Owner
Post by Franko10 ™ on Jan 10, 2005 10:53:13 GMT -5
Exposed ...
www.investors.com/breakingnews.asp?journalid=24896164&brk=1
Regulation SHO Spotlight Suddenly Turns Bright Lights On Illegal Naked Short Selling
Jan 10, 2005 (financialwire.net via COMTEX) -- (FinancialWire) Regulation SHO, the U.S. Securities and Exchange Commission effort to make a Federal case out of illegal naked short selling, is here, and it is turning a broad spotlight on brokerages' failures to deliver stock certificates purchased from them by investors that appears to be much brighter and more intrusive than either the detractors had expected or perhaps the market makers used to minimal accountability had wanted.
As of press deadline almost 500 public companies, including Delta Air Lines (DAL), Taser International (TASR), Netflix (NFLX), and Isonics (ISON), had ended up on the new "threshold lists" maintained by the New York Stock Exchange, NASDAQ,. American Stock Exchange and other exchanges in response to the requirements of Regulation SHO, and companies on the list may turn into super-volatile trading opportunities this week and in the weeks ahead.
The lists, at www.nyse.com/threshold,, www.nasdaqtrader.com/aspx/regsho.aspx,, amex.com/amextrader,, and elsewhere,reportedly show 73 securities on the NYSE list, only 9 of which are U.S. companies, 70 securities on the AMEX list, 22 individual companies, and 374 stocks on the NASDAQ list, including 96 on the exchange, 29 OTCBB and 254 on the Pink Sheets.
NASDAQ initially missed its Friday night deadline, and Dow Jones' (DJ) Wall Street Journal said the list is "far from complete as it stands." NASDAQ apparently has until noon today to complete the list.
Regulation SHO was advertised as a solution to what some have said could be the biggest scandal in the history of the securities industry, and regulators have drawn significant fire from both sides of the short selling camp, although "naked" short selling, where short sellers have almost unlimited abilities to sell securities many times over the number of shares outstanding, has long supposed to have been illegal.
The controversy has drawn both legislative and judicial proponents and opponents, and until the Tsunami took over the news, General Electric's (GE) "Dateline" was said to be on the verge of a major expose that will reportedly touch on possible collusion between brokerages that are purportedly impossibly behind in their fails to deliver certificates, the Depository Trust Corporation, whose "Stock Borrow Program" reportedly garners it almost a billion dollars a year in fees for what detractors call "counterfeit trades," and even the vaunted U.S. Securities and Exchange Commission itself, which makes a fee on every stock transaction, whether legitimate or not.
There is even a blog on the subject, at nakedshortingforum.blogspot.com/ .
A poster on the Yahoo (YHOO) message boards said that due to the new threshold rules, now being implemented, "the pressure is on the market makers to do what is right because all eyes will be placed on them. There will be many key Federal Authorities, economists, mathematicians, etc. that are already lined up to be performing certain studies for historical purposes. All the MMs have to do to not make matters worse is to do what is right and fix what they had broken for years with any fully reporting company that's a threshold security as soon as possible."
The poster noted that a stock must be fully reporting and considered a threshold security. A threshold security is one where .5% of its outstanding shares (OS) have been proven to have been naked shorted for 5 consecutive trading days and where the MMs have failed to close out those positions for five consecutive trading days.
"Example: If stock ABCD had 2,000,000 shares outstanding and was a fully reporting company as of 3 Jan 05, the MMs would need to fail to close out the open naked shorted position of .5% of 2,000,000 shares which would equate to 10,000 shares not being "completely" covered for 5 consecutive trading days. This means that the MMs would need to make sure they don't allow 5 consecutive days to happen where they leave any balance remaining of the 10,000 naked shorted shares as an open account of stock ABCD. They must 'completely' close all open accounts of naked shorted positions.
"When the supply of shares of a stock is zero, the supply is zero. It doesn't matter how you get there, be it by a naked short position or by the float being absorbed. This is where it all starts as a short squeeze will now be formed and grows as demand to purchase shares increase. This is where the misperception exists with Regulation Sho. People think that a new naked short position has to be created for a stock to be eligible for protection and rectification under Regulation Sho. This is not true. It's even better. All naked short positions of the past will not go away and must be dealt with. The clock begins ticking for covering, and means that any stock that has been naked shorted will automatically start out in a forced short squeeze mode that will only escalate the longer the MMs wait to cover.
"Any buying pressure will cause the increase of the naked shorted position to grow to begin approaching the 5 day consecutive window of not getting covered by the MMs. After the 5 days transpire where the MMs have failed to deliver and close the open naked shorted position, that stock in which they failed to deliver will be placed on a Threshold Security List for the public to view. This is where it starts to get awesome," said the post.
"With no buying pressure, they won't have to cover as soon as one might have hoped as shares are sold exceeding the amount of shares being bought for stock ABCD. Still, if they don't cover the 'entire' naked short position for 5 consecutive days, stock ABCD will show up on the Threshold Security List for the public to view on 10 January.
"After such, the MMs have 13 days to close out the 'entire' naked shorted position or face being suspended and/or shut down from that security and other penalties to possibly put that MM out of business. The end result will still be the supply being zero and the stock would be forced to be traded correctly based on supply and demand with an already dried up supply. This means the creation of an instant short squeeze!"
The poster said that the market makers will need to get the naked shorted shares out of circulation by increasing the bid to entice shareholders to sell. "The problem comes when they allow for the buying to outweigh the selling due to increased demand for the stock. As orders are placed to buy shares, they must be filled by the MMs. This will worsen their problem when nobody is selling. As the MMs make the mistake and allow for any stock to be placed on the Threshold Security List, it will publicly reveal where the MMs are already having a problem in covering. Us as shareholders will see this list and contribute with forcing the short squeezes for every stock on the list."
The recent Securities Industry of America symposium on Regulation SHO, which was supposed to curtail illegal naked short selling, only further deepened the U.S. Securities and Exchange Commission divide as a dramatic ' some say startling ' new 22-page working paper, "Strategic Delivery Failures in U.S. Equity Markets," was published.
Moderators at the symposium included Steven Kessler, Associate General Counsel for Goldman Sachs & Co. (GS), and Deborah Mittelman, Deputy Director of Global Compliance for Reuters' (RTRSY) Instinet. Panelists included Jeffrey Bernstein, Senior Managing Director of Bear Stearns (BSC), and Robert O'Connor, Executive Director of the Law Department for Morgan Stanley (MWD).
The referenced working paper by University of New Mexico Professor Leslie Boni was initiated while the author was visiting financial economist at the SEC.
She termed the "failures to deliver," which litigants have called "counterfeiting," as being "pervasive."
The professor said that a whopping 42% of listed stocks at the New York Stock Exchange, NASDAQ and AMEX, and 47% of unlisted stocks in the OTCBB and Pink Sheets had persistent fails of 5 days or more with 4% being above the SEC's threshold limits for failures.
The standard for settlement is presently 3 days with a concept proposal by the SEC in comment to reduce 3 day settlement to 1 day, noted Patch.
The economist pointed to a study conducted by Evans, Geczy, Musto, and Reed in 2003 that provided evidence that while the SRO's have buy-in requirements, such buy-ins almost never occur. She noted that an audit of one market maker showed that all or a portion of shares in 69,063 transactions during 1998-1999 were "fails to deliver."
"The market maker was bought-in on only 86 of these positions," she stated.
Dave Patch, editor of "Stockgate Today," said that his own review of the Securities Acts of 1933 and 1934 finds no reference to "strategic failures." In fact, he said, Section 17a of the 1934 act "mandates prompt and accurate clearance and settlement of trades, and the admission of Strategic Failures is also in direct violation of Rule 15c6-1."
Rule 15c6-1 defines the settlement cycle for trades executed and states that no Broker Dealer may enter into a contract for the sale of a security whereby the payment for that security and the delivery of that security is greater than 3 business days. For market making activities there is a slight exemption from the delivery in a Bona Fide Market Making activity but as the SEC and SRO's have repeatedly stated, Bona Fide Market making is not simply supporting the best offer in a naked short sale without also representing the best bid or near best bid in a long trade. They must be actively making a market on both sides of trading to use the exemption, noted Patch.
www.investors.com/breakingnews.asp?journalid=24896164&brk=1
Regulation SHO Spotlight Suddenly Turns Bright Lights On Illegal Naked Short Selling
Jan 10, 2005 (financialwire.net via COMTEX) -- (FinancialWire) Regulation SHO, the U.S. Securities and Exchange Commission effort to make a Federal case out of illegal naked short selling, is here, and it is turning a broad spotlight on brokerages' failures to deliver stock certificates purchased from them by investors that appears to be much brighter and more intrusive than either the detractors had expected or perhaps the market makers used to minimal accountability had wanted.
As of press deadline almost 500 public companies, including Delta Air Lines (DAL), Taser International (TASR), Netflix (NFLX), and Isonics (ISON), had ended up on the new "threshold lists" maintained by the New York Stock Exchange, NASDAQ,. American Stock Exchange and other exchanges in response to the requirements of Regulation SHO, and companies on the list may turn into super-volatile trading opportunities this week and in the weeks ahead.
The lists, at www.nyse.com/threshold,, www.nasdaqtrader.com/aspx/regsho.aspx,, amex.com/amextrader,, and elsewhere,reportedly show 73 securities on the NYSE list, only 9 of which are U.S. companies, 70 securities on the AMEX list, 22 individual companies, and 374 stocks on the NASDAQ list, including 96 on the exchange, 29 OTCBB and 254 on the Pink Sheets.
NASDAQ initially missed its Friday night deadline, and Dow Jones' (DJ) Wall Street Journal said the list is "far from complete as it stands." NASDAQ apparently has until noon today to complete the list.
Regulation SHO was advertised as a solution to what some have said could be the biggest scandal in the history of the securities industry, and regulators have drawn significant fire from both sides of the short selling camp, although "naked" short selling, where short sellers have almost unlimited abilities to sell securities many times over the number of shares outstanding, has long supposed to have been illegal.
The controversy has drawn both legislative and judicial proponents and opponents, and until the Tsunami took over the news, General Electric's (GE) "Dateline" was said to be on the verge of a major expose that will reportedly touch on possible collusion between brokerages that are purportedly impossibly behind in their fails to deliver certificates, the Depository Trust Corporation, whose "Stock Borrow Program" reportedly garners it almost a billion dollars a year in fees for what detractors call "counterfeit trades," and even the vaunted U.S. Securities and Exchange Commission itself, which makes a fee on every stock transaction, whether legitimate or not.
There is even a blog on the subject, at nakedshortingforum.blogspot.com/ .
A poster on the Yahoo (YHOO) message boards said that due to the new threshold rules, now being implemented, "the pressure is on the market makers to do what is right because all eyes will be placed on them. There will be many key Federal Authorities, economists, mathematicians, etc. that are already lined up to be performing certain studies for historical purposes. All the MMs have to do to not make matters worse is to do what is right and fix what they had broken for years with any fully reporting company that's a threshold security as soon as possible."
The poster noted that a stock must be fully reporting and considered a threshold security. A threshold security is one where .5% of its outstanding shares (OS) have been proven to have been naked shorted for 5 consecutive trading days and where the MMs have failed to close out those positions for five consecutive trading days.
"Example: If stock ABCD had 2,000,000 shares outstanding and was a fully reporting company as of 3 Jan 05, the MMs would need to fail to close out the open naked shorted position of .5% of 2,000,000 shares which would equate to 10,000 shares not being "completely" covered for 5 consecutive trading days. This means that the MMs would need to make sure they don't allow 5 consecutive days to happen where they leave any balance remaining of the 10,000 naked shorted shares as an open account of stock ABCD. They must 'completely' close all open accounts of naked shorted positions.
"When the supply of shares of a stock is zero, the supply is zero. It doesn't matter how you get there, be it by a naked short position or by the float being absorbed. This is where it all starts as a short squeeze will now be formed and grows as demand to purchase shares increase. This is where the misperception exists with Regulation Sho. People think that a new naked short position has to be created for a stock to be eligible for protection and rectification under Regulation Sho. This is not true. It's even better. All naked short positions of the past will not go away and must be dealt with. The clock begins ticking for covering, and means that any stock that has been naked shorted will automatically start out in a forced short squeeze mode that will only escalate the longer the MMs wait to cover.
"Any buying pressure will cause the increase of the naked shorted position to grow to begin approaching the 5 day consecutive window of not getting covered by the MMs. After the 5 days transpire where the MMs have failed to deliver and close the open naked shorted position, that stock in which they failed to deliver will be placed on a Threshold Security List for the public to view. This is where it starts to get awesome," said the post.
"With no buying pressure, they won't have to cover as soon as one might have hoped as shares are sold exceeding the amount of shares being bought for stock ABCD. Still, if they don't cover the 'entire' naked short position for 5 consecutive days, stock ABCD will show up on the Threshold Security List for the public to view on 10 January.
"After such, the MMs have 13 days to close out the 'entire' naked shorted position or face being suspended and/or shut down from that security and other penalties to possibly put that MM out of business. The end result will still be the supply being zero and the stock would be forced to be traded correctly based on supply and demand with an already dried up supply. This means the creation of an instant short squeeze!"
The poster said that the market makers will need to get the naked shorted shares out of circulation by increasing the bid to entice shareholders to sell. "The problem comes when they allow for the buying to outweigh the selling due to increased demand for the stock. As orders are placed to buy shares, they must be filled by the MMs. This will worsen their problem when nobody is selling. As the MMs make the mistake and allow for any stock to be placed on the Threshold Security List, it will publicly reveal where the MMs are already having a problem in covering. Us as shareholders will see this list and contribute with forcing the short squeezes for every stock on the list."
The recent Securities Industry of America symposium on Regulation SHO, which was supposed to curtail illegal naked short selling, only further deepened the U.S. Securities and Exchange Commission divide as a dramatic ' some say startling ' new 22-page working paper, "Strategic Delivery Failures in U.S. Equity Markets," was published.
Moderators at the symposium included Steven Kessler, Associate General Counsel for Goldman Sachs & Co. (GS), and Deborah Mittelman, Deputy Director of Global Compliance for Reuters' (RTRSY) Instinet. Panelists included Jeffrey Bernstein, Senior Managing Director of Bear Stearns (BSC), and Robert O'Connor, Executive Director of the Law Department for Morgan Stanley (MWD).
The referenced working paper by University of New Mexico Professor Leslie Boni was initiated while the author was visiting financial economist at the SEC.
She termed the "failures to deliver," which litigants have called "counterfeiting," as being "pervasive."
The professor said that a whopping 42% of listed stocks at the New York Stock Exchange, NASDAQ and AMEX, and 47% of unlisted stocks in the OTCBB and Pink Sheets had persistent fails of 5 days or more with 4% being above the SEC's threshold limits for failures.
The standard for settlement is presently 3 days with a concept proposal by the SEC in comment to reduce 3 day settlement to 1 day, noted Patch.
The economist pointed to a study conducted by Evans, Geczy, Musto, and Reed in 2003 that provided evidence that while the SRO's have buy-in requirements, such buy-ins almost never occur. She noted that an audit of one market maker showed that all or a portion of shares in 69,063 transactions during 1998-1999 were "fails to deliver."
"The market maker was bought-in on only 86 of these positions," she stated.
Dave Patch, editor of "Stockgate Today," said that his own review of the Securities Acts of 1933 and 1934 finds no reference to "strategic failures." In fact, he said, Section 17a of the 1934 act "mandates prompt and accurate clearance and settlement of trades, and the admission of Strategic Failures is also in direct violation of Rule 15c6-1."
Rule 15c6-1 defines the settlement cycle for trades executed and states that no Broker Dealer may enter into a contract for the sale of a security whereby the payment for that security and the delivery of that security is greater than 3 business days. For market making activities there is a slight exemption from the delivery in a Bona Fide Market Making activity but as the SEC and SRO's have repeatedly stated, Bona Fide Market making is not simply supporting the best offer in a naked short sale without also representing the best bid or near best bid in a long trade. They must be actively making a market on both sides of trading to use the exemption, noted Patch.
