Apr. 26, 2022
The first page of this makes me gag. This will be written as I read through, because it reeks of lengthy, intentionally opaque language to keep the wool pulled over retail eyes. My name is Jonah Crandall and I am a concerned retail investor. TL;DR: (Too Long; Didn't Read:) This proposed rule change cannot be implemented. It seeks to centralize all swaps and reporting to NSCC, who would have sole discretion over who wins and loses should underlying positions destabilize. The NSCC suggests rules that could damage the integrity of the markets while they would be off-the-hook should risks they created arise. "(i) establish new membership categories and requirements for sponsoring members and sponsored members whereby existing Members would be permitted to sponsor certain institutional firms into membership" -pg 23328. This sounds like permitting institutions to allow cronyism and nepotism to run rampant instead of meritocracy. The markets currently need more regulation and third-party auditing, not more self-governance "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." -pg 23329. Short selling is robbing value from retail investors, especially those whose IRA and 401k accounts are lent to be shorted. Shorting to the point that these "pools of liquidity" are needed is risky and destructive to price discovery. "In light of the potential for central clearing to alleviate the aforementioned capital constraints otherwise applicable to bilateral SFTs, NSCC believes that central clearing of SFTs may increase the capacity of market participants to engage in SFTs." -pg 23329. RETAIL DOES NOT WANT SFTs BECAUSE IT DEVALUES OUR INVESTMENTS AND RETIREMENT ACCOUNTS. CENTRALIZING THESE LIQUIDITY POOLS WILL ONLY PUT MORE POWER INTO ONE HAND, WHO HAS PROVEN UNTRUSTWORTHY, AND IS THE OPPOSITE OF THE DECENTRALIZED FUTURE RETAIL IS ADVOCATING FOR. Decentralization, so peers are able to audit the system, and transparency are the most important things in our markets. The crime large institutions commit against retail and retirement accounts with these "liquidity pools" is already too inexpensive for them and lowering rates will only further devalue retirement and retail portfolios. "In addition to creating capital efficiency opportunities for market participants, NSCC believes that broadening the scope of central clearing at NSCC to SFTs would also reduce the potential for market disruption from fire sales." -pg 23329. A greater reduction in market disruption would occur from eliminating short selling and dark pools. "In the case of securities lending transactions, the primary risk of fire sales relates to the reinvestment of cash collateral by institutional firms that are the lenders in securities lending transactions ... could similarly create fire sale conditions and not only harm the borrowers to the extent the value of the securities decline, but also create market losses for all holders of the borrowed securities ." -pg 23329. Again, remove securities lending. The damage is always against retirement accounts and retail portfolios. The systemic risk that is evident here cannot be ignored nor centralized. It must be snuffed out of the system. "Second, NSCC would only need to liquidate the defaulter’s net positions" -pg 23329. Decentralized smart contracts can do the same thing. Blockchain has the same capabilities while remaining entirely transparent. This does not constitute a reason to allow SFTs, as they devalue retail portfolios and retirement accounts. "NSCC would use its risk management resources to provide confidence to market participants" -pg 23329. The NSCC allowed the conditions that brought about 3 "once in a lifetime" market crashes in my less than 30 year lifetime so far. One of these, '08, caused directly by their neglect, opaque practices and greed. In case you have forgotten, this crash decimated the global economy because of the NSCC's poor risk management resources. I have 0 confidence in the NSCC as a market participant, nor as a taxpayer who has had to bail them out. The 2021 House Committee "Liquidity Drain Risk Mitigation" -pg 23330. This would not be an issue if the SFT system were removed. Centrally holding these SFTs so market participants cannot use their market knowledge to request higher collateral or recall their lent shares is totalitarian and far from transparent. "allowing Members to sponsor institutional firms into NSCC membership in a manner similar to that provided for under the sponsoring member/sponsored member program at the Government Securities Division (‘‘GSD’’) of Fixed Income Clearing Corporation (‘‘FICC’’), an NSCC affiliate (‘‘FICC’s Sponsoring Member/ Sponsored Member Program’’)." -pg 23330. Whoah. This needs to be changed too. Sponsoring/sponsored member programs allow firms to go through loopholes that would otherwise restrict them from participating in the relevant programs and allows opaque practices that can be changed at any time through "novation." Novation is as opaque as it gets and anti-retail. This needs to be removed from GSD and FICC and cannot be allowed in the NSCC. "The proposed SFT Clearing Service would also allow for the submission of broker-to-broker activity as well as client-to-client activity (credit intermediated by Sponsoring Members and/or Agent Clearing Members) into the NSCC system." -pg 23330. Decentralized smart contracts can and are doing the same thing in complete transparency. The NSCC is outdated and archaic and opaque. "rather than open transactions, eligible for central clearing through the proposed SFT Clearing Service." -pg 23330. They have made their stance clear as day. They want to control the market instead of fostering price discovery. This is entirely opaque and totalitarian. Footnote 22 "See Section 5 of proposed Rule 56, which provides that a Sponsoring Member shall be permitted to submit to NSCC SFTs between itself and its Sponsored Members." Another example of opaque practices hidden in intentionally lengthy language. "Consistent with NSCC’s general approach to eligibility for securities, the eligibility criteria would not be a rule, but a separate document maintained by NSCC and available to Members." -pg 23331. This is alarming. Without a clear written rule, eligibility criteria is remaining opaque. "In light of the fact that central clearing of SFTs would be a new service for NSCC, and market participants would be able to elect which of their eligible SFTs to novate to NSCC." -pg 23331. Even with participation being optional, the opacity and centralization of the proposed rule requires too much trust in the NSCC's continuously failing risk management strategies. "RVP/DVP Settlement at DTC" -pg 23332. This process is just too long compared with modern technological capabilities. Loopring has smart contracts conducting trades in near real time in complete decentralized transparency. There should never be a liquidity crisis, but NSCC profits clearly haven't been used for reinvesting into modernizing markets. "benefits the borrower by avoiding a situation in which the borrower’s failure to perform under a single transaction results in an event of default and close-out of all of its securities lending transactions." -pg 23332. The borrower should be required to close out other positions to satisfy their short obligations. It is bad enough that shorting is allowed. This is just another attempt to stifle true price discovery. "without causing unnecessary and disorderly defaults or regulatory violations." -pg 23333. Again, the NSCC is admitting they want to circumvent the law through opaque centralization. "Consistent with their rights under industry-standard ... established by NSCC for such purpose, such securities." -pg 23333 So the NSCC wants to centralize and not maintain authority to enforce recalls? The NSCC only cares about devaluing the stock market while taking no risk to themselves. This is how they have profited for years and why they have and continue to fight against technological advancements in finance. "Similarly, consistent with their rights under industry-standard documentation for bilateral SFTs, Transferees would have the right to accelerate the scheduled Final Settlement of a novated SFT through notice from the Approved SFT Submitter to NSCC of such accelerated settlement." -pg 23333. Faster settlement does not make securities lending OK. Securities lending is being conducted to devalue the stock market and specifically retail retirement portfolios. "Under the proposal, NSCC is requiring a deposit to the Clearing Fund 3." -pg 23334. The NSCC has a completely arbitrary set of deposit requirements as seen by the Robinhood margin call on Jan 28, 2021 that started at over $3billion and was reduced to under $1 billion. The risk management at the NSCC is laughable and arguably only exists to mitigate their risk, not market risk. "be margined independently of the Member’s other positions" -pg 23334. Nothing happens in a vacuum and margin accounts should be whole, not pieces of a whole. "Specifically, NSCC is proposing to calculate an SFT Member’s Required SFT Deposit by applying the sections of Procedure XV (Clearing Fund Formula and Other Matters) specified in Section 12 of proposed Rule 56 (i.e., Sections I.(A)(1)(a), (b), (c), (e), (f), (g) of Procedure XV as well as the additional Clearing Fund formula in Section I.(B)(5) (Intraday Mark-to-Market Charge) of Procedure XV as such sections apply to CNS Transactions, and the additional Clearing Fund formula in Sections I.(B)(1) (Additional Deposits for Members on the Watch List); (2) (Excess Capital Premium), (3) (Backtesting Charge), (4) (Bank Holiday Charge); Minimum Clearing Fund and Additional Deposit Requirements in Sections II.(A)1(a)–(b), II.(B), II.(C), and II.(D); as well as Section III (Collateral Value of Eligible Clearing Fund Securities) of Procedure XV, as such sections apply to Members)." -pg 23334. More intentionally lengthy and opaque language to deter retail from participating. Like I said before, NSCC has proven to be arbitrary in their margin rules so all of this lengthy bullshit is exactly that, lengthy bullshit. "NSCC’s determination to impose any such requirement would be made in view of market conditions and other financial and operational capabilities of the relevant SFT Member." -pg 23334 This is why the NSCC cannot be trusted. Just like Jan 28, 2021, they will choose who wins and loses margin calls and have the rules backing them up. This is abhorrent. "In the event NSCC ceases to act for a Defaulting SFT Member (as defined below and in the proposed rule change), on the Business Day that NSCC ceased to act, NSCC’s daily liquidity need calculation would include all Price Differential debits owed by the Defaulting SFT Member not processed at DTC. On subsequent days of the liquidation of the Defaulting SFT Member’s SFT Positions, NSCC’s total liquidity need calculations would include all novated SFT activity that has not reached Final Settlement on the Business Day NSCC ceased to act, netted together with all other outstanding settlement activity of the Defaulting SFT Member at NSCC." -pg 23335 Too long. The NSCC reserves too many rights that allow them to hold onto member's contracts, money and securities too long past expiration and execution. Again, the NSCC has an archaic system in this day and age of near-instant technologies. "NSCC has modeled a number of the aspects of the proposed sponsored member program, including the eligibility criteria and many of the risk management requirements, on FICC’s Sponsoring Member/Sponsored Member Program. FICC’s Sponsoring Member/ Sponsored Member Program allows an FICC Netting Member to sponsor an entity that satisfies certain requirements and submit to FICC for novation certain securities transactions between the Netting Member and the sponsored entity. These securities transactions generally include the off-leg of repurchase transactions on U.S. Government or agency securities or straight purchase and sales of such securities. Such transactions present similar risk management, legal, accounting, and operation considerations to SFTs, as both involve an obligation of a sponsored member and a sponsoring member to exchange cash against securities. Since 2005, FICC has worked with its members to improve its Sponsoring Member/ Sponsored Member Program to address these considerations. Based on feedback from Members and its own internal assessments, NSCC believes that leveraging the provisions of FICC’s Sponsoring Member/Sponsored Member program and the learning over the past decade and a half would allow NSCC to provide a sponsored member program that has a solid risk management, accounting, legal and operational foundation." -pg 23335 Intentionally lengthy and opaque language. Sounds like a bunch of crime to me because the requirements are not stated and there are plenty of "legal" actions that have been committed to steal money from retirement accounts. It also puts more power into the NSCC's hands since they would be able to choose who participates in SFTs beyond the current stated rules and regulations. "Under the proposal, all Members would be eligible to apply to become Sponsoring Members in NSCC, subject to credit criteria that are designed to be substantially similar to those applicable to category 2 sponsoring members in FICC’s Sponsoring Member/Sponsored Member Program for the reasons described above in Item II(B)(iii) ‘‘Sponsoring Members and Sponsored Members.’’ 41 A Member whose application to become a Sponsoring Member has been approved by the Board of Directors or NSCC, as applicable, pursuant to proposed Rule 2C (‘‘Sponsoring Member’’) would be permitted to sponsor their institutional firm clients into membership as Sponsored Members. Such Sponsoring Members would then be able to facilitate their institutional firm clients’ cleared activity via two back-to-back principal SFTs, i.e., client-toSponsoring Member and Sponsoring Member-to-broker (or to another institutional firm client that the Sponsoring Member has sponsored into membership), and each of such transactions would be eligible for novation to NSCC." -pg 23335-23336 The NSCC is requesting too much power and authority. Decentralization over centralization. Transparency over opacity. "The Sponsoring Member would establish one or more accounts at NSCC for its Sponsored Members’ positions arising from such Sponsored Member Transactions, i.e., Sponsored Member Sub-Accounts, which would be separate from the Sponsoring Member’s proprietary accounts. For operational and administrative purposes, NSCC would interact solely with the Sponsoring Member as agent of its Sponsored Members." -pg 23336. Seems like a great way for unsuspecting clients to be roped into SFTs they did not sign-up for while the NSCC takes no risk or responsibility. "although not organized as an entity specifically listed in paragraph (a)(1)(i)(H) of Rule 144A under the Securities Act." -pg 23336 Under NO CIRCUMSTANCE should the NSCC be permitted to circumvent the law. "Sponsoring Members as well as category 2 sponsoring members in FICC’s Sponsoring Member/ Sponsored Member Program." -pg 23337 Sponsoring leaves too much room to circumvent the law or risk management protocols. I cannot hold back this example any longer. Not the same circumstances, but the Ididarod used to be a sponsored system. It was short lived because previous racers would sponsor some schmuck at the bar who bought them a few rounds and the schmuck would die. They now only allow qualified racers to participate. The worst that could happen here is global economic collapse, right? And nobody dies during global economic collapse. (That's sarcasm, food costs money and these assholes in NSCC just profit off people whose paycheck is the difference between eating or paying rent.) "However, NSCC is not proposing to impose the same types of requirements on an Agent Clearing Member’s Customers as it does on Sponsored Members because a Customer would not be a direct member of NSCC." -pg 23337 Another avenue for them to skirt responsibility onto someone else. They want to take their profits and allow members to devalue the stock market through SFTs, all while taking 0 responsibility and requiring 0 risk management. Deplorable. "That said, some institutional firms that engage in securities lending may be prohibited from acting as Sponsored Members and engaging in principal-style trading with their intermediary in clearing for regulatory and/or investment guideline reasons. For those institutional firms, being able to transact SFTs as a Customer within an Agent Clearing Member Customer Omnibus Account would offer them a means to access central clearing that would otherwise not be available to them if the sponsoring/sponsored membership" -pg 23337 Another instance of an attempt to circumvent regulations. "Proposed Rule 2C, Section 1 (General)" - pg 23338 Just more ability for the NSCC to circumvent regulations while taking 0 responsibility should their new rules fail. "any Member would be eligible to apply to become a Sponsoring Member; however, if a Member is a Registered Broker-Dealer," -pg 23338 That sounds like a conflict of interest. Broker-Dealers wouldn't just lend from the free float and destroy price discovery while making a quick buck? "Section 2(b) of proposed Rule 2C" -pg 23339 Again with arbitrary requirements not written out for transparency. Intentionally opaque and lengthy language to profit with 0 risk to NSCC. "In addition, under Section 2(e) of proposed Rule 2C, NSCC may require each Sponsoring Member or any Sponsoring Member applicant to furnish adequate assurances of such Sponsoring Member or Sponsoring Member applicant’s financial responsibility and operational capability within the meaning of Rule 15 (Assurances of Financial Responsibility and Operational Capability), as NSCC may at any time or from time to time deem necessary or advisable in order to protect NSCC, its participants, creditors or investors, to safeguard securities and funds in the custody or control of NSCC and for which NSCC is responsible, or to promote the prompt and accurate clearance, settlement and processing of securities transactions." -pg 23339 No clear terms. Again, this could be used similarly to NSCC Jan 28, 2021 illy allowing Robinhood to choose margin requirements that circumvent regulations. "Section 2(f) of proposed Rule 2C would provide that each Member whose Sponsoring Member application is approved would sign and deliver to NSCC" -pg 23339 The NSCC's opacity is archaic. Modern technology allows full peer disclosure on documents like these. Decentralization is transparency. "Section 2(g) of proposed Rule 2C" -pg 23339 Centralization to the NSCC to continue adding opacity. All swap reports should be made immediately available to the public. "Section 2(h) of proposed Rule 2C" -pg 23339 More opaque centralization to the NSCC. These rules do not promote nor foster a free and fair market. "Notification must take place immediately and in no event later than 2 Business Days from the date on which the Sponsoring Member first learns of its non-compliance." -pg 23339 Completely contradictory. The NSCC's reliance on archaic technology leaves too much room for regulations to be circumvented. Almost all other technology in society is near-instant, the NSCC chooses to allow 2 business days so they and their members have time to find the legal loopholes for their "sell now find shares later" style of fraud. "NSCC would assess a fine" -pg 23339 FINES ARE NOT ENOUGH! Members of the NSCC are regularly fined for failure to follow regulations they continually ignore because the fines are just a fraction of the profits made through illegal trading. "If the Sponsoring Member fails to remain in compliance with the relevant standards and qualifications, NSCC would, if necessary, undertake appropriate action to determine the status of the Sponsoring Member and its continued eligibility as such. In addition, NSCC may review the financial responsibility and operational capability of the Sponsoring Member, and otherwise require from the Sponsoring Member additional reports of its financial or operational condition at such intervals and in such detail as NSCC shall determine. In addition, if NSCC has reason to believe that a Sponsoring Member may fail to comply with any of the Rules applicable to Sponsoring Members, it may require the Sponsoring Member to provide it, within such timeframe, and in such detail, and pursuant to such manner as NSCC shall determine, with assurances in writing of a credible nature that the Sponsoring Member shall not, in fact, violate any of the Rules." -pg 23340 Another admittance by the NSCC that a "slap on the wrist" is all the punishment members will incur for not following regulations. Furthermore, the centralization of this proposal puts the NSCC in the only authoritative seat, allowing NSCC to choose who wins and loses. Another Jan 28, 2021 Robinhood margin fail-safe, so to speak. "Section 2(j) of proposed Rule 2C" -pg 23340 The NSCC should not have the authority to allow members to delay their obligations. This could stop shareholders who want to recall their shares from receiving their shares before important shareholder votes or dividends. Centralization of SFTs to the NSCC does not promote nor foster free and fair markets for all participants. "(2) is a legal entity that, although not organized as an entity specifically listed in paragraph (a)(1)(i)(H) of Rule 144A under the Securities Act" -pg 23341 NSCC attempting to circumvent the Securities Act again. "any terms and conditions deemed by NSCC to be necessary in order to protect itself and its participants" -pg 23341 Intentionally opaque. Also, NSCC has a clear history of not protecting participants nor the global economy which should disqualify them from determining what's necessary to protect participants. "Section 3(d) of proposed Rule 2C" -pg 23341 Intentionally opaque language. There is no definition for immediate, but there is for prompt. NSCC is intentionally using different adjectives to place blame onto sponsoring members who were not "immediate" enough. This section once again seeks to keep reporting centralized within NSCC so the public is not aware of compliance issues. "which date shall not be prior to the scheduled Final Settlement Date of any remaining obligation owed by the Sponsored Member to NSCC" and "such termination would not be effective until accepted by NSCC, which shall be no later than 10 Business Days after the receipt of the Sponsored Member Voluntary Termination Notice from such Sponsored Member." -pg 23341 Another avenue for NSCC to stop shareholders from receiving back their lent shares "promptly," to put it in their own words. This also displays their inability to consider participants as equal to themselves since they expect 1 day notification but expect participants to wait 10x as long for a notice of termination. "Proposed Rule 2C, Section 6 (Sponsoring Member Agent Obligations)" -pg 23342 Another archaic practice of the NSCC. Sponsored members should publish reports just as the sponsoring members should. Transparency is only achieved when all participants are transparent. "Section 7(a) of proposed Rule 2C" -pg 23342 More self-reporting to a centralized NSCC. If any defaulting were to occur, the affected securities still won't be subject to price discovery since the NSCC will prevent settling the underlying. This proposed section seeks to undermine free and fair markets. "Section 7(b) of proposed Rule 2C" -pg 233422 Again, the NSCC seeks to place margin requirements into "their sole discretion." This could be used to allow members who are at threat of default due to an explosive position from closing out their obligations. This same power was abused on Jan 28, 2021 by the NSCC when Robinhood's margin call was decreased from well over $3 billion to under $1 billion. "Section 7(e) of proposed Rule 2C" -pg 23343 Fines are not sufficient. Bad actors consider fines to be a cost of doing business since they are so miniscule compared to the illegal profits made. "Proposed Rule 2C, Section 8 (Right of Offset)" -pg 23343 The NSCC is again proposing arbitrary margin requirements that leave NSCC as the sole discretionary party to choose who wins and loses. This will likely be abused as was seen on Jan 28, 2021 when NSCC lowered Robinhood's margin requirement from over $3 Billion to under $1 Billion so that Robinhood wouldn't default. This stopped true market discovery. "Proposed Rule 2C, Section 9 (Loss Allocation Obligations)" -pg 23343 More intentionally lengthy language. It sounds like Sponsored Members could just choose to walk away from bad bets while paying a capped price as a fee to NSCC. If this is the case, then this opposes free and fair markets. It opposes true price discovery. This section would allow shorts to effectively walk away from an explosive position for a fraction of the cost while the lender is left high and dry. "Proposed Rule 2C, Section 10 (Restrictions on Access to Services by a Sponsoring Member)" -pg 23343-23344 Another section of intentionally lengthy and opaque language. The board of the NSCC is reserving itself the right to pick the winners and losers of the SFT market. No entity should have the deciding power on who wins and loses in the market. This section seeks to directly combat free and fair markets. "Proposed Rule 2C, Section 11 (Restrictions on Access to Services by a Sponsored Member)" -pg 23344 More intentionally opaque and lengthy language. What proposed rule 56? I can't even find what they are referencing but don't need to to understand they want to have sole power of determining who participates and when. This is not free and fair. "Proposed Rule 2C, Section 12 (Insolvency of a Sponsoring Member)" -pg 23344-23345 "immediately" is used again with no definition; how fast is immediate? The NSCC's archaic system already takes too long to process trades, transfers and settlements. They think two days is "prompt." This wording is not specific enough and leaves too much room for insolvent members to hide the problem before anyone wises up. NSCC wants to again choose when it is convenient to close out defaulting members' contracts. This can and likely would be abused to stop closing short positions that have largely increased in value. Again, the NSCC is using lengthy and opaque language to grant themselves sole discretion on who wins and loses. "Proposed Rule 2C, Section 13 (Insolvency of a Sponsored Member)" -pg 23345 "Immediately" used again to keep the language opaque. NSCC attempting to reserve the right to choose to cease acting on behalf of a sponsored member is an attempt to control who wins and loses. These types of power grabs cannot be allowed into the rules. "NSCC anticipates that each Sponsored Member and Sponsoring Member would agree in the bilateral documentation between them as to what circumstances or events give rise to the ability of the Sponsoring Member to deliver a notice to NSCC terminating the Sponsored Member’s positions." -pg 23345 Case by case circumstances that are only shared with the NSCC? Sounds like another opaque avenue for market manipulation. In case the person reading this hasn't realized it yet, most of this rule is NSCC's attempt to manipulate the securities lending market. "Under Section 2(a) of proposed Rule 2D" -pg 23347 I believe this was already mentioned somewhere previously. I'd like to point out the clear conflict of interest in a market maker or custodial holders, who are members of NSCC, being able to participate in SFTs. Market Makers could effectively use stock floats to profit off SFTs and further dilute stocks that are being heavily lent and shorted, though market makers are supposed to be neutral on each security. Custodial Holders (members who hold IRA and 401K shares for investors) have a fiduciary duty to protect those investments, and lending those shares to be shorted devalues the underlying posing a conflict of interest. "Section 2(b) of proposed Rule 2D" -pg 23347 This section is again extremely vague and opaque. NSCC should not be allowed to have case by case, sole discretion on who participates in which markets. It's arbitrary and not clear to other participants, whose portfolios may contain the same underlying these hidden parties are playing with. "Section 2(e) of proposed Rule 2D" -pg 23347 "may require." The NSCC is again using arbitrary and opaque language to establish itself as the sole discretionary of who wins and loses in the market. The NSCC abused similar rules on Jan 28, 2021 to ensure Robinhood did not default under an over $3 billion margin call by reducing this margin call to under $1 billion. GameStop investors lost that day because NSCC chose to not require the same margin as the rules suggest they do. These aren't really rules, since there is no hard-line language used. Rules are strictly adhered, not possible suggestions. "Section 2(g) of proposed Rule 2D" -pg 23347 What timeframes? NSCC is intentionally obstificating general market participants again by not making reports nor reporting requirements clear and public. "Section 2(h) of proposed Rule 2D" -pg 23347 Not good enough. It is bad enough to allow SFTs, but if SFTs are to be allowed, the swaps MUST BE REPORTED TO THE PUBLIC. Hiding this data will lead to more opacity in the market and could lead to abuse by the centralized party (NSCC) and its participants as it has previously. "Section 2(i) of proposed Rule 2D" -pg 23348 Archaic. Modern technology allows for near-instant notifications and bank transfers. The NSCC is giving too much time to insolvent members, which can be abused to hide their insolvency. Fines are laughable. People who steal go to jail, but the NSCC is allowed to choose its own laws and punishments? The NSCC is not a government organization, and crooks deserve the same punishment whether they work in an inner city or at Wall St. For too long, these fines have been a fraction of the cost of the profits made through the illegal actions. For too long, white collar crime has been allowed to run rampant with little real-world punishment for those crooks. This is another section that seeks to establish NSCC sole determinant in who wins and loses in the market. With no clear determining factor, NSCC could require more from insolvent members or not. THEY WANT TO CHOOSE WHO WINS AND LOSES. This is not a free and fair market rule. "Section 2(j) of proposed Rule 2D" -pg 23348 "shall have the right to cease" This is not a rule. This is a provision for the NSCC to choose winners and losers in the market. NSCC should have the obligation to close contracts involving insolvent members. No insolvent members should be permitted to extend their SFTs by 30 calendar days because they ask. Insolvent members should be forced to close the affected contracts by market close on the day of insolvency. "Section 2(l) of proposed Rule 2D" -pg 23348 NSCC is ridiculous in using an archaic system that allows two business days for notification of insolvency, but they are even more ridiculous in expecting members to wait up-to 10 days to have termination of their Agent Clearing Member status effective. "Notwithstanding the previous sentence, however, NSCC may, in its sole discretion, at any time and without prior notice to the Agent Clearing Member (but being obligated to give notice to the Agent Clearing Member as soon as possible thereafter) and whether or not the Agent Clearing Member is in default of its obligations to NSCC, treat the Agent Clearing Member’s accounts as a single account for the purpose of applying Clearing Fund deposits" -pg 23350 NSCC, again, using vague and arbitrary determinants to choose who wins and loses from their rule changes on a case-by-case basis. JUSTICE IS BLIND. "Section 6(e) of proposed Rule 2D" -pg 23350 FINES ARE NOT ENOUGH! Enforce laws by taking all profits made illegally. Send people to jail for breaking securities violations. These actions by bad actors are fraud and theft. These Wall St firms live in fantasy land because they are almost never punished for the laws they commit. Also, the NSCC is not a government organization and should not have the right to choose which punishments people incur from breaking the law! "Notwithstanding the previous sentence, however, NSCC may, in its sole discretion, at any time any obligation of the Agent Clearing Member arises in respect of any Agent Clearing Member Customer Omnibus Account, exercise a right of offset and net any such obligation against any obligations of NSCC to the Agent Clearing Member in respect of such Agent Clearing Member’s proprietary accounts at NSCC." -pg 23350 NSCC's lengthy and opaque way of saying they may choose who wins and loses at any given time. "Section 8(b) of proposed Rule 2D" -pg 23350 Another provision to allow shorts to step-away from an explosive position and pay a capped amount to close out their obligations. This is fraudulent and far from free and fair markets. "nor would NSCC know which transactions within an Agent Clearing Member Customer Omnibus Account belong to which Customers" -pg 23351 The central party that is supposed to ensure this is all operating smoothly wouldn't even know what is going on? This is ridiculous. The NSCC is suggesting provisions that endanger the general structure of the free and fair markets, yet they want no responsibility, no public reporting and not even reporting to them. This cannot be allowed, all reporting needs to be public. "Section 10(a) of proposed Rule 2D" -pg 23351 Again, the NSCC uses ambiguous time frames which can give their insolvent members time to hide their insolvency. "Section 10(b) of proposed Rule 2D" -pg 23351 More provisions for the NSCC to choose who wins and loses. Same spineless language with zero conviction. "may cease." HA! NSCC is an old joke that needs to be replaced. More obstification and hiding positions with lack of reporting, even to a centralized party! "Section 11(b) would also provide the Agent Clearing Member shall indemnify NSCC, and its employees, officers, directors, shareholders, agents, and Members, for any and all losses, liability, or expenses incurred by them arising from, or in relation to, any such transfer." -pg 23352 No accountability. The NSCC is proposing a destructive rule change but wants to take zero responsibility when it fails! It's pathetic that NSCC is considered the best in the world. There is something deeply wrong with the folks in the NSCC and the government regulators that have allowed THIS sham to be the standard. "the Rules shall govern the novation of Agent Clearing Member Transactions and all transactions between the Customer and its Agent Clearing Member resulting in the novation of such transactions, and at the time of novation of an Agent Clearing Member Transaction, the Customer on whose behalf it was submitted would be bound by the Agent Clearing Member Transaction automatically and without any further action by the Customer or by its Agent Clearing Member, and the Customer agrees to be bound by the applicable provisions of the Rules in all respects" -pg 23352 Is the customer even asked? I have read no provision that requires an Agent Clearing Member to have the Customer's permission to participate in these erroneous acts. "(C) Proposed Rule 56—Securities Financing Transaction Clearing Service" -pg 23352 This formatting is awful. What happened to rules 3 through 55? At least now readers of this proposed rule change know what this mystery rule 56 relates to. The formatting of this proposed rule change reeks of intentional length and obstification to keep retail and regulators from reading, let alone understanding, the rule changes. Speaking of formatting, the three columns of text are weird and pointless. It would take up less space if the rules were written in one column like normal legislation. "The term ‘‘Recall Notice’’ would mean a notice that triggers the provisions of Section 9(b) of proposed Rule 56, relating to a Buy-In in respect of an SFT and that is submitted by an Approved SFT Submitter on behalf of a Transferor in accordance with the communication links, formats, timeframes and deadlines established by NSCC for such purpose. The term ‘‘Recalled SFT’’ would mean an SFT that has been novated to NSCC in respect of which a Recall Notice has been submitted." -pg23353 Recalls should be returned to the lender by End of Day if SFTs are to be allowed. "The term ‘‘Securities Financing Transaction’’ or ‘‘SFT’’ would mean a transaction between two SFT Members pursuant to which (a) one SFT Member agrees to transfer specified SFT Securities to another SFT Member versus the SFT Cash; and (b) the Transferee agrees to retransfer such specified SFT Securities or equivalent SFT Securities (including quantity and CUSIP) to the Transferor versus the SFT Cash on the following Business Day." -pg 23353 If this is all one day, then why all the provisions for multi-day notices of termination and recalling? The definition is not clear as to what an SFT really is. No true definition uses the word in describing itself. NSCC has made another vague and lengthy section that doesn't really seem to mean anything to the reader. "Under Section 2 of proposed Rule 56" -pg 23354 Market Makers and Custodial Holders are in positions of a conflict of interest should they participate in SFTs. Market Makers have a fiduciary duty to remain neutral on the stocks they oversee, while Custodial Holders have a fiduciary duty to protect the investments they custodially hold. Lending shares for shorting is a direct conflict of interest for Custodial Holders and needs to be stopped. Hasn't technology made Custodial Holders obsolete? There must be a program capable of holding securities for a designated time for IRA and 401K portfolios. "Section 4(e) of proposed Rule 56" -pg 23355 Are there repercussions if this section is not strictly adhered to? Shouldn't violation cause termination of contract at the minimum? Community service or jail time for habitual offenders? "the processing of such deliveries by DTC in accordance to the rules and procedures of DTC; provided that if such transfers do not occur and a Buy-In does not occur in respect of the SFT, then the Final Settlement Date shall be rescheduled for the following Business Day as described in Section 9 of proposed Rule 56, as described below" -pg 23357 That's not a consequence. If the lent party refuses to buy-in, they should be held responsible in some way, like a 100% (of the underlying securities' value at market close) fine levied. If members repeatedly refuse to buy-in by their deadline, they should be sent to community service lest they serve jail time. There is no reason to not buy-in when the obligation deadline is reached except that members may not want to. NSCC allowing breaks in contract with no repercussions leads to sociopathy of members since they can break contracts on a whim, which does not happen outside the fantasy world NSCC has created. "Section 7 of proposed Rule 56 would also provide that an SFT, or a portion thereof, shall be deemed complete and final upon Final Settlement of the SFT, or such portion, whether pursuant to Sections 7, 8, 9(d) or 13(c) of proposed Rule 56. Section 7 would also provide that from and after the Final Settlement of an SFT, or a portion thereof, pursuant to any Sections 7, 8, 9(d) or 13(c) of proposed Rule 56, NSCC shall be discharged from its obligations to the Transferor and the Transferee, and NSCC shall have no further obligation in respect of the SFT or such portion. This is to make it clear to SFT Members the point at which settlement of an SFT is deemed to be complete and final." -pg 23357 This sounds like member X can borrow 100 units of XYZ stock from member Y, return 75 XYZ on the Final Settlement and the NSCC says its obligations are done. What about the other portion? This seems like an easy way for members to only return part of what is owed and call it a day. "Section 9(a) of proposed Rule 56" -pg 23358 Redundantly and lengthily hashing out the NSCC's permittance of members who receive lent securities to not fulfill their obligations with zero consequence. Members who do not return securities lent to them by the deadline should be subject to 100% fines, contractual termination, removal from NSCC participation, community service and/or imprisonment. "Section 9(b) of proposed Rule 56" -pg 23358 Under no circumstance should the NSCC be allowed to dictate whether securities lenders can buy-in to their underlying positions. This is ridiculous! Under this proposal; if a lender X had XYZ stock lent out, XYZ company announced a dividend, the stock price rose to the point short seller Y did not want to return lent XYZ stock back to lender X, the NSCC would allow this and then tell lender X they cannot buy-in to ensure they have their stocks when the ex-dividend day comes. "the commercial reasonableness of a Buy-In shall be determined by NSCC based on whether, in the opinion of NSCC" is more arbitrary and opaque practices being suggested by the NSCC so that they remain the sole discretionary power on choosing winners and losers in the market. The NSCC seeks to undermine the free and fair markets of the United States. Then they want to wipe their hands of it and indemnify themselves from any problems that may occur! "(y) indemnify NSCC, and its employees, officers, directors, shareholders, agents and Members (collectively the ‘‘Buy-In Indemnified Parties’’), for any and all losses, liability or expenses of a Buy-In Indemnified Party arising from any claim disputing the calculation of the Buy-In Costs, the Deemed Buy-In Costs or the method or manner of effecting the Buy-In." The NSCC is deplorable. "Proposed Rule 56, Section 11 (Accelerated Final Settlement)" -pg 23359 So the transferee can return the securities faster if it wants, but doesn't have to return the securities within its obligation timeframe? Ridiculous. "Section 12(c) of proposed Rule 56" -pg 23359 NSCC has previously stated the board will choose the financial requirements on a case-by-case basis. They may use this section for determining financial requirements of members, "except as noted otherwise." It's opaque and arbitrary. It then establishes laughable borrow fees and margin requirements! Fixed fees by NSCC undermines true price discovery, while only requiring a portion of the SFT Cash could easily lead to members overextending themselves so they later default on their obligations. The NSCC knows this and allows the transferee to default on their obligations without any repercussion, as seen throughout this proposed rule change. Allowing portions of the SFT Cash with no enforcement on the transferee returning the shares on the Settlement Day means transferees could wait out unfavorable prices with no risk at the expense of the real owner of the shares. "The Credit Risk Rating Matrix is a financial model utilized by NSCC in its ongoing monitoring of Members based on various risk criteria." -pg 23359 The NSCC has no clue about risk management. The fire sales and overshorting of the market caused a stock market crash when news of a pandemic arose. The NSCC's risk management allowed the '08 market crash. These assholes need to be audited by the public at large. Decentralize them. "Section 12(e) of proposed Rule 56" -pg 23360 Interesting thing to again note here: "Different rules for thee than for me" seems to be the NSCC creed. They want their money the same day, but expect participants to wait for their money. Albeit a business day, which isn't very long, the NSCC continues to write in a way that grants NSCC better rights and execution than any other party. Is NSCC being arbitrary or is their technology really so archaic they have to still helicopter their wire transfers? "Section 13(a) of proposed Rule 56" -pg 23360 Arbitrary and opaque. The NSCC states no reason other than the NSCC may choose to stop allowing the security. "falls below the threshold established by NSCC from time to time" -pg 23360 More arbitrary and opaque language giving NSCC sole discretion and knowledge on requirements of inclusion. "Section 13(d) of proposed Rule 56" -pg 23361 In no clear terms, the NSCC has stated they don't have to finalize a settlement? I really don't know since the wording is so jumbled and lengthy. "may cease to permit the discharge of the SFT’s Final Settlement obligations" could possibly if they wanted to allow the removal of SFT's final settlement obligations? Am I on the right track? Sounds arbitrary and opaque, again. NSCC just wants to have the sole discretion and knowledge of what's going on in the markets. "Section 16(b) of proposed Rule 56" -pg 23362 More senseless centralization to the NSCC. "Section 16(c) of proposed Rule 56" -pg 23362 NSCC plans to allow approved members to swap without oversight while relinquishing themselves of any consequence from any misconduct said members are likely to commit. This is deplorable. "Section 16(d) of proposed Rule 56" -pg 23362 This reads as "I don't care what happens, pay me." NSCC only seeks profit, not a fair and free market. Pay me for reading this intentionally lengthy bullshit of a rule proposal. No wonder the current rules in place in the market allow for NSCC and others to cheat and manipulate the market; they write the longest way possible so nobody could possibly read everything they release, and those who are paid to read these rambling market manipulation tactics just leave the SEC to join NSCC or DTCC. It should be illegal to write a (proposal for) rule or law that says so little with so many words. "Proposed Rule 56, Section 18" -pg 23363 I oppose the inclusion of any and all Shorting and/or SFT provisions/services in the NSCC/DTCC rules. I oppose all rule changes proposed through Rule 56, Section 18 for all reasons previously stated in this comment. These rule changes carry too great a potential for abuse and obstification of investors/institutions/regulators not participating in SFTs. These rule changes would not hold the NSCC responsible for proposing and enacting this rule should problems occur, yet they are the ones perpetrating the action. "NSCC expects certain market, liquidity, credit and operational risks may be presented by the establishment of the proposed SFT Clearing Service and the additional membership categories proposed in connection therewith. Accordingly, NSCC proposes to address and manage each of these risks as detailed below." -pg 23365 They know what they are doing is dangerous, yet absolved themselves many times over. This rule cannot be allowed. "Accordingly, NSCC believes that, taken as a whole, the proposal would not have any risks to NSCC, its Members and the market overall that cannot be prudently managed or mitigated." -pg 23366 They thought the same thing when they were swapping shit mortgages in '08. The only reason they can say it for themselves is cause they have made sure over and over again that the language of this rule change cannot hold them accountable at all, even though they proposed the stupid rule. "The proposal is structured in a manner that allows NSCC to protect itself from associated market risk." -pg 23367 Yes, and that's a problem! If they are to propose such radical rules, they must be held responsible should those rules cause market problems. "Until NSCC has satisfied the Final Settlement obligations owing to nondefaulting SFT Members, NSCC would continue paying to and receiving from non-defaulting SFT Members the applicable Price Differential" -pg 23367 Not only does NSCC reserve the right to take 10 business days to acknowledge termination of contract with them, but members have to pay the entire time too. Wow. That sucks. "when calculating the amount of liquidity resources that NSCC may require in the event of the default of the participant family that would generate the largest aggregate payment obligation for NSCC in extreme but plausible market conditions." -pg 23367 Lengthy way of saying "price-fixing" and picking the winners and losers. More opaque and arbitrary determinants used by NSCC to obfuscate market participants and regulators. "The proposal is also structured in a manner that allows NSCC to protect itself from associated operational risk. NSCC proposes to utilize to a significant extent the same processes and infrastructure as it has used for many years" -pg 23368 NSCC should not be protected from any of the risks associated with this rule proposal since it is their rule and they act as sole discretion on participants and their actions. The use of NSCC's same technology they have relied on for years is also a problem. Technology has progressed exponentially for many years and they rely on archaic technology that cannot keep up with modern day needs. They should not be proud of using the same technology for many years. "the proposal would protect against fire sale risk." -pg 23368 I have an easier proposal that would protect against fire sale risk: ban shorting. "Reducing Systemic Risks and Supporting the Stability of the Broader Financial System" -pg 23368 This grossly neglects the effects on securities that are lent. This whole rule is being proposed so NSCC participants can continue to oversell securities without looking if they have the reserves, borrow these securities from retirement accounts then not pay back the full amount when a short squeeze occurs. "NSCC also believes that the proposed rule change is consistent with Rules 17Ad–22(e)(7), (8), and (18), promulgated under the Act" -pg 23368 So they have a rule that states every future rule proposal cannot hold them accountable for anything? Can the NSCC even break the law anymore or do they just act as an evil sovereign citizen? "publicly disclosed criteria for participation in NSCC" and "Similarly, NSCC believes the proposed changes to establish new a membership category and requirements for Agent Clearing Members would establish objective, risk-based, and publicly disclosed criteria for participation in NSCC as Agent Clearing Members" -pg 23369 Literally the first mention of information being publicly disclosed, all other information seems to be disclosed only to the NSCC. "The proposed change may be implemented if the Commission does not object to the proposed change within 60 days of the later of (i) the date that the proposed change was filed with the Commission or (ii) the date that any additional information requested by the Commission is received. The clearing agency shall not implement the proposed change if the Commission has any objection to the proposed change." -pg 23369 Is this the power of a self-regulating organization? This rule change seeks to undermine free and fair markets while holding the NSCC not responsible should any problems arise. Meanwhile it is as long as possible and likely to cause many manipulations. The NSCC should not have the authority to authorize its own rules. This proposed rule is deeply disturbing as a retail investor. NSCC is technologically stuck in 1980 while ignoring their part in offering such a risky rule change. Securities lending should be strictly regulated by decentralized auditing, peer review and SEC oversight. Shorting should be entirely removed from the market as it devalues businesses, which is contrary to the American Dream and abused in cases like Dendreon, Sears, Toys R Us and others. I'm appalled that I, an amateur investor, have to read ridiculously long rule changes because regulators have not acted in the interest of free and fair markets for too long. I'm even more appalled to read what passes for a proposed rule change; the formatting and wording is so obtuse and any teacher in school would have given me a D, if I was lucky. It seems the rules are so long, regulators don't have time to read them if they even bother. This rule needs to be displayed; not for serving as a rule, but rather as an example of how not to write a proposed rule change. The formatting, wording and meaning are all awful. I do not endorse this rule change. -Jonah