March 12, 2022
Dear SEC Representative,
I am a retail investor and recently have been quite taken aback by the structure of the current market. There are several very concerning things that I've become aware of over the past year, which have led to me to begin losing faith in the current U.S. stock market: 1. Dark Pools 2. Payment-For-Order-Flow 3. Failures-To-Delivers and Failure-To-Receives 4. Naked short selling 5. Lack of transparency in reporting of short positions 5. Misreporting from self-regulating organizations 6. Repeal of the Glass-Steagall Act and 7. Hiding SWAP positions via off-shore firms/institutions (granted this is under CFTC's jurisdiction who recently allowed institutions to not report any SWAP positions until 2023, which is absolutely bizarre and against transparency). I believe it is the combination of these issues that has led the stock market to a very precarious situation that puts the entire global financial system at risk. It seems that large financial institutions such as large banks, prime brokerages, market makers, and other large financial institutions have been lobbying in their own interest with little pushback and have basically reduced any wrong-doing to insubstantial fines that have become the cost of doing business, where the financial institutions don't even have to admit guilt. This is like the police letting a bank robber go as long as they give a small portion of the stolen money to them and then allow them to continue robbing other banks. Only, in this case, the banks are basically retail investors, retirement accounts, and pension funds.
I don't think I need to go into any detail on the above issues because it's clear that the SEC knows that these issues are present and that they put the system at risk. The issue is that fraud in the guise of liquidity is now the status quo - basically stealing from investors in the name of controlling volatility. This reminds me of the Bernie Madoff case where the SEC was well aware of what he was doing for years as it was brought to the SEC's attention by Harry Marcopolos in 2000, 2001, and 2005, however his reports were largely just ignored. It wasn't until Bernie Madoff turned himself in that anything was done. This is where we are now with large market makers who have been naked short selling under the guise of liquidity, thus putting the entire financial system at risk and it appears that the SEC is ignoring the situation just as in the Madoff case.
Obviously, there is a very simple way to fix the issues with the current market structure, but the SEC doesn't seem to want to fix anything, which makes me question if the SEC really has the best interest of the public in mind, since it has instead been enabling the fraud on Wall Street to continue.
For example, forcing reporting of all positions and implementing significant fines for any misreporting should be enacted and is a reasonable first step in market transparency. However, this is not enough. I believe a Settlement Discipline Regime is required to stop the fraud caused by naked short selling, FTDs, and FTRs. Also, dark pools have been abused, which allow large financial institutions to manipulate the market by routing specific orders through dark pools and other orders through the lit exchange, which allows them to control the price. An example of this is where buy orders are routed through dark pools which removes buy pressure and at they same time they can route sell orders on the lit exchange to drive down the price allowing short sellers to bankrupt decent companies. Now, I understand that proving this type of market manipulation is not easy. But, the reason it is not easy to prove is because the SEC doesn't track short positions. The reason all short positions should be tracked is to make sure abusive naked short selling is not occurring in the market, which could put the entire financial system at risk.
It's still hard to believe that FTDs and FTRs are even allowed to occur in the stock market at all. That's like me buying a car, but it's never delivered to me - this is straight-up fraud, and I can't believe it's allowed to happen.
Now, I know the SEC knows all about these issues for years because there's plenty of comments from good people trying to get the SEC to do something about it. Dr. Susanne Trimbath has outlined the situation very well in her book \"Naked, Short, and Greedy\" and has submitted numerous comments to the SEC detailing how to fix the problems with the current market structure. So, the SEC has the blueprints for what simple actions to take to protect retail investors, and yet nothing is done. This is very disappointing and is showing the world how fraudulent the U.S. stock market is where the organization that's supposed to be regulating the market to make sure fraud doesn't happen is actually enabling the fraud.
Please, SEC, I beg you to please act morally and ethically responsible and help bring our the U.S. stock market some integrity otherwise, I'm afraid investors will begin to realize the fraud that is happening and pull their money out of the market, leading to a global financial meltdown, assuming it isn't too late.
Thank you for your time
Sincerely,
David Lincoln