Aug. 17, 2023
I am writing to express my deep concerns regarding the potential for market manipulation, conflicts of interest, past regulatory violations, and the issue of regulatory capture within the context of the proposed rule, Position Reporting of Large Security-Based Swap Positions, as detailed in Release No. 34-93784. The reopening of the comment period provides a critical opportunity to address these systemic issues that undermine the integrity and fairness of our financial markets. The proposed rule's objective to enhance transparency and accountability in security-based swap positions is commendable, but it is essential to recognize the broader context in which these regulations are being considered. Instances of regulatory capture, where industry participants exert undue influence on the regulatory process, have raised concerns that fines for market misconduct are often perceived as mere costs of doing business. This dynamic perpetuates a cycle of misconduct, undermines investor trust, and erodes the stability of our financial system. Citadel and Virtu Financial, with their history of regulatory fines and penalties, underscore the importance of addressing the phenomenon of regulatory capture and the perception that fines are an acceptable expense in the pursuit of profit. The specific concerns related to regulatory capture and the notion of fines as a cost of doing business include: Erosion of Accountability: The perception that regulatory fines can be absorbed as a normal operational cost weakens the accountability of market participants. This mindset diminishes the incentive to comply with regulations and fosters an environment conducive to market manipulation. Market Confidence: The prevalence of regulatory capture erodes investor confidence in the effectiveness of regulatory bodies and the fairness of financial markets. This lack of confidence can have far-reaching consequences for market stability and economic growth. Unlevel Playing Field: Regulatory capture tilts the playing field in favor of powerful market participants, leaving smaller investors and market entrants at a disadvantage. This imbalance undermines the principles of fair competition and inhibits innovation. Inadequate Deterrence: When fines are perceived as a mere cost, they fail to serve as effective deterrents against market misconduct. Stronger regulatory mechanisms are necessary to ensure that violations are met with meaningful consequences. In light of these concerns and the broader issue of regulatory capture, I urge the Commission to consider the following actions: Comprehensive Reforms: The Commission should not only focus on enhanced reporting and transparency but also implement comprehensive reforms that address the root causes of regulatory capture, including measures to mitigate conflicts of interest and strengthen regulatory independence. Stricter Enforcement: Fines should be accompanied by additional penalties that have a meaningful impact on market participants, such as temporary suspensions, heightened oversight, or restrictions on certain activities. Public Accountability: The Commission should ensure that regulatory actions and outcomes are publicly transparent. Transparent reporting of fines, penalties, and any corrective actions taken will help hold market participants accountable and rebuild investor trust. Whistleblower Protection: Robust whistleblower protections are crucial to uncovering instances of regulatory capture and market misconduct. Strengthening these protections encourages individuals to come forward with information without fear of retaliation. Market Education: The Commission should engage in educational efforts to inform market participants and the public about the detrimental effects of regulatory capture and the misconception that fines are an acceptable cost of business. In conclusion, addressing the pervasive issues of regulatory capture and the perception of fines as a cost of doing business is fundamental to restoring trust and fairness in our financial markets. By considering these systemic concerns, the SEC can strengthen the impact of the proposed rule and contribute to a more resilient and transparent financial system. Thank you for your attention to this crucial matter. I look forward to the Commission's continued efforts to create a regulatory framework that upholds the principles of accountability, integrity, and investor protection.