Apr. 20, 2022
As a retail market participant, this rule is an affront to all long shareholders, fair markets, price discovery and accountability for bad actors. Any rule changes implemented should ALWAYS have the goal of contributing to fair price discovery, accountability, and transparency. This rule does none of these things. I vehemently oppose this rule or any rule like it. The proposed SR-NSCC-2022-003/SR-NSCC-2022-801 rule proposes the creation of a vehicle to effectively dissolve failures to deliver (FTD) by replacing them with a “Securities Financial Transaction.” (SFT) The way I read this rule, it seems like an inexpensive way for market makers and other institutions to defer accountability for FTD indefinitely, and actually INCENTIVIZES abusive short selling. This rule enables the avoidance of market price discovery through onward lending, removing the infinite risk associated with short selling, a major deterrent to the practice. If a short seller makes a bad bet on an investment, they should be held accountable to market forces and market price discovery, not be given a way out of their bad investment through indefinite onward lending. Consider the long holders of Netflix stock which bought Netflix in January 2022, whose stock tanked recently. There’s no recovering the investment for these shareholders, they either have to hold until the market returns them to profitability, or take a loss on their bad investment. Short sellers, including liquidity providers, should be held to the same standard, not have rules changed for them to avoid being accountable and actually incentivize abusive short selling. Predatory short selling is a huge problem which needs to be dealt with head-on. Accountability is paramount. Footnote #20 of the proposed rule admits that this proposed rule is “not compatible with regulatory requirements.” So why is it being proposed if it’s incompatible with regulatory requirements? This proposed rule will result in exponentially increased share lending without accountability for Bad Actors making poor choices putting all investors at risk. The market already lacks transparency and accountability for large institutions, so I’m disappointed that this rule is being proposed. Further, my perspective is that any rules should be able to be taken advantage of by ALL market participants. This proposed rule is all about upside for market makers and other large institutions which excessively naked short securities, and all downside for those on the wrong side of their shorting. This proposed rule does NOT contribute to fair price discovery or a fair market by any means. It’s exceedingly frustrating as a retail investor to see rules like this being proposed that circumvent existing rules and only benefit reckless financial institutions, assisting them in avoiding accountability for bad decisions. Any rule changes implemented should ALWAYS have the goal of contributing to fair price discovery, accountability, and transparency. This rule does none of these things, and therefore I am opposed to it.