April 20, 2022
I am staunchly against the proposed SR-NSCC-2022-801 rule changes and will be contacting my state's senators voicing my opinion as such also. These proposed rule changes appear to be another attempt by self regulatory organizations to further obfuscate securities lending / short selling practices to benefit themselves at the detriment of retail investors. Retail investors are already at an inherent information disadvantage because of the complexity of the financial system with a myriad of governing laws (which frankly many governmental and people within the industry seem unaware of) and non-equal information disclosures by retail investors vs major market participants such as hedgefunds and market makers. Exploited inefficiencies, complexity, and rampant speculation by bad actors particularly (in my opinion) these same self regulatory organizations / hedgefunds who are proposing the rule changes - have led to speculative bubbles, recessions and loss of wealth from average Americans.
The proposed Securities Financing Transaction Clearing Service, SFT Clearing Service is literally their solution to decreasing transparency around short selling practices. As referenced in the proposed rule change itself, part of the purpose of the rule changes is to decrease the appearance of \"naked\" shorts as well as failure to delivers by increasing liquidity. Note, naked shorting by itself presents an asymmetric risk to the US and global economy as, per investopedia, \"Selling naked calls creates unlimited liability\". So within the first few pages of the proposed rule change they admit that they want to decrease the appearance of risk (transparency) while actually enabling hedgefunds and others taking on infinite risk. Regarding the failure to delivers (FTDs). FTDs are somewhat representative of how illiquid a stock is, or how difficult it can be to deliver. Again the proposed rule changes tout the importance of liquidity for the market as being of the utmost importance, but truthfully stocks with low liquidity should not be easily traded. Price on a fundamental level is a function of supply and demand. As stocks become harder to find either because of long term stockholders not selling or increases in buying activity, the price should go up to reflect the increase in demand. Increasing liquidity simply for the sake of increasing liquidity punishes long term investors and disproportionately benefits short sellers by providing a never ending stream of supply. In this way those providing liquidity are able to control the price of the stock rather than the market itself.
I believe the US stock market is at an inflection point. Powerful financial institutions have taken on ridiculous amounts of risk and hidden behind convoluted laws such as SR-NSCC-2022-801 and the government has feigned ignorance to what is happening. We, as a society, can not allow this to continue. This is an existential threat. We need to increase transparency and see the rotten core of the American financial markets for what they are. If we allow these issues to continue festering they will lead to an even worse future. Please do not allow them to continue this.