Today I’m going to touch topic on some SEC news.
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The SEC recently released two new rules that essentially go hand-in-hand with one another.
They are NSCC-2022-003 and NSCC-2022-801.
I’ll be breaking these down in simple terms below.
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NSCC-2022-003 and NSCC-2022-801
NSCC-2022-003 and NSCC-2022-801 essentially have to do with allocating securities into other pockets of leverage through the use of SFTs.
I’ve seen a few mixed thoughts on this SEC news on Twitter and on Reddit.
However, I’m going to break it down in the simplest form possible, so you have a better understanding of what these new SEC proposals are stating.
If you have any comments, thoughts, or opinions you’d like to make public to the community, be sure to leave a comment below at the end of the article.
What is an SFT?
An SFT is basically a leverage tool that will allow parties to simultaneously exchange the same securities between one another, in exchange for collateral.
For example, the purpose of NSCC-2022-801 is to establish new ‘membership categories’ and requirements for ‘sponsoring members’ and sponsored members where they can access this leverage tool.
It’s a safety net for institutions with overleveraged positions to hold owed securities, but ensures sales are delivered in the market, preventing FTDs and naked shorting.
SFTs involve the owner of securities transferring those securities temporarily to a borrower, typically a hedge fund.
The middleman in this scenario tends to be either a bank or a financial firm.
In return for the lent securities, the borrower of those securities transfers collateral to a party with an interest rate attached to that collateral.
SFTs in a nutshell are meant to provide liquidity to markets to make delivery on short-sales, and avoid FTDs, naked shorts, and similar situations, according to the report.
Will these rules benefit retail investors or hedge funds?
SFTs can also be seen as a program that will allow the NSCC to liquidate a defaulter’s net position in an orderly way to prevent massive market disruption.
NSCC-2022-003 limits the positions that need to be liquidated to reduce the volume of required sales activity in the market.
What regulators have essentially created is a ‘legal’ backdoor for overleveraged hedge funds to launder illegal naked short sells and FTDs.
NSCC-2022-003 and NSCC-2022-801 are essentially the same proposals only with slight updates.
Keep in mind these are only proposals.
So, while these new rules could be beneficial to retail investors as far as eliminating naked short selling in the future, it washes away the damage already created by overleveraged hedge funds today.
I strongly believe short sellers should be held accountable to closing their overleveraged positions first.
If the SEC wants to protect the integrity of the market and prevent massive disruption worldwide, they will hold short sellers accountable, relieving all pressure imposed on heavily shorted stock.
Failure to do so will mark the event as the greatest financial theft in stock market history.
We are on the brink of massive change.
History is being written; one of two decisions will be made, and the outcome will last forever.
SEC Email: firstname.lastname@example.org