Apr. 20, 2022
It is impossible to overstate how disgusting and corrupt this newly proposed rule is. The entire concept of an SFT is foul. It's a fabricated IOU of a security. It's an overnight-lending shell game to obscure FTDs and naked shorting. It's a mechanism for defeating price discovery by allowing shortsellers access to a potentially unlimited number of borrowable securities that should not exist--at market value--without any of that volume translating to buy pressure on the open exchange. An SFT does not benefit investors. It only protects the individuals and institutions who might get in trouble for excessive FTDs. If there are excessive FTDs in the market, the solution should be to investigate and punish the market fraud that leads to those FTDs. The solution should NOT be to create new avenues for institutions and shortsellers to "kick the can" for another day while they look for a more 'convenient' time to fulfill their obligations. If a stock is illiquid, it is not the DTCC or NSCC's obligation to solve it by handing out synthetic shares 'on loan' through the SFT lending program. The answer to stock illiquidity is obvious: let the price of the security go up to reflect its increased scarcity and demand. All an SFT does is artificially increase the supply of a security, which throws off the timely balance of supply and demand. This program does not benefit investors at all. It only benefits the short sellers who want the stock price to remain stagnant while they locate enough shares to fulfill their very time-sensitive obligations. If we allow them to use SFTs to skirt their responsibilities, then there will be fewer consequences for aggressive short sellers who make risky bets and lose. It's bad enough that Market Makers already have their own similar loopholes for inventing synthetic shares in the name of "liquidity." This is explicitly why the markets see so much naked short selling to begin with. These shenanigans are wreaking havoc on our markets and diluting the worth of stocks everywhere. The last thing we need is yet another market mechanism that allows the problem to grow even larger. The NSCC should be ashamed of themselves for even proposing this new rule. This is just blatant fraud enablement. Do not allow this rule to pass, under any circumstances. Its entire premise is horrid. -PM