Apr. 20, 2022
I realize I am not a financial expert however reading through the new rule proposed SR-NSCC-2022-801, I have to ask who this rule is actually protecting and what it is fixing. This appears to show that SFTs are already being used on a daily basis, so this rule would allow SFTs to be used more efficiently/at a greater scale. I don't think that is a good thing in our current market structure. My problem is with a few specific statements: 1) \"NSCC understands that SFTs provide liquidity to markets and facilitates the ability of market participants to make delivery on short-sales, and thereby avoid failures to deliver, naked shorts, and similar situations.\" - Instead of actually delivering a real share, SFTs can be used to avoid triggering a FTD. All this does is push the requirement to deliver a share down the road. The SFT is still a borrowed security. How many times can a 1 day SFT be used \"kick the can\" infinitely? - If a borrowed security is used to cover a \"naked\" short, wouldn't this mean there is still a \"naked\" short it has just moved to where it is held. 2) \"A netted balance sheet can create significant capital benefits for market participants because it can reduce the amount of regulatory capital they must hold against SFTs under the U.S. supplementary leverage ratio and other capital requirements that favor a netted balance sheet.\" - From my understanding having this netted position would be a positive. However, wouldn't this shift where the capital needs to be held? Using a lended security would potentially help the Borrower on a short term basis but if the SFT lender recalled their securities it would place the borrower in a poor position. Because they would not have the \"Regulatory capital\" on hand. This whole proposal appears to provide easier means to get around current regulations for REGSHO, Regulatory capital requirements, and only would be benefitting certain parties. This is a bad band aid, a problem that only exists because of the market structure. This proposal should not be approved.