Comment Text:
Subject: Public Comment on Swaps – A Blatant Enabler of Market Manipulation
To Whom It May Concern,
Thank you for the gracious opportunity to comment publicly. The abuse of swaps—particularly total return swaps (TRS)—has become one of the most destructive forces undermining price discovery, market transparency, and investor confidence in modern U.S. equity markets. Rather than serving their originally intended purpose of legitimate hedging, these instruments have been weaponized by hedge funds and prime brokers to conceal exposure, suppress prices, and create synthetic short positions without public accountability.
Few examples better illustrate this than the GameStop ($GME) trading saga, where off-exchange activity, dark pool routing, and derivatives like TRS have been used to manufacture artificial market pressure. A 2022 SEC staff report admitted as much when it noted that "short interest is not the full picture" due to "derivatives and other synthetic exposures" [SEC Staff Report, Oct 2021].
Ken Griffin, CEO of Citadel, stands at the center of this dysfunction. Under oath before Congress on February 18, 2021, Griffin claimed his firm does not use payment for order flow to disadvantage retail investors [House Financial Services Hearing, Feb 2021]. Yet internal communications and subsequent revelations have cast doubt on that testimony, especially in light of Citadel’s outsized influence over retail order routing and its systemic reliance on internalization through dark pools. Citadel also played a central role in the Robinhood liquidity crisis during the January 2021 GME volatility—an incident that exposed the dangerous interconnectedness enabled by derivatives like swaps.
The collapse of Archegos Capital in March 2021 further demonstrated the catastrophic potential of hidden TRS exposure. Archegos’ massive, overleveraged bets were invisible to both the market and regulators until it was too late—thanks to the opacity of swaps and the complicity of counterparties like Credit Suisse (now UBS). This failure to monitor synthetic leverage created ripple effects that cost financial institutions billions and highlighted an unacceptable lack of transparency in swap reporting.
While the CFTC’s recent proposal to bring additional scrutiny to these instruments is a step in the right direction, it remains toothless without enforcement and inter-agency coordination. The SEC’s passive stance—especially under current leadership—has enabled systemic abuse. Repeated inaction in the face of mounting evidence has made it clear: current regulation is not only insufficient, it’s being deliberately circumvented by the largest market participants, with the blessing of regulatory inertia.
This is not a theoretical concern. The integrity of U.S. capital markets is being eroded in real time. As long as swaps continue to be exploited behind closed doors, true price discovery is impossible. And as long as individuals like Kenneth Cordele Griffin remain above accountability, public trust in market fairness will remain irreparably damaged.
The solution is not subtle:
Mandate real-time public reporting of all swap positions tied to equities.
Ban or strictly limit equity-linked TRS used for directional bets.
Prohibit the rehypothecation of underlying shares tied to swaps.
Coordinate SEC and CFTC oversight with consistent enforcement and criminal penalties for deceptive reporting or concealment.
Without decisive action, history will remember regulators not as stewards of stability, but as passive enablers of a rigged system.
Sincerely,
Michal (Mike) Trelski
