July 29, 2008 6:01AM
The SEC and Naked Shorting
By Alexis Glick
Yesterday on Money for Breakfast, Paul Atkins, one of the commissioners of the SEC, whose tenure expires this Friday, joined me to discuss the SEC’s temporary naked short sale progress. By my measure, since the day that the SEC announced the emergency rule change on Tuesday July 15th, the SEC has seen its plan manifest itself in a big move to the upside in the stocks that were given access to the discount window. Take a look at the percentage gains on some of the names on the list since it was announced. Note I did the math the old-fashioned way: on a piece of paper. Hopefully my second grade math is decent. What would we do without calculators?
FNM up almost 65%
FRE up almost 60%
LEH up almost 30%
BAC up almost 60%
C up almost 30%
JPM up almost 27%
Dow in that same period rose from 10,962 to 11,370 or roughly 3%
WM up 23 cents according to Friday’s close or 6% (Not covered under the rule)
WB up almost 60% (Not covered under the rule)
There you have it. Now as you and I both know there are a lot more names on the list and almost all of them have fared very well. I didn’t list performance based on when the rules went into effect because once it was announced the short covering started. Also of note is that some of these companies reported in the past couple of weeks and pure fundamentals have clearly played a role in their performance. Also check out Wachovia Bank which was not on the list but has fared better than one might have expected. Will the SEC take into account the performance of financial institutions not on the list to see if the temporary change needs to be extended to all banks or financial institutions? Absolutely! The decision to extend the naked short selling rule will be decided this evening.
For whether this rule should extend beyond these nineteen institutions or whether short sales should be reported and disclosed, take a look at the Commissioner’s response.
In the second part of my discussion about the SEC’s progress, Overstock.com CEO Patrick Byrne joined me to discuss what he likes and dislikes about the temporary rule changes. If you don’t know him or haven’t seen him interviewed, he has been a big proponent of change at the SEC and DTCC. His number one concern has been the lack of transparency at the DTCC (Depository Trust & Clearing Corporation) and the increase in the failures-to-deliver or FTD’s, as they’re commonly referred to. He notes that the number of FTD’s has increased precipitously and that no one is policing them. That suggests that naked short sellers have been running amuck with no supervision and that no one has been clamping down on the borrowers or institutions that facilitate that borrowing, to deliver stock or get a locate. In essence, people can do phantom trading above the float of the stock. Look at the email that he sent me before our interview.
I employ a team of economists and database managers outside of Overstock to research the issue of Failures-To-Deliver (FTD’s). Over the last two years we have spent countless hours on FOIA requests regarding FTD’s. In recent months, some of the information we seek has been coming out automatically, but one quarter stale.
In any case, this is what DTCC CNS fails look like up to the end of Q1:
| date_of_max_value | max_daily_fails | Year | avg_daily_fails | |||
| 21-Dec-04 | $6,560,323,778 | 2004 | $3,418,010,542 | |||
| 21-Jun-05 | $8,439,723,063 | 2005 | $3,076,423,490 | |||
| 31-Jan-06 | $12,425,109,643 | 2006 | $3,473,665,714 | |||
| 27-Jun-07 | $19,477,102,119 | 2007 | $6,650,684,997 | |||
| 26-Mar-08 | * | $13,924,518,389 | Q1 2008 | $7,567,755,627 |
* denotes date through March 31
Take-aways:
1)So there was a day this year in Q1 when FTD’s almost reached $14 billion (they ended Q1 at $8.5 billion).
2) And the average daily FTD’s has just climbed and climbed for the last few years.
Some other talking points:
1) More shocking yet (and I can send the back-up data on this) is that on an average day, 72% of the FTD’s are in stocks that are on the Reg SHO list. Some protection.
2) How bad a problem is this?
a.You understand that $1 million of toxic waste does not cost $1 million to clean up: it may cost much more. Similarly, a broker holding a 10 million share FTD in a $1 stock may carry it as a $10 million liability, but if he has to clean up his fail, and buy-in 10 million shares in a stock trading 50,000 shares/day… it may cost him $10 million, but it could just as easily cost $100 million.
b. Put that together with the $8.5 billion number above. Cleaning it up will not cost $8.5 billion. It could cost $18.5 billion, or $80 billion… No one has any idea.
c. The CNS failures are just one part of the equation. There is also broker-level “pre-netting”, fails resolved by the DTCC Stock Borrow Program, ex-clearing, and failures coming in from off-shore clearing systems. Everybody who will talk from within the system says that collectively, these are a far bigger (the estimates from within the system are $30 - $190 billion, depending upon who is speaking).
Patrick Byrne has been talking about naked short selling for years and is not opposed to short selling as a whole but feels that his company and others have been unfairly penalized.
Comment by chuck
Jul 29th, 2008 at 9:30 am
Next to be put under scrutinty is DCTCC. Why? very simple: what has been thier role with naked short selling and did they profit from it? Why aren’t they under the watchful eye of the SEC. Becouse the CEO for Overstock made real terrific points on the subject I might add.
Real question how many other companie’s stock suffered from Naked Short Selling and who has profited from it. But the role DCTCC needs to be scrutiniezed.
Comment by Sean
Jul 29th, 2008 at 11:30 am
Ms. Glick, masterful interview and thanks for asking the “right” questions of Patrick Byrne. Now that you have opened up pandora’s box, I hope you will continue to investigate this “Crime of the century”. I have seen where bank robbers get put in jail for 10 to 20 years for stealing $30K, yet these criminals steal billions and trillions, destroy companies and jobs, but as their punishment, if they get caught, get told not to do it again and maybe.. yes maybe a small fine that they probably never pay. In this case when it involves the very rich of Wall Street crime does pay and very well too. The word treason comes to mind. In a time of war these crooked Hedge Funds continue to rape and pillage the american investor for the sake of their own greed. They have no shame or fear of being prosecuted. Look at what they did to Overstocks share price 2 weeks ago on the day of an announcenment of better than expected earnings report, a 40% decline on 10 times the amount of normal volume. What stock were they trading? It had to be Phantom (counterfeit/Naked shorted) Shares, there is no other explaination. And they did this in plain veiw knowing that there would be No punishement because this is their game and we have to play by their rules, they are ABOVE THE LAW. Yet Patrick and OSTK were investigated by the SEC when they complained about this manipulation for 2 years and were not found guilty of anything. Seem suspicious, keep investigating, but watch your back, ask Mark Mitchell of Deepcapture.com about the tactics these people use to protect their criminal enterprise. Finally it seems that one of the competing journalist has seemingly found “religion” and has decided to report on this topic, strangely around about the same time you did. Watch this video and remember that “Even a blind squirrel can find and acorn every now and then”. Thanks again for your efforts they are greatly appreciated by MANY. P.S.I’m sure you will be hearing from the DTCC soon.
http://www.cnbc.com/id/15840232?video=806417851&play=1
Comment by Bruce
Jul 29th, 2008 at 12:14 pm
Great work Alexis!
Please keep it up and please keep it high profile.
You might even look into the LDK solar IPO fiasco.
Here’s a question for you. What company had a single investor buy the entire issue and file the appropriate forms with the SEC? Why does it still sell tens of millions of shares per day?
Comment by Alan DeGracia
Jul 29th, 2008 at 12:30 pm
Alexis,
You are out in front on this issue.
Please keep up the pressure and interest on this issue.
This naked short selling scam has RICO written all over it.
Thanks for your efforts.
Alan
Comment by mhat.mccane
Jul 29th, 2008 at 12:31 pm
Thank you for bringing the Naked Short Sales to the public. This needs to see the light of day so it can get cleaned up and our markets can survive.
Comment by Glen Kelly
Jul 29th, 2008 at 12:47 pm
Thank you for your writings re ‘naked short selling’. This while issue is obfuscated by terminology; confusion with short selling, pre-borrowing or lack thereof, and many other issued that have evolved as the subject become more defined. Short selling and borrowing or lack thereof, though, does not make a sale naked. What makes a sale naked is when the security sold isn’t delivered by trade date plus 3 days (T+3). Some of these sales are initially categorized as long and most as short. But, come T+3 if there’s no security forthcoming from the seller, then they are all recategorized as being short and undelivered (naked). This, is truth, is known in the industry not as a naked sale but as a failure to deliver (FTD) which also causes a failure to receive (FTR). If the discussion was steered more toward the real, and harmful, issue; ergo FTR and FTD then I think those uninformed in the ways and workings of the market would be much more likely to understand what is happening and much more likely to get hopping mad about it. It makes me mad that some can sell securities and not deliver them by T+3 or for that matter T+infinite and those sales are handled for all practical purposes exactly the same as if a security had been provided to the buyer. It makes me even more angry to know that when securities purchased, where the seller never delivered what was sold, are treated by the buying broker/dealer just the same as if shares had been delivered. The buyer’s money is taken and the buyer’s account is updated to show that the securities have been delivered–but they have not. What really has happened is that the seller by causing, and the system by allowing, an FTD situation has caused counterfeit securities, euphemistically called ’security entitlements’, to be created. From that moment on these security entitlements trade just as if they were securities created by the agency that created the ‘real’ securities. Just ask yourself; what if you sell-long securities and don’t deliver them to your broker by T+3? Firstly, your broker breaks your trade and confiscates the money paid for those securities. But, how about the buyer? Does the buyer also have the trade broken and is the purchase price returned? Absolutely not! The buyer is simply given ’security entitlements’ that increase the effective number of shares in the ‘float’. To me; that’s fraud–plain and simple. The thing that needs to be fixed (starting with the market makers unlimited ability to sell and not deliver) is the problem of FTD and FTR. At least make the brokers flag accounts so one can tell the difference between securities and security entitlements. Heck; even shares loaned for and sold short are actually security entitlements when they sit in an account and these entitlements can be sold just as if they were real shares. The whole system is rife with fraudulent purveyances in violation of the 1933 and 1934 securities act.
Comment by Daryl Forsberg
Jul 29th, 2008 at 12:57 pm
I have been investing for 35 years & I’m considering to stop purchasing securities as the SEC refuses to enforce their own rules. Why should myself & other small investors have to subsidize option traders when they should be subject to the same rules & be forced to borrow stock as any other investor who shorts a stock. If they can’t borrow the stock, then they should not make the trade. This is getting to be that only the huge hedge funds can decide who should win or who should lose. They should also have to take the risks that us little guys do when we invest.
Comment by Marion Polk
Jul 29th, 2008 at 12:57 pm
Thank you for covering this very important story.
I believe it is absurd to think that the SEC has not been aware of this problem since before 2005, when I first exchanged correspondence with them on the problem of stock counterfeiting.
Are they now starting to address the issue because it has destroyed the US economy, or for fear that they could become subject to a RICO investigation?
Comment by Jutta Miller
Jul 29th, 2008 at 1:04 pm
Dear Ms. Glick,
You are a breeze of much needed fresh air. Keep up your courageous and to-the-point reporting,
Best to you and FoxBusiness,
J. Miller
Comment by Roger
Jul 29th, 2008 at 1:24 pm
The evidence that the new rules have indeed affected the share prices of the financials seems obvious to everyone except Commissioner Atkins ["there may be other market factors in play", etc.].
And the SEC has constantly and persistently refused to take actions on clear abuses in the matter of naked short selling, saying. “We need more data.” They are clearly on the side of those who fleece the investing public.
Thanks to the Glick Report for showing Dr Patrick Byrne’s email data on failure-to-delivers. That is quite an eye-opener.
Comment by n-tres-ted
Jul 29th, 2008 at 1:28 pm
Alexis,
Excellent blog! As informative as just about anything I’ve seen on this crucially important subject. However, I would like to make a point or raise a question for your consideration. All member banks of the Federal Reserve System are permitted to borrow from the discount window of the Fed. That would include such banks as Wachovia and Washington Mutual. So all those firms have to do to get on the list of favored institutions protected from naked shorting is to go to the discount window and borrow a few dollars from the Fed! To protect their share prices, EVERY member of the Fed should do the same immediately. Thank you most sincerely for your honest and insightful treatment of this subject. Hopefully, coverage of equal quality will, one day, be forthcoming from such publications as the Wall Street Journal, if not from the New York Times.
Comment by Fred
Jul 29th, 2008 at 1:31 pm
Brokers are printing shares on customer statements every month. The total number of shares printed for a company often is way more than the number of shares held by the brokerage. In fact, the net number of shares printed by all brokers on their account statements is often way more than the number of shares held by the DTC. The brokers are in violation of their custodial responsibility. The customers are at risk of broker failure as well as company failure. Customers don’t own what they are being told by their brokers. This is just illegal under current law. No new regs or laws are required to enforce this.
This has been going on for a long time, in many stocks.
Comment by Larry Gadbois
Jul 29th, 2008 at 1:37 pm
Thank you for the great article on Naked Shorting. We need continue attention to this subject which is crippling the U.S. Stock Market, and daily stealing from millions of Americans.
In a sense, “naked shorting” is a focus on the wrong issue. Christopher Cox has publicly stated that naked shorting is legal. He says that “abusive naked shorting” is not legal.
We need to focus on the real issues: Stock delivery fails (FTDs), the Options Market Maker Exemption (that has allowed billions in counterfeit stocks to be sold into the market), short selling without requiring a “pre-borrow”, stock fails to receive (FTRs),
ex-clearing (net clearing between brokers using IOUs), and the total lack of enforcement of the 1933 Securities Act and the 1934 Securities Exchange Act by the SEC. The Reg SHO regulation that was enacted by the SEC protected the illegal short sellers by grandfathering prior fails, and created the famous Reg SHO list which documents FTDs by company but does not require mandatory deliveries.
Some of us have been trying to get Government action to stop the illegal shorting that has caused bankruptcies of thousands of companies in recent times. The focus on problems caused by the “sub-prime mortgage problem” is causing new regulations to be put in place to regulate “preditory lenders.” Many of the lenders would not have had financial problems if they hadn’t suffered massive short selling attacks that reduced their market value. The attacks that drove Bear Stearn’s stock down from $70 to $2 a share by sellers that did not borrow the required stock is the most visible example of a system that is broken.
Dr. Patrick Byrne, Dave Patch, Mark Mitchell, Bud Borrows, Mark Faulk, Bob O’Brien (aka Easter Bunny), and many others have worked to get the SEC and Congress to recognize and correct our market problems. Your action on this problem is appreciated and right on target. I would encourage you to follow up with some additional reporting.
Larry Gadbois
Comment by Derek
Jul 29th, 2008 at 1:39 pm
Richard Altomare of the once timely and exciting developing company of luggage free travel Universal Express had offered solutions to the SEC back in 2003 to help prevent Naked Short Selling and they shut his company down.
***************
Universal Express -USXP CEO Richard Altomare in Washington DC to Offer Naked Short Selling Solutions on Eve of SEC Meeting
Business Wire, Oct 21, 2003
Business Editors
NEW YORK–(BUSINESS WIRE)–Oct. 21, 2003
Universal Express, Inc. (OTCBB:USXP) announces CEO Richard Altomare is in Washington DC on the eve of a meeting convened by the SEC to address naked short selling. Altomare is lobbying members of Congress suggesting positive solutions to the naked short selling issue.
Universal Express, one of thousands of companies that are victims of naked short selling, describes it as the electronic churning downward of shares of developing OTCBB companies by broker dealers and market makers who never intend to or fail to cover short sales. USXP contends that this practice amounts to counterfeiting stock and is separate and distinct from legitimate short selling.
The SEC outlawed most naked shorts in 1936 and because of recent pressures plans to consider a new Regulation SHO on Wednesday, October 22, at its 10 a.m. meeting. The new Regulation SHO is expected to require short sellers in all equity securities to locate securities to borrow before selling short, and add further requirements to address “naked” short selling.
Richard Altomare recommends the following actions be endorsed by Congress and the SEC:
– The SEC immediately enforce all existing laws pertaining to
shorting in the 1933 and 1934 Securities
– Anyone outside the U.S. requesting access to U.S. Securities
Markets must agree to comply in full with U.S. securities and
market laws, rules and regulations.
– Rules prohibiting Sale of Unregistered Securities must be
rigorously enforced. Naked shorting is such a violation.
– Any short sale must be done only after an “Affirmative
Determination” is made regarding the ability of the trader to
borrow the shares sold short for delivery within 3 days.
– All trades must settle and clear within three trading days
from trade date.
– Use of whip calls, kiting, electronic counterfeiting and other
such manipulations be subject to racketeering laws.
– Shares may only be shorted on a zero or zero plus tick, except
for registered market makers and recognized arbitrage traders
for their own accounts only and not for client accounts.
– DTCC must maintain the “identity type” of accounts for shares
transferred to its custody. Shares held in Cash, Excess
Margin, ERISA and similar accounts not be lent under any
circumstance. Already an existing rule, it is being ignored.
– Real penalties be imposed including interest charges and
sanctions for any trades left unsettled after 3 days. A 10-day
fail be immediately treated as a broken trade.
– Broker-dealers, clearing firms and clients shown to be engaged
in attempts to circumvent the above guidelines be formally
sanctioned once, and lose their licenses for a second offense.
“Naked short selling is economic terrorism. Universal Express and many other developing public companies are daily victims. We have been relentless in our pursuit of the naked short sellers. A jury of American citizens has awarded USXP punitive damages as a result of naked short sellers manipulating our stock, yet it continues for us and for many others. I have publicly called upon our shareholders to contact their Congressional representatives asking for the end to illegal naked short selling. I have written members of Congress and am personally meeting with them this week. I am most willing to work with my fellow Chief Executive Officers of developing and established companies to assist the SEC in their deliberations. I am here today pursuing this agenda and very hopeful the new leadership will consider regulatory reform,” stated Mr. Altomare.
Universal Express, Inc. owns and operates several subsidiaries including Universal Express Capital Corp. (USXP Cash Express division), Universal Express Logistics, Inc. (The Virtual Bellhop, LLC and Luggage Express) and the WorldPost(TM) Private Postal Network, Inc. These subsidiaries and divisions provide the private postal industry and customers with value-added services and products, logistical services, equipment leasing, and cost-effective delivery of goods worldwide.
More information and website locations are available at http://www.usxp.com.
Comment by thomas witzmann
Jul 29th, 2008 at 1:46 pm
stunning!!!! well done!!!
this country needs more reporters like you!
Comment by Bill
Jul 29th, 2008 at 1:48 pm
Naked short selling needs to stop! There needs to be a permanent change, and not just for financial stocks.
Comment by Mark Kolesinsky
Jul 29th, 2008 at 1:59 pm
Thank you for your converage of naked short selling. As a small investor who has been harmed by this nefarious practice, it’s good to see the mainstream media finally picking up on this story. Unfortunately, there is much more to this story and I would hope you will continue investigating and informing the public if this destructive practice that has stripped the retirement savings of countless, hard-working individuals.
Comment by R. Joseph
Jul 29th, 2008 at 2:02 pm
Over the years, the American people (read: retirement accounts of working class, middle class, lower middle class, our parents ….. secretaries, clerks, accountants, school teachers, academics, nurses, librarians) have lost billions of dollars to the naked-shorting disease.
Who is behind the four SEC commissioners? What is their connection to Wall Street? Why do Americans have to tolerate FTD (failure to deliver) shares?
Does FOX news sell advertisement time without collecting payment? If not, why does the SEC enable naked shorts to function? Why does the SEC not enforce the 3-day share-deliver-rule?
The great banking disaster has shown the world that the people at the helm of the Great Ship America are not captains of Industry. They are not leaders. They seem to
exist to bleed the public.
Where is the media in all this? Why do they not look into what the CEO of OSTK and hundreds of other companies have screaming for years?
One wonders how far the fingers of Wall Street have reached. One wonders. And the public can see the effects. We are no longer that easy to delude.
Comment by Hank
Jul 29th, 2008 at 2:26 pm
Alexis Glick, thank you. You have shown a lot of courage to ask the questions that few would ask. Three years ago Patrick Byrne could not get anyone to listen. Shareholders wrote thousands of letters to the SEC.
Now they are waking up, pitiful. They are protecting 19 banks that service the NSS
hedge funds. Why? Maybe, because these banks are also members of the Fed and the DTCC?
They will protect the thieves from eating their own. Paul Atkins should have been asked why the SEC has no authority? Why they are now just accumulating info? Doesn’t the Reg SHO list tell them that if a stock is on the list for a year running something is wrong with the system? To bad these Comm have no b__ls and are able to retire to the same hadge funds they are suppossed to regulate.
And, Alexis ask one more simple question, why are hedge funds unregulated? What is there purpose, as far as I can tell it’s only unmitigated greed. A hedge fund produces no product. Adds nothing to our economy, only takes money out of someones pocket and puts it in theirs using any means possible. This is not what this country is about.
Hank
Comment by Tom Vallarino
Jul 29th, 2008 at 2:34 pm
Great pieces and interviews Alexis! You are one of the few who are on top of this. My comments on your interview with Paul Atkins, is that he is more concerned about the costs to market participants than to the victims of naked short sellers.
Not only that, but the 19 on the protected list are many of the ones who actually are responsible for a large percentage of the naked short selling, since they are major broker-dealers and market makers. So the universe at the SEC revolves around the prime brokers and investment banks - to protect them.
I did not detect and real concern for equity investors, issuers and employees of the issuers - on the part of the commissioner. It’s sad. He is supposed to protect the investing public and make sure the markets are fair, not slanted one way towards market participants - the so called investment banks and market makers.
My guess is that if these market participants did not have things stacked to their advantage and the SEC seeing things their way, that they would be out of business fairly quickly.
Comment by Judd Bagley
Jul 29th, 2008 at 3:12 pm
Alexis, thank you for continuing to address this vital issue. Very few Americans understand the threat to our financial system posed by illegal naked short selling. I suspect that your leadership on the topic will prove beneficial in ways nobody can yet comprehend.
Comment by shawn brandom
Jul 29th, 2008 at 3:15 pm
dear alexis, thank you for your continued interest in this naked short selling crime.
i have to tell you i got into the fight when my broker (WELLSTRADE INVESTMENTS)refused a sell order i submitted.
i called and asked why, i was told i didn’t own the stock.
even though i was sent by (WELLS TRADE INVESTMENTS) confirmation of my purchase. a document i believed to be a type of reciept of my purchase.
the whole affair has brought my family to its knees, we have had to file bankruptcy as a result. when i try to seek legal counsel. i am told it is my fault. or sorry we dont do that stuff. or i get naked short selling is a myth …lol even my senator(CANTWELL) told me to pack sand.( I DID GET LETTERS FROM HER THOUGH) which is more than i can say for any of the other senators or public officials i have contacted.
in any case i appreciate your bringing this to light.
keep shining the light on this issue as i believe it is perhaps the biggest crime in american history.
you rock alexis.
thank you.
Comment by John A. Zotter
Jul 29th, 2008 at 4:06 pm
Ms. Glick, thank you so much for shining some light on the cesspool of naked shorting. One can only hope justice will be swift and severe for those who callously destroyed companies, jobs and individuals.
Comment by The Mad Hatter
Jul 29th, 2008 at 4:53 pm
Thank you Alexis for doing something that the thugs and crooks at CNBC would not dare do. They are so much a part of the problem, that they make a point for only the large investors. Telling the truth is good for the soul, hiding and not enforcing the policies and laws concerning stocks is so wrong. With your help in bring it in front of the public daily, maybe someone will wake up sleeping Cox’s and his crooks.
Comment by Craig Meiser
Jul 29th, 2008 at 6:22 pm
Biggest Problem Explaining Stock Coutnerfeiting is Terminology: Naked Short Selling IS Stock Counterfeiting.
People who don’t understand start to look concerned when you call NSS what it really is: Stock Counterfeiting.
NSS, FTD - they are all names to confuse the reader about what is really going on: stock counterfeiting. Maybe we should just call it stock counterfeiting and drop the other names. Maybe then more journalists will understand and then their readers will understand.
Comment by Dan Somers
Jul 29th, 2008 at 6:58 pm
Dear Alexis,
I am astonished every day with the courage you display reporting on naked short selling, knowing the kind of scum behind this practise. You certainly are a person of morality and courage. You are the best.
Dan Somers
Comment by Mike Mather
Jul 29th, 2008 at 7:06 pm
Alexis,
You’re right on track.Please do not desist until the public gets it that they’re being robbed blind by the prime brokers and their hedgefund clients and the SEC gets it that they must look after the interest of the public and not the crooks they currently cater to. Get the support of your editor and the owner of Fox.Thx for the courage it’s taken thus far.Don’t stop.
Comment by kyoto27
Jul 29th, 2008 at 7:11 pm
Bravo again Alexis!!!
Meanwhile, since the prime brokers have stopped allowing unlimited shorting, it is clear that the short selling hedge funds have simply moved over and begun “renting” with a vengeance the exempted options market makers’ ability to sell unlimited millions of counterfeit shares into the market to hedge their put sales.
And that should have been expected considering the SEC hasn’t enforced securities laws against “participants” (hedge funds and their prime broker facilitators) for years — most especially the laws saying shares which have been bought with real money actually have to be delivered to the buyer who bought them.
Do they even know HOW to enforce such laws? After a brief few days of panic the reality is quickly setting in that the billions of counterfeit, non-existent shares the shorts have “sold” into the market MIGHT at some point have to actually be delivered.
It is interesting to see what Paul Atkins & the SEC are really concerned about—that under the Emergency Order it is more difficult, expense and risky to sell short.
So it’s the ‘poor’ traders that need protection Paul?
The expectation by the industry that a short seller has the right to short at whatever level they choose appears to have the blessing of Paul Atkin’s SEC in spite of the manipulation he/we all witnessed along with the bear raids.
Alexis, we need your help—something is very, very wrong with Paul Atkins view of our markets and who is in need of protection.
PS: Please let us know if Paul finds a nice home in a ‘protected’ hedge fund.
Comment by Gates
Jul 29th, 2008 at 7:17 pm
If the investment public knew the depth to which this NSS problem ran the markets would take a beating of all beatings. The FEDS and especially the SEC know very well how serious this problem is and are having to hope they can make some back room deals to make NSS go away.
If you think for one minute the SEC is going after these crooks, forget it. Private law suits are our only hope ALONG with a congressional investigation.
All this crap about cost/benefit is beyond laughable.
I’m just sick at my stomach that our government has crawled in the bed with the crooks.
KEEP AT IT ALEXIS. YOU ARE A BEACON OF TRUTH!!!
Comment by glen rollins
Jul 29th, 2008 at 7:41 pm
Thank you for shedding light on this issue. This illegal activity is a threat to our markets and our country. Please explore the implications for shareholder voting. How can the DTCC and the broker/dealers reconcile the counterfeit shares with the one share/one vote principle of stock ownership? I would also like to know more about how the broker/dealers profit from these illegal activities. What fees and interest are charged for shares that aren’t delivered, located, or borrowed? Thanks for the good reporting.
Comment by Steven Antonich
Jul 29th, 2008 at 7:47 pm
Naked short selling without delivering the stock is counterfeiting plain and simple. Those that engage in shuch practices should be arrested and hauled off in handcufs just as if they robbed a bank or the corner grocery store.
This practice has got to stop and those having been engaged in it punnished.
Steven
Comment by Richiebaby
Jul 29th, 2008 at 7:52 pm
imo Stevie Cohen’s SAC Capital, on any given day, steals more money naked shorting than the total amount of money that has ever been stolen from bank robberies in the U.S.
Comment by Ray Vestal
Jul 29th, 2008 at 7:53 pm
Bravo! Bravo! Bravo!
About damn time some one put the spot light on NSS.
Thanks you FOX
Comment by Mark
Jul 29th, 2008 at 8:01 pm
Alexis,
Thank you for addressing this issue. Many of us have been screaming at the top of our lungs for years only to be told we are wearing tin foil hats. Thank you for adding the legitimacy this issue deserves. We can only hope other media personnel with follow your brave footsteps.
Thank you
PS. Your coverage of this issue is the reason I now watch Fox News. It lends to a truth in reporting that has not been seen in decades.
Comment by Dave
Jul 29th, 2008 at 9:23 pm
Alexis,
I have spent 8-years trying to expose this issue and it has taken the most recent collapse of Bear Stearns and a professional such as yourself to accurately cover what this is really about. Few of your TV peers have provided such fair and balanced coverage. Thank-you.
Now ask yourself, what is it that the short sellers are complaining about with the pre-borrow rule.
Answer: Only the rapid trading short seller, the day trading raider, cares about this rule change. A David Einhorn going short Lehman for 6 months could care less whether he borrows for delivery pre-trade or T+3 because his investment is not about short term. The added cost to him is 2 extra days of a borrow fee in a long term investment.
The rapid short trader wants to trade by computer program, fabricate a locate, and cover within the settlement period. The trade never had an intended cost of a borrow factored into the trade and thus, the day trader is using a naked short as part of a trading strategy. By not removing the share in a pre-borrow the short trader can cycle the short sale once, twice, three times in a single day using the same locate every time and using the rapid trading to create panic. Never does this investor borrow or settle a trade – the DTCC CNS system is blind to this activity because the trader is net flat.
This is what Richard Baker and the MFA is fighting to protect and the SEC considering protecting.
What the SEC has claimed is that they have not yet seen naked shorting as the issue with the financial stocks but that is ONLY because the trades never appear as a naked short because the trade (raid) is closed within the settlement window. This can be explained in the 90% drop in short sales in these 19 stocks. A long investor short seller was impacted by this rule change so why the 90% drop in short sales other than day trade – rapid trade short sales being impacted.
Emphasis must be on why the short sellers and the MFA are so opposed to settling trades. Logically, consider that when a buyer purchases shares the money is instantly removed from the account – no room for collected interest in the settlement period. In a day trade it is additionally removed immediately and inaccessible thereafter for that day. Why should the short seller not be exposed to similar restrictions?
Dave Patch
http://www.investigatethesec.com
Comment by Dave
Jul 29th, 2008 at 9:46 pm
As a follow-up to what I stated earlier, listen carefully to what Richard Baker is saying. Ask yourself which short seller he is seeking to protect. It clearly sounds like the computer trading short seller to me which is not the “investor” of thorough analysis but instead the trader looking for the rapid turn on profit - the manipulator.
If these guys had any courage they would explain that their interests are in the non-investor type trader but instead the fund that justs wants to be the “disturbance” that causes a market reaction for profitability. On this day when Alaska Senator Ted Stevens is charged with conspiracy we have a former US representative and Chair of the House Financial Services committee on capital markets acting as the mouthpiece for market raiders.
http://www.cnbc.com/id/15840232?video=806905880&play=1
Comment by pcyhuang
Jul 29th, 2008 at 10:25 pm
Effectiveness of SEC’s Rules Against Abusive, Naked Shorting
http://siliconinvestor.advfn.com/readmsg.aspx?msgid=24790273
Comment by Harry Livingston
Jul 29th, 2008 at 11:47 pm
Great interviews, Alexis. You obviously have done your homework. As you probably know, the SEC has put this emergency order curtailing naked short selling for only the 19 financial institutions after years and years of insisting that there is no problem with naked short selling. Thousands of young, hopeful companies have been stomped into the ground by this criminal activity, and probably millions of investors have been harmed by it. When we went to the SEC and DTCC to try and put a stop to it, we were politely told that, first of all, it’s perfectly legal, and second of all, the only people who are complaining about it are investors who want their share prices to go up (from Ms. Nazareth, former SEC commissioner).
Now that the SEC finally comes around to seeing that there might just be a problem with unbridled naked short selling, they move immediately to protect the financial institutions who have been profiting from this very crime for decades.
Please stay on this story. Reveal the damage that it’s done to ordinary investors, and help us to force the SEC to level the playing field.
Your efforts in this will be appreciated by every average investor in the world.
Comment by Doug
Jul 30th, 2008 at 12:52 am
Wow, talk about kissing arse, you guys are fawning over a topic that had its heyday a number of years ago. Naked short selling isn’t the problem, its the fundamentals! Average daily FTD’s going up? Well guess what, so is the total volume! Shorting stocks is already difficult enough that adding an additional requirement to locate and borrow would put additional pressure on a trading strategy that doesn’t need additional hurdles. The SEC should fix the practice of abusive shorting, as you are manipulating the market when you significantly change the supply of shares, but shorting is currently helping to deflate the enormous bubbles that exist in the market, and shouldn’t be restrained unless abusive.
Comment by tkalantzis
Jul 30th, 2008 at 1:07 am
Glick……good work
by the way your hot
GRRRRRRRRRRRRRRRRRR
Comment by pontiyak
Jul 30th, 2008 at 1:19 am
Cash is King…..
and he who controls the cash will remain king….
the solutions are simple, but the fallout will be painfull for those without consience
yak
Comment by Mark Sheehan
Jul 30th, 2008 at 1:43 am
Congratulations! Your courageous reporting is shining the light of public attention into the dark corner of naked shorting, which has been left in the dark and ignored by financial reporters for far too long.
Comment by DLKeith
Jul 30th, 2008 at 10:19 am
Bless your heart for staying on this issue, Alexis!
As I’m sure you’ve gathered, your wonderfully thoughtful airing of these issues has touched a nerve among the legions of us out here who have been trying to bring this monumental scam against the American people to light for years. Having someone of your credibility, honesty and intelligence–with FOX’s obvious backing and support–is a huge shot of hope that FINALLY those with power to fix this massive problem will be publicly shamed into doing their damn jobs — which most other mainstream media outlets have been reluctant to make any effort to have them do.
While an investor and trader for over 35 years, it has always been difficult for me to accept the legitimacy of shortselling at all — let alone “naked” shortselling.
A market consists of a buyer and a seller. How Wall Street ever managed to make it seem legal for a total NON-INVESTOR and NON-SHAREHOLDER in a company to have any say at all in affecting the share price of that company has always been incomprehensible to me. The ONLY people who should be allowed to affect the share price of a company’s stock by their buying and selling of shares of that company’s stock are those who have purchased with real money REGISTERED, LEGITIMATE shares of that company.
In no other business transaction on earth is someone who doesn’t own an item allowed to sell it to somebody else. That’s called fraud.
In no other business transaction on earth is someone allowed to “borrow” an item from a legitimate owner — usually without that owner’s knowledge or consent — and sell it to somebody else. That, too, is fraud.
Why is selling something you don’t own fraudulent in every other transaction in life, except in stocks? The only reason is because Wall Street has conned people for years into thinking something which is inherently fraudulent — selling something which you don’t own — is somehow legitimate. It is not!
Mr. Atkins is worried about the costs to “participants” of pre-borrows. He’s right. Enforcement of shortselling laws currently on the books is completely impossible, as is attested to by the SEC’s total lack of enforcement for years of settlement and delivery regulations. The problems inherent with shortselling have mushroomed over the past ten years because of the huge growth in hedge funds, and their propensity to employ whatever techniques they can get away with to garner quick, massive profits. Because of the myriad ways shortselling hedge funds are able to manipulate prices to their own ends, and the difficulty in enforcement of the convoluted laws already in place, the only way to cure this problem is to disallow all shortselling, period. No exceptions!
This is about the greater good and the welfare of the country. By allowing no exceptions, enforcement becomes easy. Any shortselling should result in a securities firm or individual losing their license and/or being banned from trading. Period.
Remember, even legal shortselling results in an unfair increase in the amount of stock outstanding, regardless of whether the stock sold short is borrowed or not. After all, even when stock is borrowed before a short sale, the original owner of the stock still owns it, in addition to the new buyer. This artificial increase in the number of shares outstanding obviously is going to affect share price, as well as voting rights on corporate affairs, among other things.
There is simply no way to make what is inherently an illegal and fraudulent practice to begin with, legal.
Banning short selling altogether would eliminate a whole host of problems.
Thanks again for your efforts in airing the issues surrounding this horrendous, systemic problem, Alexis. Please keep up the great work!
Comment by golden1101
Jul 30th, 2008 at 11:06 am
While I do not trust the mainstream media (or talk radio for that matter) to deliver an accurate picture of what is happening most of the time . . . This was a start. Patrick Byrnes is and American hero IMO, taking on very large players for the benefit of not only his company, but of countless others.
The SEC is stalling, they have been stalling for years . . . They know they are busted and there is no way out of this mess except through it. The research has been done for years and there is now far too much information that has been collected by the public and the power players in “white hats” for them to suppress.
FTD’s are against the law . . . They have been against the law for a very long time. We, as a world, have the technology to send satellites into space, navigate solar winds, gravitational pulls and the myriad of other challenges that accompany the exploration of space . . . Yet we cannot seem to have a financial system that works or get an SUV to get more than 20 miles a gallon? Give me a break . . . The current system wreaks of corruption, collusion and the cards are stacked against the majority to favor a few.
The jig is up . . . Justice is going to arrive one way or another . . . All the wiggling and attempting to escape is only tightening the noose around the bad guys necks. Time to pick your pony . . . Are you on the side of what is right, or are you going to be a pawn in game of the super rich and lose your a$$?
Thank you Alexis . . . I hope to see even tougher questions from you in the future. You are providing the country with a great service by doing so.
Comment by Thomas Scheytt
Jul 30th, 2008 at 4:01 pm
These are the right questions to be asked ….. THANK YOU!
Like Patrick is saying……now connect the dots….
and you will see THE largest financial (organized) crime ever committed …..
It has been going on far too long ….
While the predators still are being covered….by…the DTCC/SEC….
ultimately responsible is…..the FED.
Naked Shorting is in deed the Hedge Funds/Prime Brokers license to steal.
They have drawn trillions out of the system. Track down who owns whom in this circle
and you will get to the root of evil.
ALEXIS….GREAT JOB/WELL DONE!
Comment by Tom Vallarino
Jul 30th, 2008 at 4:58 pm
As to the critics that say the number of “fails to deliver” have increased due to the increase in general trade volume, I have a few things to say:
1. Regardless of the trade volume, “fails to deliver” should not be happening at all
2. “fails to deliver” securities have increased in number faster than the trade volume
“From December 2006 to December 2007, fails to deliver at the National Securities Clearing Corporation (NSCC) increased by 99%.2 At the same time, the value of transactions entering CNS increased by only 62%.3.”
This naked short selling problem also extends to bonds and treasuries:
“In fact, the value of settlement failures in the bond markets is many times that of equity markets. My research shows that bond trade fails also increased from 2006 to 2007, though not at the rate of increase seen in equity trades. While some progress was made to reduce bond market settlement failures from about 8% of all trades to less than 5% from 2005 to 2006, bond trades failed at an increased rate of 5.4% in 2007. Preliminary data for 2008 indicate that this will be a record year for settlement failures.”
- Susan Trimbath, May 2008
“Nearly 9% of US Treasury trades resulted in a failure to deliver in the first 5 months of 2008, compared to 1.2% in the same period last year. This figure is for trades involving Primary Dealers only and may be substantially higher for all trades.”
- Susan Trimbath, May 2008
Comment by Jean-Paul
Jul 30th, 2008 at 6:54 pm
For Doug…. the issue is not “to short or not to short.” The discussion is about illegal naked shorting (aka: stock counterfeiting). The rules already in place against it must be enforced, the option market makers exception must be ended and the DTCC given a colonoscopy.
You opine:
“Shorting stocks is already difficult enough that adding an additional requirement to locate and borrow would put additional pressure on a trading strategy that doesn’t need additional hurdles.”
Surely you jest! By the same token, girl scouts should never have to deliver the cookies they sold you either. Or imagine the car dealer selling you a vehicle he doesn’t have…..and never delivers.
Glad you close, though, with the opinion that rules against abusive shorting (aka: naked/counterfeit) must be enforced. That’s what Ms. Glick is after. So now you, too, can join in the chorus of thanks to her for helping shine a light on this crime-filled alley called Wall Street.
Comment by jt
Jul 30th, 2008 at 8:16 pm
So…WHO EXACTLY IS THE DTCC??…read below–
Haven’t been able to read thru all the posts, so don’t know if anyone has posted this info yet. This is excerpted from Rob Kirby’s article at LeMetropoleCafe.com last week…note who is on the board. Talk about self-serving!!!!! Talk about insider…talk about “above the law”…talk about the Shadow Government!!! Just as Nathan Mayer (Rothschild…the last name BTW came from the red shield [rot schild in German] that hung in front of his father’s bank) said–”I care not who sits on the throne of England…he who controls the money supply of England controls the throne…and I control the money supply”…jt
“[from Rob Kirby...]The next thing folks need to understand is that all exchange traded equities [stocks] are electronically cleared through an institution called the Depository Trust Clearing Corporation [DTCC]. Since the DTCC clears all equity trades they CATEGORICALLY KNOW who the counterparties are that FAIL TO DELIVER. So why would you suppose the SEC has not subpoenaed from DTCC “lists of naked short violators” years ago?
Hmmmmmmm?
Could it be that some company’s stocks, or industries deemed ‘unfriendly to financials’, are ‘targeted’ for regular take-downs or even decimation?
Hmmmmmmmm?
Perhaps we would get a better clue as-to-what’s-going-on if we knew a little bit more about whom the good folks are who run the DTCC?
Let’s take a peek at the rogues-gallery of “who is” on the Board at the DTCC:
Donald F. Donahue
Chairman & Chief Executive Officer, DTCC
Read Full Bio
William B. Aimetti
President and Chief Operating Officer, DTCC
Read Full Bio
Mark Alexander
Managing Director - Global Markets, Merrill Lynch
Gerald A. Beeson
Senior Managing Director and Chief Financial Officer, Citadel Investment Group, LLC
J. Charles Cardona
Vice Chairman, The Dreyfus Corporation
Stephen P. Casper
Chairman and Chief Executive Officer, Fischer Francis Trees & Watts, Inc.
Art Certosimo
Executive Vice President, Bank of New York
Randolph L. Cowen
Chief Information Officer, Goldman Sachs
Norman Eaker
Principal, Edward Jones
Robert Kaplan
Executive Vice President, State Street Global Services
Gerard LaRocca
Managing Director, Chief Administrative Officer of the Americas, Barclays Capital
Ian Lowitt
Co-Chief Administrative Officer, Lehman Brothers Holdings Inc.
Norman Malo
President and Chief Executive Officer, National Financial Services LLC, Fidelity
Investments
Louis G. Pastina
Executive Vice President of NYSE Operations, NYSE Euronext
Ronald A. Purpora
President, ICAP Securities USA LLC
Neeraj Sahai
Senior Managing Director, Citi Markets & Banking
Timothy J. Theriault
President of Corporate and Institutional Services, Northern Trust Corporation
Michele Trogni
Global Head of Operations, UBS AG
David A. Weisbrod
Senior Vice President, JPMorgan Chase & Company
Amazing, ehhh?
So, it now appears that the “bootlicking” Cox and his cronies over at the SEC are going to begin “selectively” enforcing laws – already on the books – but, as it appears, only and exclusively to aid his “Faustian Friends” at the banks and brokers on Wall Street.
This is tantamount to treasonous dereliction of duty. For uttering such a statement Cox should be immediately impeached and the SEC disbanded. A troupe of green boy scouts could do better.
As an astute researcher and market observer – Bill Rummel of the Charleston Voice - recently wrote,
“No reprieve or notice was given by the SEC to the disgraceful [concentrated] shorting and manipulation of the gold and silver futures markets by some of those below [referring to many of the members of the board of the DTCC...jt], nor of the related mining stocks on the equity exchanges.”
………………………………………
Comment by Fred
Jul 31st, 2008 at 12:00 am
44 comments in 2 days
The anguish expressed! People suffering with the knowledge of crimes that few others knew about — until now hopefully it will get the light of day.
You have to be asleep to read these comments and not be impressed by the depth of feeling and even sadness coming through.
Comment by Dean
Jul 31st, 2008 at 1:56 am
Thank you for getting the story out about naked shorting (AKA counterfeiting). Please continue the good work you are doing in getting this out.
Comment by Isabel G
Jul 31st, 2008 at 10:54 am
What a bunch of miserable crybabies.
It delights me that these nincompoops lost fortunes on their misbegtten stock selections.
Comment by Randall McCormick
Jul 31st, 2008 at 11:04 am
Alexis, thank you for covering this crucial topic, which until recently has been all but ignored by the mainstream financial media. More and more people I talk to are saying they are giving up on the American stock market because of the increasingly blatant manipulation and dishonesty that goes on every day, to the tune of billions of dollars. Our regulators seem to be asleep at the switch or actually complicit in the pillaging of the investing public by Wall Street insiders and powerful hedge funds. Naked shorting needs to be stopped against ALL stocks, not just those of the privileged few. The options market maker exemption (ie loophole) needs to be removed. And the murky role of the DTCC in all this must for once and for all be exposed. We need TRANSPARENCY in our markets. Only those who are afraid of what it will reveal are against that.
Comment by Isabel G
Jul 31st, 2008 at 11:16 am
The issue of Naked Shorting is the biggest invetor scam going.
It has been given media attention because it serves to excuse the ineptitude of investors’ decisions.
Comment by Dave
Jul 31st, 2008 at 3:39 pm
Isabel G, rather amusing that you call the investors who have suffered under this abuse crybabies. If you haven’t noticed, the short sellers are doing their fair share of crying over rule changes that have made it harder for them to trade in a predatory manner.
Without the ability to execute rapid short sales over the course of hours these funds are claiming it is hurting their business. You realize don’t you that under the disguise of how they are trading these funds are effectively trading as a sell-only market maker selling what they do not own, no intent to borrow, and sell in a manner intended to create chaos in the markets. Chaos that impacts us all, including you I imagine.
Consider carefully what the SEC action has been and then ask yourself why the hedge funds have become so fearful of it. I think you may be intelligent enough to figure out that they are fearful of a change that reduces their abilities to steal and thus reduces their abilities to turn 20, 30, 40% profits year-over-year.
Comment by goSDNA
Jul 31st, 2008 at 5:29 pm
Alexis,
I have a large position in a company (Sedona Corp) that supposedly has a large NSS float. And I continue to buy every day because the company is legit and may even start making a profit very soon. But now comes the hard question. Say I own 1 million shares and the stock now at .17 goes to 2.50. So I go to sell and the broker comes back and says, you don’t own the stock because it never got delivered. What is my recourse? Is the broker liable to deliver to me what I purchased? I would have had all the confirmation slips etc. Many of us are very nervous about this. Any thoughts?
Comment by shawn brandom
Jul 31st, 2008 at 5:39 pm
i like this quote from mark mitchells recent article.
“Certainly, there is nothing “imaginary” about the SEC data showing that as of March 31, $8.7 billion worth of stock had “failed to deliver.” Most of those failures were the result of illegal naked short selling – hedge funds and their brokers offloading stock that they had not, and never intended, to borrow. Experts agree that there is at least ten times more of this phantom stock in parts of the system – such as “ex-clearing” – for which the SEC provides no public data.”
i downloaded the data on fails to deliver from the s.e.c. web site for the first quarter of this year and it totalled well over 64 BILLION fails.
SEEMS LIKE A FRIKKEN PROBLEM TO ME.
Comment by Jean-Paul
Jul 31st, 2008 at 6:44 pm
Former S.E.C. Commissioner Roel Campos has published a remarkable commentary in FORBES, entitled “Protection for All.” Straight from one who knows. The facts and data are there. Congress do something! Demand the SEC and regulators enforce existing laws against this theft of a nation.
Here’s the damning opening and link to the full story:
PROTECTION FOR ALL
Roel Campos, 07.31.08, 5:25 PM ET
Naked short-selling is a major contributor to market turmoil.
After years of arguing to the contrary, the Securities and Exchange Commission has finally acknowledged that the practice of short-selling without pre-borrowing or locating shares can be harmful to large public companies. It is time that it acknowledges the harm it does to small ones as well.
http://www.forbes.com/opinions/2008/07/31/naked-short-selling-oped-cx_rc_0731regulation.html
Comment by Tom Sawer
Jul 31st, 2008 at 9:15 pm
Can some explain in plain English how naked shorting is different from printing counterfeit dollars? Why it is tolerated and why these who are the major culprits are ending up “protected” instead of prosecuted ? Why SEC can not make plain field for investing for everyone in this country , instead of “protecting” privileged MM and brokers when they become victims of their own game? What is the Congress doing besides giving GS authority to rule financial markets and print more money (debt) .
Comment by Dean
Jul 31st, 2008 at 9:34 pm
Thank goodness someone is following this story before the whole system crashes…how can anyone sell something before they own it…shheesh
Comment by Curt
Jul 31st, 2008 at 11:30 pm
The more light that is shed on this, the more hope I have it will actually be corrected. First and foremost the SEC needs to be dismantled and an actual Government agency put in charge without ties to the major brokerages (GS for starters).
I truly hope that this story is kept alive and reporters with integrity like Ms. Glick continue to dig deeper - it’s a complex crime, so it’s no easy task.
Comment by Matt
Aug 1st, 2008 at 12:36 am
Ms. Glick,
Thank you so much for your attention to the plague of naked shorting and Fail to Delivers. The extent of this problem is so far reaching and swindles retail investors and ordinary Americans out of their hard earned investment dollars. Take a look at Stephen A. Cohen, the legendary hedge fund manager. Last year he personally earned Billions of dollars for producing what? NOTHING! His hedge fund invests heavily in the failure of public companies and profits mightily by manipulating their share prices into the ground through ruthless naked shorting and Fail To Delivers. This essentially allows hedge funds to sell an unlimited number of phantom shares without oversight or restriction, causing panic among “ordinary” investors who then sell to protect what’s left of their investments. With any luck, the hedge fund drives the business into bankruptcy and keeps 100% of the proceeds. In some cases, they are forced to cover (locate, deliver or purchase the shares) but the damage is so significant they pay a fraction of the cost of the shares that they made selling them at much higher prices.
In short Ms. Glick, this is the crime of the century. The hedge funds have exploited the SEC’s lack of enforcement to a tee. The problem is so far reaching now that the SEC is AFRAID to enforce their own rules because of the chaos it may create in the markets. I assure you, if hedge funds having to pay the piper is chaos, PLEASE let it begin and restore order to our equity markets.
Retail investors and ordinary Americans need a CHAMPION. Please, please be our champion and pursue this until you expose the criminal activity and force the SEC to protect investors, not the crooks as they are doing now.
Respectfully,
Matt C
Saratoga, CA
Comment by Philip A. Wenger
Aug 1st, 2008 at 11:03 am
Thank you Alexis for conducting the interview of Mr. Atkins and placing it on your blog. Having talked to a SEC official (supposedly an investigator) at a national Stock Fair held by the NAIC in Columbus, Ohio, I do not have a warm, good feeling about these officials desired to protect the individual investor. I would like to know if Mr. Atkins was able to look you in the eye when he gave evasive response to your questions.
Respectfully,
Phil W
Reynoldsburg, OH
Comment by Kingdom
Aug 1st, 2008 at 8:30 pm
Nothing will happen to naked shorting without pressure from the U.S. Congress.
You have to write to your Congressman to get naked shorting made illegal.
Comment by Dave
Aug 2nd, 2008 at 2:36 pm
Ms. Glick,
It is my understanding that the last remaining hurdle to seeing true reforms outlined to protect the investing public has left the agency in Mr. Atkins. I can only wonder how much Mr. Atkins realizes that a robust economy is not only dependant on the ability of our capital markets to trade efficiently and with suficiant liquidity but that it is even moreso dependant on the safety and security of all investing participants and public issues who engage in aking their companies public.
To date, individuals like Commissioner Atkins have come to understand that there are no negatives that come with unregulated liquidity and such opinions have been the ultimate root cause to each of the last major scandals involving Wall Street. Each of the last major scandals, including this most recent, has been based on a foundation of deriving signifiant trade volumes.
It is now time to change and your reporting on Fox has helped the general public understand that they must take charge and take appropriate actions to drive positive change.
Thank You,
Dave Patch
Comment by rob Kornfeld
Aug 2nd, 2008 at 7:25 pm
Great article. Unfortnately, it’s like the fox guarding the hen house.
After all, the SEC has done a lousy job policing the naked short selling practice which is illegal and which has caused many innocent shareholders to lose hundreds of millions of dollars.
Until the SEC starts cracking down on hedge funds, and financial institutions, this practice will continue.
I suggest that if one major financial institution was prosectued and made an example, this practice would be placed in jeopardy. It is so rampant that many firms would go out of business because they simple short a stock, don’t deliver and trade imaginary shares back and forth with other cohorts.
Rather than worring about the ramifications and fall out to Wall street firms if the SEC acts and enforces the laws, the SEC should look out for the innocent guy and not worry about its financial associates or their firms going down.
I ask that the SEC take immediate action to stop this horrific pattern and practice which is simply abusive and erodes trust in our financial system.
Comment by Ed Sawyer
Aug 3rd, 2008 at 1:16 pm
Naked shorting is a huge issue and problem on NYSE for obvious reason. Shut it down, eliminate the boy scout honor corruption on failed to deliver shares. A growing mistrust in the exchange here. Real and growing corruption obviously. Why has this been allowed to continue? Why the cover up? Not only shut it down but we need answers too.
Comment by Dave
Aug 4th, 2008 at 7:29 pm
Rumor has it that the reason we are where we are today - behind the 8-ball - is that commissione Atkins fostered a kindered care for those doing the manipulation. his message here only supports those accusations.
Comment by Jean-Paul
Aug 9th, 2008 at 10:33 am
Ms. Glick….
Here are some further data and information on the DTCC and the numbers of stock trades that fail to settle. This from Bob O’Brian.
Thanks again for your continuing interest!
************
The Editor of The Industry Standard recently asked the question, “How big is the delivery failure problem?” Essentially, asked how much of Patrick’s concern over a systemic crisis is valid. So here’s an answer that the swarm of flies who were obviously assigned to that message board to clutter it up can’t obfuscate away…
How big is the problem? I mean, we hear the now famous $6 billion delivery failure number tossed around from the DTCC, but how accurate is that, really? Is it a complete answer? Is there more information that is knowable?
The answer is, yes, more is knowable.
“Approximately US$1.8 trillion worth of trades remain outstanding and unsettled globally every business day, contributing significant credit and operational risk exposure to the trading participants.”
That from the document at Touchbriefings.com. Huh. $1.8 trillion is a big number, even by Pentagon standards.
http://www.touchbriefings.com/pdf/1417/kumar.pdf
Or how about this? From the DTCC:
“For example DTCC estimates that 5% of secondary market trades fail to settle each day. With approximately $4.5 trillion of settlement value in 2004, failed transactions equal $ 225 billion daily.”
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=849224
Alternatively, we can go to the UK Exchange Handbook, which contains some fascinating perspective on our wondrous settlement system.
http://www.exchange-handbook.co.uk/index.cfm?section=articles&action=detail&id=38756
If I read it correctly, it says that at least 5% of DTCC transactions fail to deliver. It also hints at delivery failures because of the CDS direct cross border link into the DTCC and between the prime brokerages.
“One of the problems in assessing how reliable, and hence safe, a market settlement system is concerns obtaining reliable data on such matters as failing transactions — let alone ascertaining exactly where liabilities lie during the settlement and subsequent on-going custody of the assets. In the more advanced markets, such as those in the UK and the US, the local regulators have ensured that reliable transaction data is readily available in a very transparent manner. In these markets, when the depository advises that they have a fail rate of approximately 5% (in the case of DTCC) or approaching 1% in the case of CRESTCo in the UK, one can rely on such figures.”
“This research is supported by the DTCC white paper, which reports that 6% of institutional transactions being settled on an average day are expected to fail, while the fail rate on the market-side is lower at 4.4%.”
Huh. Very interesting. Again, sounds larger than that $6 billion per day, which many assume is a rolling total. I mean, 5% of everything they process fails? After netting and the stock borrow program have minimized the number that could fail? That is an amazingly large number, 5 times larger than what happens in Britain. Scary part there is that we are now talking after the replenishable pool from the stock borrow program is used, and presumably massive numbers are shunted ex-clearing, and not counting desked trades, and after CNS netting handles the vast majority, we still have 5%? Yikes. Makes me start to believe that the true number is many multiples of that 5% number. Anyone with hard data that can show that assumption isn’t true is welcome to bring it on. Facts are facts.
So then, in our quest to understand it all, we turn to the actual white paper published by the DTCC on settlement issues, and we get more data. Much more.
http://www.dtcc.com/downloads/leadership/whitepapers/settlement.pdf
“FAILS AND RECLAIMS
This shortfall in effecting STP is largely an efficiency issue. Fails and reclaims are another matter. They create risks for participants and for the system as a whole.
Because fails are quite common in today’s system, it falls far short of straight-through processing. Currently about 5% of trades fail or are “dropped” at the end of the day — about 20,000 from CNS and 15,000 from non-CNS deliveries for a total of about 35,000 of the typical day’s 700,000. This doesn’t include “fails to deliver” that aren’t even introduced into the system, which would make the fail rate higher (that’s ex-clearing they are discussing, BTW - Bobo). Fails create significant risks for the deliverer and receiver. When a fail occurs, the deliverer is short of funds (although a firm can lend the securities it has and replenish them in normal market circumstances). Both the deliverer and the receiver have portfolios that are not what they expected. Although a fail does not create a credit, counterparty or principal risk, it does create a liquidity risk for the deliverer. And institutional trades that fail create position risk for both deliverer and receiver.12
Most fails occur because positions are not available; that is, the deliverer does not have free inventory. Stock lending can, of course, overcome this, as long as the lent stock is available quickly enough. When, as is usually the case, the lender receives sufficient cash collateral from the borrower, the credit risks associated with stock lending are small compared with the benefit of eliminating settlement fails.”
Huh again. So, 5% fail PER DAY, not counting ex-clearing. Not a rolling number, but per day, unless I am reading this wrong. I don’t think I am, but it is always possible, and I would welcome brighter minds than mine shedding light on this if I’m getting any part of it wrong.
So, this is a big, big problem, and it isn’t happening because the dog ate the certificate. It’s happening because the brokers just flat out don’t have what they sold. As in, fraud. No got the doggee in the window I took the money for.
How big is the total problem including ex-clearing? Nobody’s telling how large ex-clearing is, but we have some hints that it is much larger than the in-system fails. If so, we are talking systemic meltdown sort of size, and it underscores why the industry fights so hard to pretend that it is all a minor issue, or lunacy from fringe kooks.
Kinda tough to argue that with the above citations, isn’t it? Oh. Those.
So the turd brigade posts like mad over at the Standard, hoping to remove any semblance of intelligent thought from the discourse. They accuse Patrick of being a cheat or a loon, they accuse me of being a stock manipulator or crazy, but what they don’t do is cite hard fact to support their ramblings. Nothing new there. They think we are all stupid. They are the masters of the universe. We are the sheep. Problem is, every now and then the sheep figure it out, and it makes stealing everything the sheep own harder, which they don’t like. Because all thieves and criminals prefer easy money - that’s why they are thieves and criminals, versus productive members of society.
But I digress…
Special thanks to DavidN for digging these up.
http://www.thesanitycheck.com/BobsSanityCheckBlog/tabid/56/EntryID/706/Default.aspx
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Comment by Paladin
Aug 11th, 2008 at 12:40 pm
Ms. Glick….FYI:
Gary Matsumoto, who did the Bloomberg piece “Phantom Shares,” has an excellent one today on the Bear Stearns manipulated takedown….. wow, it’s a goodie:
http://www.bloomberg.com/apps/news?pid=20601109&sid=aLsfDbE1JU_E&refer=home
And “Investment News” also has a great one, referencing and quoting many of the good guys.
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http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20080811/REG/827522981