NSCC-2022-003 has been APPROVED.
The filing replaced NSCC-2021-010 which was withdrawn on March 25th of 2022.
The rule aims at providing a more stable environment for market participants and I’m going to break it all down below.
Let’s get started.
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NSCC-2022-003 SFT clearing service
NSCC-2022-003 would implement the SFT clearing service (securities financing transactions).
This means the NSCC would act as a third party to clear FTDs (failure-to-delivers) from various institutions.
The NSCC would also collect margin from both the lender and borrower to mitigate any risk.
Here the NSCC essentially acts as a referee, preventing overleveraging, naked shorting, and FTDs in the market.
Predatorial short selling strategies could potentially be eliminated due to this filter.
The NSCC believes it can reduce market disruption from fire sales by liquidating positions in small batches.
I’ve stated in recent articles and on my channel that a squeeze in AMC and GameStop will likely occur in sequences.
A ‘controlled squeeze’ so to speak to avoid systemic risk in the market.
It’s very possible NSCC-2022-003 was created to unwind this mess in a manner that would prevent the stock market from collapsing.
Does the rule help hedge funds?
Yes, but it also helps retail investors.
While NSCC-2022-003 provides a safety net for overleveraged institutions, it will also create more balance in the market for retail investors.
The NSCC is requiring all SFT members to provide a $250,000 margin minimum amount.
And with DTCC B16845 already raising margin requirements, I think it’s fair to say hedge funds are being put on a leash.
Investors have been asking me, what happens if a hedge fund defaults?
Will they be held accountable for their short positions?
Assuming a hedge fund becomes an SFT member, under NSCC-2022-003, the NSCC would take all responsibility and be obligated to meet all settlements.
Although the proposal requires a $250,000 margin minimum, the NSCC is requiring members to hold sufficient liquidity to cover the largest settlement obligation.
In other words, every short position will be obligated to get closed.
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Frank after pondering this and watching your video and explaining this rule it is just as I thought!! We bailed them out for 30 years and we will bail them out again with our new tax dollars shortly .Its time to get people in charge to put SEC and NSCC on investagation make some perminate rules for a fair market and no short selling and no crooks doing what they are doing now I have my life invested in AMC and so do lots of other retails and tase piece of SHITadel are trading fake shares and getting bailed out give me a FFFGGGG brake.
They’re all crooks – we’ll see how this plays out.
This seems like it might/could produce a (ie. Tesla type) squeeze where it takes a year or so to play out…. But at a larger magnitude. I think the key factor is if they they still have to cover the backdated stuff from a year, and a year 1/2 ago. Some data cannot be accounted for. That is still on the table. So, if we hold, it can still happen, just will take its time.
Spelling Correction to my post:
This in essence prevents the MOASS on AMC from happening.Not great for the long time holders of AMC like myself who is underwater and at a present loss.
Frank , thanks for writing about this rule,being that
the SEC came out with it ,like I indicated when I saw the ruling on 05/31/22 , It would limit or prevent the rest of the market from tanking when the hedge funds started defaulting because it would let them use the NSCC as a go between for loans from other members. If they defaulted the other party would not have to worry they won’t get there money and the NSCC would be able to sell off the loaned securities in a controlled manner to keep the stock from crashing. If it was just a loan between the shorter and the loaner the shorter would dump everything at once and #$%$ the market. This in essence progeny’s the MOASS oh AMC . I don’t like the ruling , not great for us Long molders of AMC , give the shorters ,hedge funds coverage .
That is PATHETIC as usuals…
I don’t think that will be in Retail favor, this smell like a back door for SHF’s and to screw Retail with NO MOASS…
It seems like the ruling could be a way to release some pressure little by little (squeeze) in order to refrain from the market from completely collapsing.
Let’s start a discussion! Leave your thoughts below.