Apr. 20, 2022
This is appalling. The proposed rule change would, in effect, allow SHFs to purchase insurance (by way of cash collateral) on any large price swings in securities for which they have borrowed, instead of being forced to repurchase borrowed securities at the MARKET PRICE. What is the point of a 'free market' system if you simply create financial instruments that allow firms with the cash to burn to weasel their way out of bad bets? If market participants need to sell off massive quantities of securities for cash to meet margin requirements, then so be it. That, to me, sounds like the free market in action. Sure, this might cause a fire sale, but for anyone paying attention this would be a glorious buying opportunity. A hedge fund being liquidated for borrowing a security that skyrockets in price sounds like a loser losing. Any other securities negativity affected by this liquidation would bounce back as any reasonably informed investor would research the cause of said price movement and realize that the downward pressure is not due to any weakness in the affected company/fund. Heck, I'd wager that the people on the other end of the hedge fund's bad bet will throw their gains right back into the market since holding cash is akin to holding sand these days. "The best time to buy is when there is blood in the streets". The thought that this protects retail investors is absolutely laughable. Could you imagine a broker offering this deal to a retail investor? "Hey buddy, I know margin investing is EXTREMELY risky, so if you pay us an extra $100, and the security you borrow happens to skyrocket, we'll go ahead and let you close your short position at YESTERDAY'S PRICE and all you'll lose is $100" HA. That'll be the day. Instead of trying to roll back regulatory requirements created the last time you all fucked up the stock market (so you can prop up the most speculative market in history), make a genuine effort to unload the gun that is at the head of the American investor. "If we go down, you go down" is not a good enough reason to prop up hedge funds/MMs who make bad bets. How about you require them to disclose their short positions? Or eliminate dark pools and route ALL orders to lit markets? How about you start doing something about the ridiculous quantity of FTDs that no one at your institution seems to give a fuck about? "Any firm that fails to deliver on a borrowed security shall pay a fine to the SEC equal to the value of shares not delivered. In addition, they shall be required to repurchase shares to fulfill their obligations on the next trading day. In addition, the offending firm shall be disallowed from borrowing more shares in the underlying security which triggered the FTD for 1 week." Boom just solved your budget issues and FTDs in one fell swoop. Are you hiring? How about, instead of allowing them to kick the can, you grow some teeth and force some people with more money than they can ever hope to spend in 10 lifetimes to stop making the kinds of bets that place the entire market at risk? Having their portfolio liquidated seems like a lesson that will "stick", don't you think? https://youtu.be/qdsLIdbyQEk You swore an oath, Gary. Can you look the American public in the eye and tell them that this protects them more than it protects hedge funds? Are they really the ones who need your protection? The results of this proposal will show the world where your loyalty truly lies.