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JD Cumpson Comment On Regulatory Notice 21-19

JD Cumpson

As a self-regulatory conglomerate it is beyond the reasoning of a "retail" investor as to why such ordinances do not already exist. The SEC itself has proclaimed naked-short selling to be a well established predatory and dangerous practice that undermines the free-market operations of millions of non-institutional investors who cannot play by the same rules. In addition to the regulatory capture here, it should be seen as important for FINRA to also enforce penalties in accordance to the scale of their misdoings. While FINRA should already be capturing the short sale position and requiring all participants to comply with the CAT (which should be implemented for all participants immediately) they should also be raising fines and seeking collaboration with the Department of Justice to criminal indict those who continuously break ordinances for profit: stealing. Simply put, fines should cost more than the gain. No longer should naked-short selling come with "cost-of-doing-business" fines that allow naked short sellers to abuse the system and artificially create billions of fraudulent shares with no intention to ever cover. I bring this up because many of the SR fines to date have been those fining firms who "misappropriately mark" sales as long when they are in-fact short. Collecting this data is useless if firms continue to lie and pay cents on the dollar to do so. The T+N systems are clearly broken, "retail" investors aren't even privy to this information, let alone allowed to benefit from it - it exists to create liquidity; the liquidity created should be read as "room to grift legally acting participants out of their money". A T+0 system could be available today, it only does not exist because it is not profitable to do so. Combined with payment-for-order-flow, naked short selling is the "win button" for those who have both market-making, hedge fund and brokerage arms to their businesses. Anti-monopoly rules should apply to these businesses - they are too big to play fairly, not too big to fail. This data should be collected at the very least monthly, though we have the capacity to aggregate this data daily, at non-trivial but worthwhile expense to participants. Large market participants should have the obligation to comply with these extreme audit measures as it ensures equity for all - if they cannot do this and remain profitable, it surely isn't because the salaries of the engineers is too high; it is because it would limit their ability to grift the market. Moreover, dark-pool or off-exchange transactions also should be collected with equally high frequency. And off-exchange transactions should be limited to the original ratio of on-exchange:off-exchange, 20: 1 - because nearly half of all transactions occur off the market, the general public has very little ability to see into transactions that occur "upstairs" - especially deals which involve "sham" options between agreeing parties (see crony capitalism) which are torn up after being reported, or various buy/sell operations to relieve failure-to-deliver notices between agreeing parties. The stock market would see increased participation, less volatility and increased price discovery if all of the steps aforementioned are taken. Publicly available information of all publicly traded stocks and derivatives including short sales, immediate implementation and adherence to CAT protocol, increased fines and criminal indictment, and reduced function of off-exchange transactions with appropriately added auditing. Additionally, all failure-to-deliver data should be public and published daily - and those in violation should are, in fact, breaking the law and should be treated as criminally liable. Firms are highly sophisticated and likely already know all the information that FINRA is hoping to consolidate here and therefore should be given no more than 6 months to comply with these regulations. Finally, I agree that all short-sale information should be collected, heavily fined if misappropriately marked, and made public for inspection for all to see. This should happen before 2022.