Comment Text:
I am writing to express serious concerns regarding the unchecked use of financial instruments such as total return swaps, credit default swaps, legacy swaps, and other derivatives that—while originally designed for hedging and risk management—are now being used as tools for market manipulation, obfuscation, and systemic risk.
The recent history of financial markets offers clear warnings. The collapse of Archegos Capital Management in 2021 illustrated how total return swaps can be used to quietly accumulate massive, leveraged positions with limited disclosure. The resulting fallout affected multiple prime brokers and raised troubling questions about transparency, regulatory oversight, and systemic exposure. Yet little has changed.
In the case of UBS’s government-facilitated takeover of Credit Suisse, we again saw how risky exposure to opaque derivatives and complex trading strategies contributed to institutional instability. These institutions, considered "too big to fail," continue to operate with layers of hidden leverage and off-balance-sheet liabilities, exposing global markets to unquantified risks.
In particular, I am deeply concerned about how these instruments are used to short equities under the radar. Through the use of swaps and synthetic exposure, powerful entities can suppress the price of targeted stocks indefinitely—especially when paired with contracts that have no meaningful expiration or unwind requirements. This effectively removes natural supply-and-demand dynamics and creates an environment ripe for long-term price suppression.
Retail investors, pension funds, and smaller institutions cannot compete on equal footing in a market where Citadel and other dominant players can use high-frequency trading, internalized order flow, and synthetic derivatives to move prices and avoid consequences. The market is not truly free or fair when such massive influence is wielded in the dark.
It is time for regulatory bodies to demand transparency. Swaps and similar instruments must be fully disclosed, subject to position limits, and appropriately reported in real-time. Contracts with no expiration should be scrutinized, and mechanisms should be put in place to prevent the indefinite stagnation of publicly traded companies via synthetic shorting.
When financial innovation ceases to serve the economy and instead becomes a tool for manipulation and wealth extraction, we all suffer the consequences. Market confidence erodes. Innovation is stifled. And systemic risk grows unchecked.
I urge you to treat this matter with the seriousness it deserves. Reform is not just desirable—it is essential.
