Fraud, Manipulation, or Deception in Connection with Security-Based
Swaps; Prohibition against Undue Influence over Chief Compliance
Officers’ (S7-32-10) and hope this can be implemented IMMEDIATELY
prior to any further significant market events. This rule is essential
to protecting investors in both the SBS market and the reference
entities and maintaining the integrity of the market as a whole. The
SEC exists to protect and ensure the market is equitable to ALL
investors/issuers and should not be beholden to preventing relatively
short-term losses for a select few market participants, especially at
the risk of enabling fraud, manipulation and deception. 

I as a member of the general investing public wholeheartedly support
this rule and hope my contributions have been useful.

Thank you for looking out for retail / individual investors and
considering our opinions.

Kind regards,

Aswin Joy
Retail / Individual Investor