Aug. 21, 2023
Dear Securities and Exchange Commission, I am writing to provide a second comment letter, reiterating my steadfast support for the proposed rule and sharing my perspectives on where the Commission should direct its focus in the future. My initial letter conveyed my wholehearted endorsement of the rule, which seeks to shed light on the concerning levels of fraud and deception prevalent within the realm of security-based swaps. Upon reviewing the publicly available data on the SEC PPD Dashboard hosted by the DTCC website, I specifically delved into the cumulative slice reports for equities. Regrettably, the information within these documents can best be characterized as incomplete. I respectfully urge the SEC, in collaboration with the CFTC, to ensure the comprehensiveness and public accessibility of swap data. It is paramount that all pertinent swap data, along with the corresponding security details, are made transparent. The existence of incomplete and concealed derivative positions, valued at billions, poses a formidable threat to the overall stability of the financial markets for the sake of financial gains, which paradoxically contradicts the intended function of these swaps as risk-mitigating instruments. The history of market disruptions attributed to the impact of swaps is a stark reminder of their potential to destabilize markets. I am reasonably convinced that substantial swap positions involving volatile equities persist even after recent market upheavals. The SEC is well-acquainted with the concept of 'idiosyncratic' market risks. The category of securities colloquially termed 'meme stocks,' and their associated swaps serves as a compelling precedent for the SEC to assert its regulatory authority over the derivatives market. Meticulous strategies must be employed to gradually unwind these toxic positions, which pose a palpable threat to the markets under the SEC's jurisdiction. More specifically, I urge the SEC to persevere in its examination and enforcement of regulations pertaining to the short positions adopted by counterparties of swaps involving volatile equities. Neglecting this aspect could inevitably lead to these positions backfiring, potentially inflicting catastrophic repercussions upon national stability. Transparency is an essential prerequisite for exercising oversight and mandating the closure of detrimental positions. Only through this transparency can accountability be upheld for the actors primarily motivated by financial gains. I earnestly implore the release of swap data, the stringent enforcement of regulations, and the gradual, controlled unwinding of these positions through established market mechanisms. Furthermore, I humbly request the SEC to extend its scope and scrutiny to ascertain any other potential avenues whereby security-based swaps might be exploited to deceive investors and the Commission. For instance, perpetual swaps, total return swaps, basket swaps, and similar instruments represent cunning strategies to circumvent existing rules and regulations. The prevalence of offshoring practices involving short positions and puts held beyond national borders is also a concerning phenomenon aimed at undermining the authority of the SEC. I firmly believe that these deceptive practices are prevalent and necessitate thorough investigation, especially in understanding the outcomes of positions related to 'meme' stocks like GameStop, Bed Bath and Beyond, and AMC, among others. It is crucial to underscore that my concerns extend beyond these specific equities, encompassing a broader spectrum of unknown equities that could potentially emerge if proactive measures are not taken by the SEC. In conclusion, I extend my gratitude for your dedicated time and efforts in shaping this rule, with the hope that similar initiatives will continue to be pursued in the future. Sincerely, Hussain Shahabuddin