Comment Text:
Dear CFTC,
all actions that result in reductions to reporting requirements, detail, and accuracy must be stopped. Swaps are notoriously used to hide trades, risks and market exposures, thereby distorting and hindering the ability of retail investors, journalists, firms and regulators to understand processes, identify and mitigate risks, and to properly understand market movements and risk exposures. In 2008 (and in the years before), banks and other institutions hid risk and packaged it into MBS. In the current market, participants use swaps to externalize risk and prevent proper reporting of short positions, volatility, investment quality, and leverage. This has already been examined and observed in the context of the Archegos Capital fallout and their (in my humble opinion) blatant misuse of total return swaps.
While it is true that efficiency needs to be improved, transparency and basic infrastructure is even more important.
Additional costs and changes in internal structure are a weak explanation and excuse for not implementing these changes - any institution large enough to use swaps should be large enough to pay for them appropriately and improve their infrastructure, especially as we are in the 21st century. It cannot be that the (world) market and the big players refuse to improve necessary infrastructural processes. It seems much more as if this is a fear of being able to make less profits and take less risks, since now it is possible to observe more closely. This is not a free market, but a casino - a casino that only big institutional players can enter, a casino that has no rules as long as the money goes into the right pockets.
As a retail investor, I already suffer from a huge asymmetric information deficit. Unfortunately, the same is true for regulators and investigators. We actually need more accurate reporting standards, especially for SROs. Even though swap reporting has been paused to some degree (which was not a good decision, and makes one think it is due to the volatility caused by large financial institutions from March 2020 to January 2021), any further changes, reductions, and changes in reporting requirements will result in even less transparency - and the market is already very opaque and inefficient. These inefficiencies result from weak regulations (and little persecution), weak reporting, loopholes, and less oversight and insight. The market will become even more inefficient if swaps are not reported properly and in great detail.
If it is not possible to reduce these efficiencies, it means for better or worse that there is too much technical debt in the system. This is a different problem altogether, and just shows again that the people in charge put profits above everything else. They say "never change a running system" - but the system is crawling. It doesn't need more creeps, it needs a new system and healing. However, just because the system is crawling, it should not receive special treatment. A quick death is preferable before it takes the whole world market with it. If some institutions fail completely and go bankrupt in the process, that is part of the natural cleansing process - similar to Archegos.
As a retail investor, I am in favor of more transparency, and more accuracy and control of the big players. As a retail investor, I rely on the information I can find in public registers and databases. Hiding between fuzzy lines and the bending of rules has to stop.
Any new rules proposed and enacted can not and shall never lead to reduced reporting requirements, details, clarity, usefulness of reports. If anybody wished that, this raises an immediate red flag, regardless of explanation - but even more so, if the explanation is because "it might hurt retail", or "make trading prohibitive or more expensive for retail", or "cost and complexity of implementation is too much".
Sincerely,
Alexis Kopciak
