Apr. 20, 2022
Short selling is meant to be an incredibly risky endeavor, with potentially unlimited losses. This risk is critical to keeping short sellers in check, and ensuring that those who overreach are punished for their greed by natural market forces. The risk is systemically important; it helps to keep the system balanced. However, the proposed rule SR-NSCC-2022-003 apparently seeks to eliminate this risk by allowing bad actors to dodge both the laws regarding and the consequences of their failures to deliver by using SFTs to avoid forced buy-ins and reset the clock on their FTDs. Combined with the other tools at their disposal in the form of derivative products like options and swaps, this gives manipulative short sellers near limitless ability to avoid the consequences of their mistakes, until those mistakes can be hidden in other vehicles and pawned off on unsuspecting bagholders. This change would unleash predatory short sellers onto the market by removing the most serious potential consequences of engaging in extremely risky trades. Traders, and even market makers, who take excessive risks and lose should not be protected or bailed out by the system; they should collapse, declare bankruptcy, and make room for new players in the industry. If a Texas Hold'em player could bet his house on a hand of poker, but then never actually have to turn over the deed after a loss, would that gambler not feel empowered to go all-in on every hand, even before the flop? And would every other player at the table not feel cheated by that player's wins? That situation is essentially what this proposed rule would allow. If I start a business and fail to outperform my competitors due to a foolish degree of risk-taking, nobody is going to save my company -- why should NSCC members be exempt from this dynamic? This concept is the cornerstone of a free and fair market. To allow such risk takers to continue operating is to enable and encourage cheating, in an industry where the prevailing sentiment among the rank-and-file is already that you can't get ahead unless you cheat. The mechanisms of capitalism inevitably result in consolidation of power over time, and the mechanisms of a free and fair market are one of the few checks on this tendency. Bad actors who recklessly take excessive risks must be allowed to fail. Letting the biggest players in the market remove the checks on their power (and the potential consequences of their risk-taking) only makes our country more of an oligarchy, accelerating the consolidation of power, worsening income inequality, and reducing trust in the fairness of American markets. I therefore urge the Commission to reject SR-NSCC-2022-003. Virus-free. www.avast.com