Aug. 20, 2023
First, I would like to express my gratitude for the opportunity to comment on your proposed rule-changes. Second, I would like to congratulate the Commission on stepping up and regulating security-based swaps, as it is its responsibility owing to Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act. I believe that requiring SBS entities to register with the Commission will provide greater transparency for their activities, will even the field for market participants and will reduce systemic risk within the financial system. As noted within the Proposal, this is the first time that the Commission has proposed rules using its authority under Section 10B. Certainly too late, but a step in the right direction has its merits, and I appreciate it. The essence of my comment is the following: in order for the market to be fair, any trade or investment that affects the market must be public information. It must be reported, analyzed, and investigated, if need be. Any participant that infringes upon the fairness of the market must be sanctioned. Nobody should be above the market, there should be no privileged positions or participants. As noted within the Proposal, building up a large security-based swap position could be indicative of potentially fraudulent and manipulative purposes. If, on the other hand, such positions have no fraudulent or manipulative purpose, then disclosure of information would do the market participants no harm. Transparency reduces risk with no negative effect for complying market participants. The proposed rule changes are backed by market events and various opportunistic strategies in the credit derivatives market, leading to the conclusion that such events `may adversely affect the integrity, confidence and reputation of the credit derivatives market, as well as markets more generally` (2019 Joint Statement of the SEC Chairman, CFTC and U.K. Financial Conduct Authority). I’ve personally reached the same conclusion after investing in the U.S. market, for the last two and a half years. While I may not have been investing for a long time, I have already encountered such events as those mentioned beforehand, which affect my confidence in the market and my willingness to invest in it. The value of the companies I invest in is manipulated through derivatives that are not even disclosed, let alone analyzed or investigated. The lack of coherent regulation and enforcement has led to an entire system allowing the extraction of money by those privileged from those without the same privileges. Regulation must be adopted an enforced in order for all market participants to have a level playing field. There is no reason for exemptions favoring some market participants and it is not coincidence that those participants are powerful enough that their failure would constitute a systemic risk. Naturally, they oppose any changes that shift the market to a more balanced state, they will use the resources at their disposal to maintain the status quo, but in doing so, they condemn the U.S. market, as no investor would ever willingly invest their money in such a market. Given the global changes and competition, as well as the shift to decentralization, the course of action proposed by the Commission must be taken in order to maintain the U.S. market in its current position: As an individual investor, I do my due diligence and choose carefully to invest in companies that I believe have bright futures and improve humanity. In doing so, I believe it is fair to have access to all relevant information, including information on derivatives of the underlying security which end up affecting the price per share and the value of my investment. Reporting of short positions, lending operations and other derivatives is necessary and contributes to the tenet of a free and fair market. Exempting some market participants from disclosure of any positions they undertake is unfair and leads to a corrupted environment where no one should invest their hard-earned money. Reading through other comments on the proposed rule changes, namely those advanced by market participants that would like to preserve the status-quo, I cannot help but ask myself why they would fight against the prohibition of fraud, manipulation or deception. They seem to believe that fraud, manipulation and deception are necessary in order to provide the market with liquidity, for market efficiency and price discovery, serving as an important tool for managing portfolio risk. They are straight up implying that fraud, manipulation and deception are tools needed to manage investment portfolios and that transparency would adversely impact the market. Such corrupted participants must be brought to light, they must disclose their positions and, if such positions are outside of regulatory constraints, they must deal with those positions accordingly. No market participant should be allowed to break the rules and asking them to disclose their positions would not be an issue for them, except for the very case where they are, indeed, already breaking the rules and are not willing to provide information to the Commission that would confirm that. Such an attitude comes on the backdrop of numerous events and incidents where those with the power to break the law have don it and accepted any subsequent (and much later applied) fines as the cost of doing business. Their view of what a fair and equitable market should be is so warped that they are willing to fight regulation that would only limit (not entirely eliminate) their capacity of corruption by the simple means of making some of their trades public information. Market participants should be accounting for their own risk, should manage that risk accordingly and not ask the regulators to accept fraud, manipulation and deception at the expense of other market participants. I express my endorsement for the proposed rule S7-32-10 and urge you to enact and enforce it as soon as possible.