The Authoritative NSS Page (NAKED)

[Taurus69]

The naked truth.

[op9171787]

NAKED SHORTING is institutional thievery. BCIT was one of the victims.

mflash hey....
please shoot me an email would u. [e-mail] thanks.

[ctrumabll]

And yet, this does not mean that the trash penny stock [insert Kool-Aid drinker here] unwisely bought into was killed by the ENSSFM. Still looking for those.

[mastaflash]

U.S. SEC fines optionsXpress, individuals $4.8 mln for naked short sales

http://www.cnbc.com/id/100803454

[mastaflash]

True counterfeiting was the catalyst...brokers saw a gold mine and took advantage. The fake certs were removed from the market...and in any case, were only 250M in number. The NSS far exceeds that...most of it after the DTCC 'freeze'. Do you know what the 'freeze' means to those brokers that transacted shares under that freeze? Do you know what ex-clearing is? It is all about possession and control...you must have one or the other t+3...after the 'freeze'...it is control only...control of physical certs!....everything else is fraud.

[ctrumabll]

BCIT was about counterfeiting, not ENSSFM. There is a difference.

[mastaflash]

btw, me and Janice are in agreement on this...BCIT WAS NSSed...although the numbers are different...she says 200m...

janice shell


Wednesday, June 20, 2007 6:20:42 PM
Re: mastaflash post# 150497

Post # of 168580
BCIT and GVRP were indeed shorted naked, but they aren't typical examples. And they're the only two I know of.

[mastaflash]

1B+ 'shares' sold by brokers, and only 645K shares on deposit at DTC. AS at the time was 4M. I personally 'own' more than that. What is that if not NSS? Difficulty with math is a common trait with NSS deniers I find.

[ctrumabll]

That has nothing to do with the ENSSFM. The broker held shares in book-entry form, and did not want to bother issuing certs for a delisted stock. They had to. Big deal, and no ENSSFM involvement.

[mastaflash]

A broker sells electronic book entries for certificates that never existed. They then buy those certificates directly from shareholders that hold actual certs to make good the transaction.

[ctrumabll]

And this is a victory over the ENSSFM- how?

[mastaflash]

Court Compells TDAmeritrade to Deliver Share Certificates for Bancorp International Group Inc
A Bancorp International Group Inc (BCIT) shareholder wins case against TDAmeritrade for the delivery of his share certificates purchased in 2005

Carson City, NV (PRWEB) April 17, 2013

Records from the Magistrates Court of Mercer County West Virginia state that on April 15, 2013 in the case of Blankenship v TD Ameritrade, Case number 13-c-333, Judge Fowler ordered TDAmeritrade to deliver a certificate for the 170,000 BCIT shares which he had purchased through the defendant on August 17, 24 & 25 2005. This is confirmed by the judgement order attached to this release.
BCIT confirms previous statements that shares are available for delivery
Thomas Megas
CEO & President
Bancorp International Group Inc
http://www.prweb.com/releases/2013/4/prweb10642576.htm

[RoadLessTraveled]

janice has an original Ouija board that actually works, not one of the cheap phoney imitations.

Her deluxe board even has an Electric Witch Blocker, an option almost impossible to find now.

You can always trust her advice since it comes straight from only the good spirits themselves.

[mrrbigg]

Thanks janice, You have been always right on for me.

[janice shell]

Looks like a no-hoper. They're the ones who normally invoke NSS.

[mrrbigg]

Yep, And Friday the CEO, Claimed in A News release that the PREFFERED SHARE HOLDER WANTS TO TAKE THE CO. OVER!!
NOW I HAVE SEEN IT ALL, LMAO........

[jb1967lbk]

Looks like a total crud-fest. Have you looked at their financials? They're not current with their SEC filings, but they do have some information posted at OTCMarkets.com.

[mrrbigg]

Hi Janice, Long time no see, What do you think about symbole AGIJ, The CEO Claims NSS!!!

[Stock]

True "Confessions" are rarely true.

[Stock]

Somebody must have to short a stock during an IPO to provide liquidity, I suppose, if insiders and underwriters can't sell.

There's probably a rule about the exchange profiting from that, however.

Maybe these are their "ill-gotten gains" they are disgorging lol

[janice shell]

Oh God. They really should be careful about using loaded phrases like that one.

[Stock]

Dear God, look a this. The crazies are going to copy and paste this for the next 30 years.

It was written by "John McCrank"
Isn't his twin brother named Phil?

The exchange has applied to the SEC to increase the amount to $13.7 million to include a gain of $10.7 million it made from the Facebook IPO through the sale of so-called "phantom shares" it was left holding in the IPO.

Nasdaq to make Facebook compensation announcement

Reuters – 30 minutes ago

NEW YORK (Reuters) - Nasdaq OMX Group Inc (NSQ:NDAQ - News) has reached out to at least one brokerage that lost money due to Facebook's (FB.O) botched initial public offering on the exchange, saying it will make an announcement on Wednesday, a person at the brokerage firm said on Tuesday.

Nasdaq is expected to release details of a plan to make up some losses sustained by banks and trading firms, which collectively have been estimated above $100 million, in a filing with the U.S. Securities and Exchange Commission, according to the Wall Street Journal, citing unnamed sources.

Nasdaq declined to comment on Tuesday.

Facebook shares have fallen 32 percent since the IPO when technical glitches resulted in a 30-minute delay of the IPO, unconfirmed trades and losses by market makers and retail investors.

Nasdaq's plan to pay back brokers has been slowed by regulatory questions centered on exchange's ability to compensate customers, the WSJ reported, citing people familiar with the matter.

Nasdaq's liabilities for a trading glitch are limited through regulation and a contract with its customers to $3 million per month. The exchange has applied to the SEC to increase the amount to $13.7 million to include a gain of $10.7 million it made from the Facebook IPO through the sale of so-called "phantom shares" it was left holding in the IPO.

(Reporting by John McCrank; Edited by Walden Siew and Tim Dobbyn)

..

[Stock]

That's the way they do it.

LOL

[momentum74]

http://www.bloomberg.com/news/2012-05-15/goldman-merrill-e-mails-show-naked-shorting-filing-says.html

[jb1967lbk]

Yeah, now they're nitpicking, which is what regulators will tend to do if you stand up to them. It's not really Schwab or even optionsXpress they're going after here. They're going after Stern.

I don't know how familiar you are with broker/dealer compliance, but here's the real take-away with these new, tacked on charges:

1.) Stern was sloppy. No getting around this. If you make the decision to de-register an entity, then you don't just slime your way through it. You diligently complete the necessary paper work and you move on. And you never, ever start backdating material to fix a compliance mistake. "OX Trading LLC" is a separate entity from "optionsXpress". It will be interesting to see how Stern handles this. His trading as a "customer" of optionsXpress does not violate the registration requirements of CBOE... unless they're going to try to nail him for the RFQ's. The RFQ issue is the kicker. Stern has messed up, and he's probably going to have to eat it as punishment for trying to stand up to the SEC on the Reg SHO complaint.

2.) I can step into almost any OSJ for any broker/dealer in this country and find half a dozen violations. It doesn't mean that all the broker/dealers in this country are crooked nor does it mean that they're not bothering with the rules. Given the plethora of regulations, vague and occasionally contradictory as they can be, "Broker/Dealer Compliance" is as much an art-form as anything else in this day and age. If you're a compliance officer, you do the best you can with the resources at your disposal to keep your shop as clean as possible. But you're always aware that if some twerp from FINRA or the SEC is looking to put a feather in his or her cap at your expense, they can find something.

[Stock]

Things just got worse for them. Dogpile worse. Poor Schwab.

SEC Charges Ox Trading, optionsXpress, and Former CFO With Registration Violations

FOR IMMEDIATE RELEASE
2012-68

Washington, D.C., April 19, 2012 – The Securities and Exchange Commission today charged a Chicago-based securities dealer affiliated with online brokerage firm optionsXpress with violating the registration provisions of the securities laws when it continued trading operations after delisting from the Chicago Board Options Exchange (CBOE) and deregistering with the SEC, apparently to avoid an audit.

Additional Materials
SEC Order
http://www.sec.gov/litigation/admin/2012/34-66831.pdf

The SEC’s Division of Enforcement instituted administrative proceedings against OX Trading LLC, optionsXpress, and their former CFO Thomas E. Stern, alleging that OX Trading operated as an unregistered dealer from October 2009 to November 2010 and illegally transacted in securities while not a member of a national securities association or national exchange from March 2009 to November 2010.

According to the SEC’s order, Stern terminated OX Trading’s membership with the CBOE and ended the firm’s broker-dealer registration with the SEC. Meanwhile, OX Trading quietly continued to conduct trading through a customer account at optionsXpress. Stern, who also was OX Trading’s chief compliance officer, later fabricated and backdated an allegedly exculpatory letter purporting to demonstrate that he had properly informed CBOE that OX Trading would deregister and become a customer of optionsXpress.

Earlier this week, the SEC charged optionsXpress and Stern for their roles in a naked short selling scheme.

“OptionsXpress, OX Trading, and Stern have displayed a profound disregard for regulators, compliance obligations, and the regulatory requirements that dealers must satisfy for the privilege of operating in our markets,” said Daniel M. Hawke, Chief of the SEC’s Market Abuse Unit. “Registration of brokers and dealers is a fundamental part of the regulatory structure and provides the foundation upon which many other investor protections are built.”

According to the SEC’s order, OX Trading and optionsXpress became wholly-owned subsidiaries of The Charles Schwab Corporation in September 2011. OX Trading, which originally registered with the SEC in 2008, was created to provide price improvement on orders from optionsXpress customers and to profit from those trades. OX Trading received electronic requests for quotes (RFQs) from optionsXpress. These RFQs allowed OX Trading to determine whether it wanted to be the counterparty to an optionsXpress customer’s order. OX Trading allegedly made money when it traded as a counterparty to optionsXpress customer orders and hedged the positions created by those trades.

According to the SEC’s order, a CBOE examiner conveyed to Stern in early 2009 that OX Trading was required to have an annual audit based on its CBOE membership status. Despite CBOE’s request, Stern refused to pay for an audit and subsequently terminated OX Trading’s CBOE membership on March 2, 2009. Nonetheless, OX Trading continued to conduct the same trading through a customer portfolio margin account at optionsXpress. Stern did not inform the CBOE that OX Trading would continue its operations as a customer of optionsXpress. He later attempted to furnish the fabricated and backdated letter to SEC investigators in a phony attempt to prove otherwise.

According to the SEC’s order, after Stern was contacted by the SEC’s Division of Trading and Markets, Stern filed a form with the SEC on Aug. 18, 2009, to deregister OX Trading as a broker-dealer. The deregistration became effective on Oct. 17, 2009. According to an internal e-mail sent by Stern, OX Trading “stalled as long as we could” in deregistering. OX Trading continued to trade through the customer portfolio margin account at optionsXpress.

The SEC’s Division of Enforcement alleges that CBOE identified the OX Trading customer account during an exam of optionsXpress in late 2009. CBOE requested an explanation about why OX Trading was not registered with the SEC as a broker-dealer. In an internal e-mail about CBOE’s request, Stern stated, “I am happy to spin this however it needs to be.” Stern then sent CBOE a letter containing numerous factual inaccuracies and no legal opinion or analysis about OX Trading’s registration status. CBOE sent Stern another letter in June 2010 informing him that it believed OX Trading was functioning as a dealer and needed to either cease operations or obtain a written opinion from the SEC confirming that OX Trading was not required to register. OX Trading did neither.

According to the SEC’s order, OX Trading eventually acquired a CBOE trading permit and registered again with the SEC effective Nov. 16, 2010.

As alleged in the SEC’s order, OX Trading violated Sections 15(a) and 15(b)(8) of the Exchange Act, and Stern and optionsXpress caused and willfully aided and abetted OX Trading’s violations.

The SEC’s investigation was conducted by Deborah Tarasevich, Jill Henderson, and Paul Kim. Market Surveillance Specialist Brian Shute and Market Abuse Trading Specialist Ainsley Fuhr provided assistance with the investigation. The SEC’s litigation will be led by Frederick Block.

# # #

http://www.sec.gov/news/press/2012/2012-68.htm

[Stock]

Very well said, and I thank you for that.

Clarifies things for me greatly.

[jb1967lbk]

Well, penny stock traders, as a group, are a bunch of morons. Most of them don't understand stocks, to say nothing of options. The whole "naked short selling" scam is generally nothing more than a means for crooked and/or inept management and promoters to divert attention away from lousy fundamentals or executive misconduct. They will cite anything, even if the active naked short selling of a stock isn't taking place, to show that the system is "corrupt" or "broken".

It's not so much that what OX did was "illegal". And here I feel it's important to make a distinction between an act that's "illegal" and a procedural violation. Feldman certainly did nothing illegal. He's not compelled to follow Reg SHO. (OX, on the other hand, as a member broker/dealer, has a regulatory duty to comply with Reg SHO.)

I doubt that there are many other cases like this lingering out there. If you read the complaint carefully, you'll see that Feldman was shopping around for other broker/dealers who'd let him write his D-I-T-M calls on his terms and was coming up dry. That's why he ended up coming back to OX.

The real underlying problem is that Reg SHO, itself, is manipulative. That's not something that the regulators want to hear, and it's certainly not something that the mouth-breathers who buy penny stocks want to hear, but the fact is, if you're forcing people to cover short positions that get generated when a call option gets exercised, what difference should it make if the buy to cover is done at 9:30AM or 9:45AM?

The difference is that by demanding positions be closed and marked to the open, Reg SHO is creating artificial price spikes at the beginning of the trading day. I'm sure that feels good for those people who have an agenda to "stick it to the shorts", but it's really bad, and really stupid, public policy.

[Stock]

I appreciate your comments. But the jargon and third-party involvement you bring to the discussion (other traders getting forced buy-ins) makes my head swim.

Option trading can be very simple (buy a put or call, sell a put or call), but when you expand it to hundreds of exotic strategies that have been studied and used for YEARS, the average trader's eyes gloss over. It's complicated.

i.e. you said this:

If you were to do a "buy-write" after an assignment against a short call position for a stock that was not on the Reg SHO list, there would be no violation.

Do you think the average trader understand that? Hell, I don't.

Joe Trader that buys and sells listed stocks and ETFs every now and then is not going to understand that.

Most people just read the headlines this week, and immediately go into "I told you Wall Street was corrupt" mode.

Mr. Naked Pennystock has been posting this optionsXpress case all over iHub as "proof" of naked shorting in their favorite pinksheets stock, which has no relation to this case at all.

Shame on them for not understanding. But who does?

People make big money and get paid big bucks developing ideas and executing these complex trades. There are huge commissions involved. It's big money.

And a lot of it ISN'T getting discussed because that would take away their edge.

My point in the above is this: Most people don't understand option trading. Even fewer understand exotic option strategies. I wish there were an easier way to explain this case.

Your comment that optionsXpress gave a larger client more time to close out a position does help explain. They even knew what they were doing was questionable, if not illegal, yet let it continue.

Whether the strategy was long or short shouldn't matter. Except it does, because POLITICALLY the SEC said they were going to prosecute "synthetic shorts."


Also:

Those that DO understand complex option strategies are talking with regulators and with the officials with the bourses where they are executing their trades because there is RISK involved.

Risk means losses for some and gains for others.

When the "wrong side" takes a loss, that's usually going to generate a call or complaint to regulators, and investigation risk grows.

IMO, most cases like this get attention from the regulator when an option writer takes a hit. They HATE lose. And laying off risk on others is their game.

I guarantee this is not the only case pending with the SEC on this type of "synthetic short" trade.

[jb1967lbk]

Not quite. It wasn't that the "buy-write" arrangement avoided closing out the short position in the stock. It DID close out the short position in the stock.

The problem was that it violated the way the SEC wants short positions in Reg SHO stocks closed out.

If you were to do a "buy-write" after an assignment against a short call position for a stock that was not on the Reg SHO list, there would be no violation.

HOWEVER, the letter of the law of Reg SHO is that the customer is not to be given the time to enter a "buy-write" after an assignment. The customer is to be jammed with whatever price is printed on the tape at the open, and then he or she can try their luck at re-establishing their short call positions later.

[jb1967lbk]

It's really not as complex as the SEC makes it out to be.

Given that the securities underlying the call options Feldman was writing were on the Reg SHO list, when those call options were getting exercised overnight, OptionsExpress(OX) was supposed to buy-in the resulting short stock position AT the market open. And, in fact, they forced their other, smaller customers who were pursuing the same strategy to buy-in at the open.

However, Feldman was a larger customer. And instead of forcing him to buy-in at the open, they afforded him time to arrange "buy-writes" after the market opened to cover the short stock positions and re-establish the short call position he wanted to hold.

By giving him time to arrange his "buy-write" trades, they let Feldman off the hook for the risk that the stock would slide immediately after the open, which often happened, and therefore let him re-establish his short position in the calls at relatively more advantageous prices. The rest of the OX customers who were writing deep-in-the-money calls had to eat the risk.

[Stock]

This stuff makes MY head hurt.

But there are people who live for this kind of trading.

I don't think it mattered whether the strategy was long or short.

But I do wonder what the SEC would say if the same strategy was employed as a synthetic long. Would that be considered indictable manipulation also?

[Stock]

Synthetic Positions

http://www.optionsxpress.com/free_education/resources/glossary.aspx#s

Synthetic Positions

Also known as an equivalent position. By using a combination of options or options and stock, traders can create positions that have the same risk/reward characteristics of option only or stock only positions. The following summarizes the most common synthetic positions.

Synthetic long stock
A short put option and a long call option with the same strike and expiration.

Synthetic short stock
A long put option and a short call option with the same strike and expiration.

Synthetic long call
A long put and a long position in the underlying stock.

Synthetic short call
A short put and a short position in the underlying stock.

Synthetic long put
A long call and a short position in the underlying stock.

Synthetic short put
A short call and a long position in the underlying stock

--

Buy-write
see Covered Call.

--

Covered Call
A short call option position against a long position in an underlying stock or futures.

[Stock]

In summary:

1. optionsXpress was intimately aware and involved in helping customers with this strategy
2. the traders and the company knew they were doing something that was manipulative.
3. when the new regs came down in 2008, they got very nervous (who wasn't!), and started seeking a better procedure to keep allowing their customers to implement riskless buy-writes
4. they had trouble getting anybody to bless the trades (a red flag).
5. they continued to allow the trading while knowing it was presenting risk to all parties involved.
6. the SEC stopped commenting on the trading, and went into fact gathering mode for enforcement action

And it all came down just today, from 2009. Took three years.

I think this is the first action taken on synthetic short buy-write arrangements. There may be others! The SEC and FINRA warned about this during the financial crisis that they were going to go after the "synthetic short" strategy.

And they did.

[Stock]

This exchange is sad. They knew what they were supposed to do, but did not carry it out.

There must have been a ton of fees involved here. A lot of b/d revenue.

The SEC left them hung out to dry... and the SEC just hung them today...

http://www.sec.gov/litigation/admin/2012/34-66814.pdf

Communications with the Regulators

30. On September 23, 2009, optionsXpress received a letter of caution from CBOE. CBOE noted that optionsXpress conducted buy-ins on the morning of T+4, but found that the firm called certain customers prior to the execution of those buy-ins, which was a deviation from optionsXpress’ procedures. That deviation allowed the Customers to buy themselves in with a buy-write. In response to CBOE’s concerns, optionsXpress began emailing the Customers, instead of calling them. Otherwise, there were no changes to the procedures and optionsXpress continued to execute the Customers’ buy-writes.

31. On that same day, an optionsXpress trader forwarded a copy of the Hazan order to Bottini, citing the language about sham transactions. The trader then stated: “I am not placing any orders today.” Bottini responded minutes later: “Please execute the buy ins and customer orders today. Compliance has reviewed and is not convinced this applies. They have asked our regulator for an opinion and have not received it.” Later that day, Strine emailed Hoeh, Bottini, the CFO, and other senior executives regarding Hazan: “We addressed this issue back in August when the SEC issued its findings in these cases. Although I see issues with what our customers are doing, I pointed out distinguishing factors in my response back in August. . . . Additionally, we have responded to four inquiries regarding this issue: one from CBOE and three from FINRA. While the FINRA issues are still ongoing, CBOE didn’t seem to have any issues with our response.” The Clearing Department also contacted Strine noting that Strine and Hoeh had previously addressed the issue by saying buy-writes were not allowed: “Don’t want to get anyone in trouble, but somewhere down the road this is going to bite us.”

32. On September 24, 2009, Hoeh, Strine, the CFO, and optionsXpress’ in-house counsel called FINRA to ask questions about the Customers’ trading. FINRA said it would not discuss the issue because of its ongoing inquiry. The same day, the same four individuals (including Hoeh and Strine) called the SEC’s Division of Trading and Markets (“Trading & Markets”). According to optionsXpress, Trading & Markets told optionsXpress to “keep doing what you’re doing—keep closing out” and that Trading & Markets would get back to optionsXpress on the best execution question.

33. After the call, upon further investigation, Trading & Markets learned additional facts that optionsXpress did not disclose on the call, including that FINRA had an open inquiry and that the customers were using deep-in the-money calls to circumvent Reg. SHO. As a result, on October 2, 2009, Trading & Markets called optionsXpress and spoke to its in-house counsel and the CFO, telling them that the SEC declined to get involved and that it could provide optionsXpress with “no comfort.” optionsXpress’ in-house counsel informed Bottini, Hoeh, and Strine of the call.

34. After the October 2, 2009 call with Trading & Markets, Hoeh, Strine, the CFO, and in-house counsel called FINRA. optionsXpress told FINRA that it had received a call from the SEC, and that the SEC had declined to be involved. optionsXpress also said that it was at a loss about what to do and was seeking guidance on the activity. FINRA told optionsXpress that if it wanted guidance, it should send a request in writing to FINRA’s general counsel or the SEC. optionsXpress did not submit a written request for guidance to either the SEC or FINRA’s general counsel. Instead, optionsXpress continued executing the Customers’ buy-writes.

35. Two weeks after the October 2, 2009 call, Strine emailed several optionsXpress employees, including Hoeh, about another Reg. SHO issue and noted that “[w]e are already under heavy scrutiny from regulators on our short sale practices, and this problem could push us over the edge.”

[Stock]

Uh oh, email:

Bottini, Hoeh, and Strine Knew or Should Have Known that the Trading was Problematic

16. On October 15, 2008, less than a month after the Commission issued its emergency order putting Rule 204T into effect, one of optionsXpress’ traders sent an internal email which described the trading: “the customer has short positions on hard to borrow stocks where the customer has to buy in every day. Our customer is buying back the short and writing in the money calls which are assigned on a daily basis.” Two weeks later, the firm’s Clearing Department raised concerns that the stock was not being bought in at market open. Strine replied back to the Clearing Department and the traders telling them: “According to the rules, they need to be closed out at the opening. The industry is pushing back on this, and requesting the [whole] day, but as it is now, we need to cover at the open.”

17. The following month, the Clearing Department informed Bottini of the “vicious cycle” that the buy-writes were causing: “Since we have an open CNS fail and as soon as we buy to cover, the customer shorts a call which gets assigned immediately, we are in a vicious cycle.”

18. In mid-November 2008, Bottini sent an email to the Clearing Department about an article in The Wall Street Journal describing the trading activity in the Arenstein cases and noting that FINRA had several cases involving this activity. Bottini wrote:

“There is an article in the WSJ about how short sellers in [Sears] are using options to circumvent the SEC cover rule. I think we need to review this.” The Clearing Department emailed back: “[The Customers are] definitely doing this.”

19. In July 2009, Bottini asked one of the exchanges for a fee modification for the buy-writes. As part of the request, Bottini noted that “[w]e do have some larger retail clients that have developed some ‘predictable’ strategies/behavior.” According to Bottini, the market makers using the exchange had begun to anticipate the buy-writes – meaning that the counterparties to the buy-writes were anticipating that the buy-writes would occur each day. Due to the fees, Bottini and optionsXpress worked to find another market for the buy-writes.

20. On August 5, 2009, the SEC instituted the Hazan and TJM settled actions, which were reviewed by Hoeh and Strine. Strine immediately recognized the similarities between the conduct in those actions and the Customers’ trading, but advised that there were distinguishing factors and the trading continued.

21. The following day, a trader at optionsXpress notified the Customers that “[ u ]nfortunately we will need to change how buy ins are covered. . . . This means once we get the buy in lists, the shares will need to be covered immediately in the morning. I apologize for this unfortunate change, but the SEC won’t budge on these rules.” In response to a question from one of the Customers, a trader at optionsXpress elaborated: “Compliance has also notified me that this could change further by having us place the covers in your account at the market, and have the customer place any option orders.” Nonetheless, and despite Strine’s advice in October 2008, optionsXpress was still not placing the buy-in orders at market open. In fact, optionsXpress did not consistently execute the buy-writes at or near market open.

http://www.sec.gov/litigation/admin/2012/34-66814.pdf

[Stock]

What's really funny, and odd about this -- at the same time -- is that this is the very strategy Madoff was thought to some how be carrying off (by those casually observing Madoff prospectii over the long run). Madoff claimed to profit from various option strategies, including his infamous buy-write arrangements.

Madoff is one reason why the regs were updated in 2003. Then 2008 came, the financial crisis tightened the regs to eliminate the synthetic trade loophole, which is what these guys were doing.

But Madoff wasn't even trading! That's the sad part of all this. Nobody in the markets ever actually saw his volume on the tape.

This is one of those cases where the SEC is setting an example to warn broker/dealers.

They said they were going to prosecute synthetic option trades with a net short bias. They said they were going to make it illegal.

And so, they did. And so they have.

[Stock]

The problem here is the "buy-write" strategy.

This is a well-known option trading strategy, the "buy-write" trade.

All buy-write arrangements are not manipulative, or illegal.

But optionsXpress was allowing these clients to do a daily buy-write arrangement to avoid closing out a short? This is how I read this.

Essentially, they were only settling three sides of a four-sided trade.

[Stock]

The Violative Trading

21. Six customer accounts at optionsXpress, including Feldman (“the Customers”), engaged in reverse conversions and similar options trading strategies starting no later than October 2008.

22. To execute these strategies, the Customers simultaneously entered into the sale of a put and purchase of call with identical strike prices and expiration dates creating a synthetic long position. The Customers would also create a short position to hedge their synthetic long position. They generally did this by selling deep-in-the-money calls. The synthetic long position and the short position were for an equal number of shares/contracts. Through this set of transactions, the Customers eliminated directional risk in the stock price.

23. An option that is “deep in-the-money” has a strike price that is far below (in the case of a call option) or far above (in the case of a put) the market price for the given security.

24. The deep-in-the-money calls sold to create the short position referenced hard-to-borrow securities and were frequently exercised. After the options were exercised and assigned to the Customers, the Customers had a synthetic long position and a short stock position for which they (and optionsXpress) were required to deliver shares by T+3.

25. However, neither optionsXpress nor the Customers delivered the shares by T+3 thus creating a failure-to-deliver position.

26. Instead of delivering the shares, optionsXpress and the Customers would give the appearance of closing out their fails by entering into a “buy-write,” i.e., they would simultaneously buy the shares they needed to cover the failure-to-deliver position and write (sell) deep-in-the-money calls representing an equivalent number of shares.

27. optionsXpress, Stern, and the Customers knew, or were reckless in not knowing, that most, if not all, the calls that were sold as part of the buy-writes would be exercised and assigned on the same day they were sold, resulting in shares not being delivered on settlement. Thus, optionsXpress, Stern, and the Customers knew, or were reckless in not knowing, that these transactions would result in failures-to-deliver.

28. Selling deep-in-the-money calls is essentially the economic equivalent of selling shares unless the stock price drops precipitously and therefore approaches the strike price.

29. To enter into the buy-write, the Customers paid a certain amount, generally between 1 and 2 pennies per share.

30. The newly written deep-in-the-money calls were generally exercised the same day they were sold (and thus were assigned to the Customers later the same day) putting the Customers back in their original short position, continuing the fails, and causing them to enter into another buy-write the following day. As a result, optionsXpress maintained a net short position at the end of each day.

31. The buy-writes continued on a daily basis until the original synthetic long position was unwound or expired. As a result, optionsXpress had a negative position in the National Securities Clearing Corporation’s (“NSCC”) continuous net settlement (“CNS”) system for extended periods of time.

32. While the daily use of buy-writes gave the impression that optionsXpress was closing out the failures to deliver as required, optionsXpress and the Customers were simply kiting stock to maintain the naked short position.

33. Put another way, the buy-write was a matched order entered for the improper purpose of appearing to close out delivery fails without actually delivering the shares.

34. The transactions were profitable for the Customers because they: (i) sold the initial position “for a credit”; (ii) took no risk with respect to the change in the price of the stock and options that occurred over the life of the position; and (iii) did not incur the costs associated with borrowing or purchasing sufficient shares to make delivery on the short sale. optionsXpress received Commissions on the transactions.

35. The Customers received a net credit for their initial position because of a difference in the relative value of the put and the call. Normally, the price of the put and the call will be in parity; however, the stock associated with the options traded by the Customers was generally hard-to-borrow and therefore expensive to borrow. Because of this, the cost of borrowing the stock was incorporated into the price of the put. Thus, the value of the put was higher relative to the value of the call.

36. Due to the cost of borrowing such hard-to-borrow stocks, the increased price the Customers received for selling the put would have been completely offset by the cost of instituting and maintaining the stock position, had optionsXpress and the Customers complied with their delivery obligations. In order to comply with those obligations, they would have had to borrow or purchase shares of the underlying stock in order to close-out the failure-to-deliver position.

37. By engaging in the buy-writes and thus having a constant unsettled stock position, optionsXpress and the Customers were able to evade the requirements of Reg. SHO at a relatively minimal cost, thereby maintaining the profitability of the trade.

38. By not delivering shares, optionsXpress and its Customers were extracting a profit at the expense of the true purchasers of the shares. There was no legitimate economic purpose to the buy-write transactions.

39. Indeed, the buy-writes standing alone were economically nonsensical because they cost the Customers money. Their purpose was to perpetuate a failure to deliver. This is not a legitimate economic purpose.

40. optionsXpress’ website notes that under normal circumstances the chance to execute profitable reverse conversions is extremely limited: “Individual investors and most other off-the-floor traders don’t have an opportunity to do conversions and reversals because price discrepancies typically only exist for a matter of moments. Professional option traders, on the other hand, are constantly on the lookout for these opportunities. As a result, the market quickly returns to equilibrium.”

41. From at least October 7, 2008 to March 18, 2010, the Customers conducted the trading strategy described above in the following securities and time periods....

and there's a list of trades in the PDF file.

[Stock]

C. REGULATION SHO

11. Rules 203, 204, and 204T of Reg. SHO deal with the requirement to close-out failures to deliver. Rule 204T became effective on September 18, 2008 and Rule 204 became effective on July 31, 2009. 17 C.F.R. § 242.204.

12. Rules 204 and 204T require participants of a registered clearing agency to deliver equity securities to a registered clearing agency when delivery is due; that is, by settlement date. Settlement date is generally three days after the trade date (“T+3”). optionsXpress is a participant of a registered clearing agency.

13. For short sales, if the participant does not deliver securities by T+3 and it has a failure-to-deliver position at the clearing agency, it must purchase or borrow securities of like kind and quantity to close out the failure-to-deliver position by no later than the beginning of regular trading hours on the settlement day following the settlement date (“T+4”).

14. A participant of a clearing agency does not fulfill its requirements under Rules 204 and 204T if it enters into an arrangement with another person to purchase or borrow securities as required, and the participant knows or has reason to know that the other person will not deliver securities in settlement of the purchase or borrow. 17 C.F.R. § 242.204(f); 73 FR 61706, 61714-61715 n.78 (Oct. 17, 2008).

15. Where a participant of a clearing agency subject to the close-out requirement purchases or borrows securities on the applicable close-out date and on that same date engages in sale transactions that can be used to re-establish or otherwise extend the participant’s fail position, and for which the participant is unable to demonstrate a legitimate economic purpose, the participant will not be deemed to have satisfied the close-out requirement. 74 Fed. Reg. 38266, 38272 n.82 (July 31, 2009).

16. To satisfy the close-out requirements under Rules 204 and 204T, a clearing broker must take affirmative action to close out the failure-to-deliver position by purchasing or borrowing securities. 73 Fed. Reg. at 61710-11.

17. In narrowly limited instances, Rules 204 and 204T provide credit for certain activity conducted by a broker-dealer prior to the occurrence of the fail. Under Rule 204’s pre-fail credit provision, a broker-dealer can meet its close-out obligation by purchasing or borrowing securities after the trade date but no later than the end of regular trading hours on the settlement date of the transaction if (1) the purchase or borrow is bona fide; (2) the purchase or borrow is of a quantity of securities sufficient to cover the entire amount of the broker-dealer’s failure to deliver; and (3) the broker-dealer can demonstrate that it has a net flat or net long position on its books and records on the day of the purchase or borrow. 17 C.F.R. § 242.204(e). Rule 204T contained a similar provision, however, the broker-dealer could not meet the requirements of the provision unless it purchased the shares. 17 C.F.R. § 242.204T(e).

18. Under Rule 10b-21 of the Exchange Act, it is a manipulative or deceptive device or contrivance for any person to submit an order to sell an equity security if such person deceives a broker or dealer, a participant of a registered clearing agency, or a purchaser about its intention or ability to deliver the security on or before the settlement date, and such person fails to deliver the security on or before settlement date.

19. Rule 10b-21 and Rules 204 and 204T were adopted, among other things, to address abusive “naked” short selling and failures to deliver. Abusive “naked” short selling generally refers to selling short without having stock available for delivery and failing to deliver stock within the standard three-day settlement cycle.

20. Sellers sometimes intentionally fail to deliver securities as part of a scheme to manipulate the price of a security, or possibly to avoid borrowing costs associated with short sales, especially when the costs of borrowing stock are high. Failures to deliver, however, can negatively affect purchasers of stock by depriving them of the benefits of ownership, such as voting and lending, and create a misleading impression of the market for an issuer’s stock.

[Stock]

3. The sham resets were accomplished by optionsXpress facilitating its customers buying shares and simultaneously selling deep in-the-money call options that were essentially the economic equivalent of selling shares short. The purchase of shares created the illusion that the firm had satisfied the close-out obligation; however, the shares that were ostensibly purchased in the reset transactions were never actually delivered to the purchasers because on the same day the shares were “purchased,” the deep in-the-money calls were exercised, thereby effectively reselling the shares.

4. These paired reset transactions were not bona fide purchases because their purpose was to perpetuate an open short position while giving the illusion of satisfying the delivery and close-out requirements of Reg. SHO. These sham transactions thus allowed optionsXpress and its customers to engage in what amounts to a stock-kiting scheme that deprived true stock purchasers of the benefits of ownership.

5. During the relevant period, optionsXpress and several customers, including Feldman, routinely engaged in these paired sham transactions in a number of securities, including Sears Holding Corporation, American International Group, Chipotle Mexican Grill, Inc., Joseph A. Bank Clothiers, Inc. and Mead Johnson Nutrition Company. As a result, optionsXpress and its customers had continuous failures to deliver in these and other securities that persisted for months, thereby undermining the purpose of Rules 204 and 204T of Reg. SHO.

http://www.sec.gov/litigation/admin/2012/33-9313.pdf

[Stock]

This is about option trading, not stock trading specifically, but I need to read the complaint to understand exactly what was done that was illegal here.

SEC Charges optionsXpress and Five Individuals Involved in Abusive Naked Short Selling Scheme

FOR IMMEDIATE RELEASE
2012-66

Washington, D.C., April 16, 2012 – The Securities and Exchange Commission today charged an online brokerage and clearing agency specializing in options and futures as well as four officials at the firm and a customer involved in an abusive naked short selling scheme.

The SEC’s Division of Enforcement alleges that Chicago-based optionsXpress failed to satisfy its close-out obligations under Regulation SHO by repeatedly engaging in a series of sham “reset” transactions designed to give the illusion that the firm had purchased securities of like kind and quantity. The firm and customer Jonathan I. Feldman engaged in these sham reset transactions in a number of securities, resulting in continuous failures to deliver. Regulation SHO requires the delivery of equity securities to a registered clearing agency when delivery is due, generally three days after the trade date (T+3). If no delivery is made by that time, the firm must purchase or borrow the securities to close out the failure-to-deliver position by no later than the beginning of regular trading hours on the next day (T+4).

The former chief financial officer at optionsXpress – Thomas E. Stern of Chicago – was named in the SEC’s administrative proceeding along with optionsXpress and Feldman. Three other optionsXpress officials – head of trading and customer service Peter J. Bottini and compliance officers Phillip J. Hoeh and Kevin E. Strine – were named in a separate administrative proceeding and settled the charges against them for their roles in the scheme.

Additional Materials

SEC Order Against optionsXpress, Stern, and Feldman
http://www.sec.gov/litigation/admin/2012/33-9313.pdf

SEC Order Against Bottini, Hoeh, and Strine
http://www.sec.gov/litigation/admin/2012/34-66814.pdf

"Feldman and optionsXpress used sham reset transactions to avoid, sometimes for months, compliance with Reg. SHO's stock delivery requirements," said Robert Khuzami, Director of the SEC's Division of Enforcement. "In effect, they 'kited' shares of stock, thus depriving buyers of the benefit of their bargain - prompt delivery of their shares."

Daniel M. Hawke, Chief of the Division of Enforcement’s Market Abuse Unit, added, “Reg. SHO compliance continues to be a high enforcement priority. Broker-dealers, their employees, and their customers must ensure that they comply with the close-out requirements of the short sale rules and regulations.”

According to the SEC’s order, the misconduct occurred from at least October 2008 to March 2010. In September 2011, optionsXpress became a wholly-owned subsidiary of The Charles Schwab Corporation.

The SEC’s Enforcement Division alleges that the sham reset transactions impacted the market for the issuers. For example, from Jan. 1, 2010 to Jan. 31, 2010, optionsXpress customers including Feldman accounted for an average of 47.9 percent of the daily trading volume in one of the securities. In 2009 alone, the optionsXpress customer accounts engaging in the activity purchased approximately $5.7 billion worth of securities and sold short approximately $4 billion of options. In 2009, Feldman himself purchased at least $2.9 billion of securities and sold short at least $1.7 billion of options through his account at optionsXpress.

According to the SEC’s order, by engaging in the alleged misconduct, optionsXpress violated Rules 204 and 204T of Regulation SHO; Feldman willfully violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5 and 10b-21 thereunder; optionsXpress and Stern caused and willfully aided and abetted Feldman’s violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rules 10b-5 and 10b-21 thereunder; and Stern caused and willfully aided and abetted optionsXpress’s violations of Rules 204 and 204T.

In the separate settled administrative proceeding, Bottini, Hoeh, and Strine consented to a cease-and-desist order finding that they caused optionsXpress’s violations of Rules 204 and 204T of Regulation SHO and ordering them to cease-and-desist from committing or causing violations of Rule 204. They neither admitted nor denied the SEC’s findings.

The SEC’s investigation was conducted by Deborah Tarasevich, Jill Henderson, and Paul Kim. Market Surveillance Specialist Brian Shute, Market Abuse Unit Trading Specialist Ainsley Fuhr, and Financial Economist Michael P. Barnes provided assistance with the investigation. The litigation will be led by Frederick Block.

# # #

For more information about this enforcement action, contact:

Daniel M. Hawke
Chief, SEC’s Market Abuse Unit and Regional Director, Philadelphia Regional Office
[phone]

Deborah A. Tarasevich
Assistant Director, Market Abuse Unit, SEC Division of Enforcement
[phone] http://www.sec.gov/news/press/2012/2012-66.htm

[janice shell]

That seems to be it...

[Stock]

I thought the list is of paused trading issues -- implemented because the stock traded 10% down for the day.

The Banana Republic limit down rule...

It's a re-cap of what was paused for the day, the ticker, the time... right?

But there are two days worth of pauses in each text file, which is weird.

[janice shell]

I guess it just means that the halt is short. Poor choice of words...

[Stock]

What is a "Short Halt?"

Pause Threshold Price

If a security is subject to a Trading Pause, the Pause Threshold Price field will contain the reference threshold price that deviates 10% from a print on the Consolidated Tape that is last sale eligible as compared to every print in that security on a rolling five-minute basis.

Current Trading Halts:
http://www.nasdaqtrader.com/Trader.aspx?id=TradeHalts

End of day FTP list from FINRA.
ftp://ftp.nasdaqtrader.com/symboldirectory/shorthalts/

Single Stock Trading Pause FAQ
Last Updated August 19, 2011

http://www.nasdaqtrader.com/content/productsservices/trading/tradingpausefaqs.pdf

GENERAL OVERVIEW QUESTIONS

What was implemented by U.S. equity exchanges?

In conjunction with all U.S. equity exchanges, The NASDAQ Stock Market® (NASDAQ®),
NASDAQ OMX PSXSM (PSXSM),and NASDAQ OMX BXSM (BXSM) filed rule changes with the
Securities and Exchange Commission (SEC) to establish a trading pause initiated by primary
listing markets for individual stocks that experience a price change of 10% or more during a
rolling five-minute period.
Phase I of the program included stocks in the S&P 500 Index and Phase II, effective
Tuesday, September 14, 2010, included securities in the Russell 1000 Index and select
Exchange-Traded Products. Effective August 8, 2011, the pilot will be expanded to the
remaining Reg NMS securities (Phase III securities). For Phase III securities, the price
move required to trigger a trading pause will be 30% or more for securities priced at $1 or
higher and 50% or more for securities priced less than $1.

When does the pilot period run? Did NASDAQ take a phased-in approach?

The six month pilot period for the Single Stock Trading Pause functionality mandated a full
roll-out across all eligible securities by June 14, 2010. NASDAQ did not use a phased roll-out
and therefore implemented the trading pause functionality for all S&P 500 issues on June
14, 2010. The current pilot period for all stocks now extends until January 31, 2012.

Did NASDAQ OMX allow the industry to test prior to implementation?

NASDAQ OMX held testing for NASDAQ and BX on Saturday, June 12th. For additional
details on testing opportunities, please refer to the NASDAQ OMX Testing Facility page for
more information.

What stocks are included in the pilot?

The original pilot covered all securities in the S&P 500.
Effective Tuesday, September 14, 2010, securities included in the Russell 1000 Index and
select Exchange-Traded Products were added to the pilot.
Effective Monday, August 8, 2011, the pilot will be expanded to the remaining Reg NMS
securities.
NASDAQ maintains updated lists in its system as securities are added or removed from the
various indexes.

When is the Single Stock Trading Pause functionality in effect during the trading day?

The functionality is in effect between 9:45 a.m., ET, and 3:35 p.m., ET. No single stock
trading pause is called outside of these times. Please note, while NASDAQ does not
implement a market pause after 3:35 p.m., ET, a trading pause can remain in effect as late
as 3:45 p.m., ET.

Do NASDAQ, BX and PSX recognize trading pauses issued by another primary market?

Yes, NASDAQ, BX and PSX pause trading in that security.
Refer to the NASDAQ and BX filings for additional details.

Where can I find additional information?

Refer to the NASDAQ and BX rule filings:
o File No. SR-NASDAQ-2010-061
o File No. SR-BX-2010-037
Contact Transaction Services U.S. Market Sales at [phone].

INITIATING A TRADING PAUSE

How is a trading pause initiated?

For an eligible stock, NASDAQ reviews each print on the Consolidated Tape that is last sale
eligible as compared to every print for that ticker in the last five minutes. If three prints in
the prior five minutes deviate 10% or more from the last print and are through the National
Best Bid or Offer (NBBO), a trading pause is initiated by the primary listing market. Affected
securities are also re-opened by the primary listing market.

Example:
At 1:30 p.m., ET, the last sale eligible trades on the Consolidated Tape for a single
security for the past five minutes were priced within the range of $10.00 and $9.50.
At 1:30 p.m., if three last sale eligible trades to the tape were 10% or more away
from either of the two reference prices of $10.00 or $9.50, a trading pause will be triggered:

? Three last sale eligible trades at or less than $9.00 will trigger a trading pause.
o $10.00 less ($10.00 x 10%) = $9.00
? Three last sale eligible trades at or greater than $10.45 will trigger a trading pause.
o $9.50 plus ($9.50 x 10%) = $10.45
If a last sale eligible execution is at or higher than the 10% threshold and is also at or
within the NBBO within the five-minute period, NASDAQ will invoke a trading pause based
on that single transaction.

Trading pauses for Phase III securities will follow the same behavior based on the
appropriate triggering percentage for the security.

Can all market center prints trigger a trading pause or just the primary market?

All prints sent to the Consolidated Tape that are last sale eligible can trigger a trading pause.

What if there are no trades in the last five minutes?

No pause is initiated if there have been no trades in the last five minutes.

Do open orders remain on the NASDAQ, BX and PSX books during a pause in a
NASDAQ-listed security?

Yes, all open orders on the NASDAQ, BX and PSX books remain on the book during the
pause, unless they are canceled by the customer.

Do open orders remain on the NASDAQ, BX and PSX books during a pause in a
NYSE-listed security?

Yes, orders in a NYSE-listed security on the NASDAQ, BX or PSX book remain open unless
cancelled by a customer.

Do NASDAQ, BX and PSX allow new orders in a NYSE-listed security during a pause?

No, new orders are not able to be entered until the security re-opens on the primary
market. Market maker quotes, however, are allowed to be adjusted during the pause period.

TRADE RESUMPTION

What is the process for resuming trading on NASDAQ after a trading pause?

If a trading pause is triggered in a NASDAQ-listed security included in the pilot, NASDAQ reopens
the security using the NASDAQ Halt Cross process set forth in NASDAQ Rule 4753.

Upon resumption of trading by NASDAQ and the dissemination of a first print, trading may
commence on other markets. Refer to NASDAQ Rule 4753 or the NASDAQ Halt Cross fact
sheet for details.

What orders are accepted by NASDAQ during the quote resumption period?

The following order types are accepted:
? Market Orders, Limit Orders and Quotes
? Time-in-Force of Day, Extended, Good-til-Cancelled (GTC) or Immediate-or-Cancel
(IOC)
? Orders do not need any special auction specification

Do the consolidated and proprietary data feeds signal the Single Stock Trading Pause?

Yes. For NASDAQ-listed issues, NASDAQ OMX disseminates the trading pause information
via the Trading Action message on all UTP data feeds as well as most NASDAQ, BX and PSX
proprietary data feeds.

For NYSE, NYSE Amex and other exchange-listed issues, NASDAQ OMX disseminates the
trading pause information via the Trading Action message on NASDAQ, BX and PSX
proprietary data feeds. For information on the consolidated data feed products for NYSE,
NYSE Amex and other exchange-listed issues, please refer to Consolidated Tape Authority
(CTA) notifications.

How do the UTP data feeds show the trading pause?

The UTP Quotation Data Feed (UQDF) and UTP Trade Data Feed (UTDF) utilize the existing
Trading Action messages to relay the start and end of the trading pause for NASDAQ-listed
securities.
At the time that the trading pause is initiated, the NASDAQ SIP disseminates a Trading
Action message with the Action value of “H” (Halted) and the Reason Code of “T5” (Single
Stock Trading Pause). Following the first trading action message, the NASDAQ SIP zeroes
out UTP participant quotations.
Immediately following, NASDAQ disseminates a Trading Action message with the Action
code of “Q” (Quotation Resumption) and a Reason code of “T7” (Single Stock Trading
Pause/Quotation Only Period) via the UTP and proprietary data feeds. To facilitate price
transparency during this period, NASDAQ SIP allows the UTP participants to enter
quotations for dissemination via the UTP data feeds. Order and quotation updates continue
to be disseminated via the proprietary NASDAQ, BX and PSX data feed products throughout
the trading pause period.
At the completion of the five-minute quotation only period, NASDAQ typically releases the
security for trading. If market conditions warrant, however, NASDAQ has the right to
extend the trading pause for up to five additional minutes.
At the end of a trading pause in which NASDAQ completes a halt cross process and
disseminates a first print, NASDAQ simultaneously generates a Trading Action message with
the Action code of “T” (Trading Resumption). Upon receipt of this trading action message,
UTP participants resume normal trading activities. If after 10 minutes, NASDAQ is unable to
complete a halt cross process and disseminate a first print, UTP participants on their own
initiative, can likewise resume trading.
How do the NASDAQ proprietary data feeds show a trading pause?
NASDAQ OMX follows the same Trading Action message processing as the UTP data feeds
for its proprietary U.S. equity data products, including NASDAQ TotalView, BX TotalView,
PSX TotalView, NASDAQ Basic and NASDAQ Last sale (NLS).
In addition to the Trading Action messages, NASDAQ OMX disseminates Net Order
Imbalance Indicator (NOII) messages during the Single Stock Trading Pause via the
NASDAQ TotalView product.
Unlike the UTP data feeds, however, the NASDAQ OMX proprietary data feeds do not alter
any orders or quotations upon the initiation of a Single Stock Trading Pause.

What reason codes identify that the pause is a Single Stock Trading Pause and that
trading has resumed?

As noted above, NASDAQ OMX uses the following Trading Action – Reason Codes for the

Single Stock Trading Pause:
Reason Code Description
T5 Single Stock Trading Pause In Effect - Trading has been
suspended by NASDAQ due to a violation of the Single Stock
Trading Pause threshold.
T7 Single Stock Trading Pause/Quotation Only Period –
Quotations have resumed for affected security, but trading
remains paused.

Does the NASDAQ SIP clear UTP participant quotes at the start of the trading pause?

Yes, the NASDAQ SIP zeroes out all UTP participant quotes immediately following the
Trading Action message with Action value of “H” (Halted).
For data quality reasons, the NASDAQ SIP requires UTP participants to re-enter data during
the quotation positioning window.

Are there any Imbalance-Only orders or other special orders for a Halt Cross?

No.

Does NASDAQ calculate and disseminate a Net Order Imbalance Indicator (NOII)
during the trading pause?

Yes. NASDAQ calculates a NOII value – including the reference price and paired shares – at
five-second intervals during the quotation only window of the Single Stock Trading Pause.
The NOII data is available in raw data format via the NASDAQ TotalView data feed product
suite and in displayable format on the NASDAQ Workstation and NASDAQ DataStore
products.

What happens on NASDAQ if trading does not resume in a paused security after
the five-minute quoting period?

If there is not sufficient quote activity to re-open the security at the end of the five-minute
quoting period, NASDAQ extends the quote-only period by one minute increments, for up to
five additional minutes, until a Halt Cross can occur. If after 10 minutes NASDAQ is unable
to complete a Halt Cross process and disseminate a first print, UTP participants, on their
own initiative, can resume trading.

What prevents a halt cross from occurring five minutes after quote resume?
There are several reasons a halt cross would not occur after the five minute quote-only period.

Examples:
? There is an unresolved market imbalance; e.g., a market order to sell 300,000
shares and all bids on the book at every price level total only 200,000 shares.
? There is a movement of 10% or 50 cents (whichever is greater) based on the price
immediately prior to the cross and the dissemination price 15-seconds prior to the
cross.
? Another halt (e.g., news pending, market-wide circuit breaker) occurs and the
trading pause is extended.

Does NASDAQ also reflect the trading pause conditions via the NASDAQ OMX Trader website?

Yes, trading pauses are included on the Trading Halt page of the NASDAQ OMX Trader
website. Please refer to the Self-Enrollment page for information on how to sign up for
automatic email notifications.

ADDITIONAL PAUSES OR HALTS ON THE SAME SECURITY

Can another pause be triggered in less than five minutes of the first trade?

Yes.

Example: A pause is called at 11:00 a.m., ET. At 11:05 a.m., the primary listing
market prints a trade at $10.00. Several seconds later a trade is reported at $8.95.
Another pause would be triggered.
What if a regulatory halt (e.g., due to material news) is called during the fiveminute
trading pause?
The five-minute quote period for the pause will be discontinued and a new five-minute
period will begin when the security comes out of the regulatory halt.
In the event that a security status is changed to halted during the pause, the NASDAQ SIP
and NASDAQ proprietary data feeds disseminate a new Trading Action message with the
Action value of “H” and an existing regulatory Reason Code.

BEYOND THE INITIAL FIVE-MINUTE TRADING PAUSE

After the initial pause period, does NASDAQ continue to disseminate NOII data?

Yes, NASDAQ continues to calculate and disseminate NOII data at five-second intervals on
the NASDAQ TotalView product until the Halt Cross occurs.

What happens if a Single Stock Trading Pause for a NASDAQ-listed security
reaches the ten-minute period and NASDAQ cannot conduct a Halt Cross for the security?

If after 10 minutes NASDAQ is unable to complete a Halt Cross process and disseminate a
first print, UTP participants, on their own initiative, can resume trading.

What do BX and PSX do if NASDAQ has not re-opened a security after the tenminute period?

BX and PSX do not resume trading in a NASDAQ-listed security until NASDAQ re-opens the security.
If NYSE cannot re-open after a ten-minute pause period in a NYSE-listed security,
do NASDAQ, BX and PSX resume trading in the security?
All NASDAQ OMX markets do not start trading until NYSE sends a resume trading message.

If NASDAQ is not able to open after the ten-minute period and another market
starts trading in that security, what happens to the open orders on NASDAQ’s book?

Orders remain open and NASDAQ executes its Halt Cross when all market order imbalance
shares can be paired.
NASDAQ continues to update its quote on UQDF. To indicate that the UTP quotation is
intended for price discovery purposes only, NASDAQ appends its best bid and offer position
with an “N” (non-firm) quote condition from the end of the ten-minute market-wide pause
until the NASDAQ Halt Cross occurs.
NASDAQ also continues to disseminate the net order imbalance indicator at five-second
intervals via the NASDAQ TotalView product suite until the NASDAQ Halt Cross occurs.

OPTIONS

Do NOM and PHLX halt options trading when the primary exchange of an
underlying security has initiated a trading pause?

Yes. NOM and PHLX halt trading in options when a trading pause has been initiated on an
underlying security.

When do NOM and PHLX resume trading for options on underlying securities
subject to a trading pause?

NOM and PHLX resume trading in options when a trading resumption (Trading Action = T)
message is received over the UTP data feeds.

During a halt, do NOM and PHLX keep open orders on their book?

Yes. NOM and PHLX keep all open orders during the halt. Firms have the ability to cancel open orders.

Do NOM and PHLX accept new orders during the halt?

NOM does not accept new orders during the halt. Firms can cancel open orders during the halt.
PHLX accepts new orders, cancel/replaces and order cancels during the halt.

[Stock]

Monday July 18, 2011

Limit Down List and Time Halt Implemented

ftp://ftp.nasdaqtrader.com/symboldirectory/shorthalts/

Symbol,Security Name,Market Category,Trigger Time
ICGN,ICAGEN INC,Q,3/7/2011 2:09:54 PM
GAI,Global-Tech Advance Innov,Q,4/4/2011 3:50:47 PM
DCTH,Delcath Systems Inc,R,4/25/2011 2:54:09 PM
BIOF,BioFuel Energy Corp.,Q,5/12/2011 10:43:39 AM
OSN,Ossen Innovation Co Ltd,Q,5/19/2011 2:36:11 PM
ANCI,American CareSource Hldgs,R,5/31/2011 9:30:00 AM
USBI,United Security Banc,R,6/2/2011 9:30:00 AM
LTBR,Lightbridge Corp Cmn Stk,R,6/6/2011 2:21:29 PM
CBPO,"China Biologic Products, Inc.",Q,6/8/2011 9:30:06 AM
STEMD,StemCells Inc,Q,6/8/2011 2:29:53 PM
MRNA,"Marina Biotech, Inc.",Q,6/8/2011 3:06:35 PM
KUTV,"Ku6 Media Co., Ltd ADSs",Q,6/8/2011 3:40:59 PM
TELK,Telik Inc,R,6/13/2011 11:07:59 AM
PPHM,Peregrine Pharmaceuticals New,R,6/13/2011 12:35:15 PM
GRMH,"GrayMark Healthcare, Inc.",R,6/14/2011 10:45:24 AM
CPHC,Canterbury Park Holding Corp,Q,6/15/2011 10:01:37 AM
BSPM,"Biostar Pharmaceuticals, Inc.",Q,6/15/2011 3:57:35 PM
FPFC,First Place Financial Corp.,Q,6/16/2011 12:01:17 PM
CYTXW,Cytori Therapeutics Warrants,Q,6/17/2011 9:32:19 AM
CLWT,Euro Tech Holdings Co Ltd,R,6/17/2011 1:00:31 PM
CCGM,"China CGame, Inc",Q,6/20/2011 9:42:46 AM
ROSGD,Rosetta Genomics Ltd,R,6/20/2011 10:32:51 AM
WBNK,Waccamaw Bankshares Inc,Q,6/20/2011 12:55:38 PM
DIET,eDiets.com Inc.,R,6/21/2011 9:32:42 AM
SHIPW,Warrants,Q,6/21/2011 1:14:58 PM
FNBN,FNB United Corp.,R,6/21/2011 3:54:26 PM
EDSWW,Exceed Company Ltd Wts,Q,6/22/2011 12:22:31 PM
KIPS,"Kips Bay Medical, Inc.",Q,6/22/2011 2:33:38 PM
CVBK,Central Virginia Bankshares,R,6/22/2011 3:15:00 PM
FREEZ,Freeseas Inc Warrant Z,Q,6/22/2011 3:52:54 PM
ONAV,"Omega Navigation Enterprises,",Q,6/23/2011 9:32:04 AM
NYNY,Empire Resorts Inc,Q,6/23/2011 10:41:16 AM
AACOW,Australia Acquisition Corp.,R,6/23/2011 10:54:38 AM
SANWW,S&W Seed Company,R,6/23/2011 3:03:59 PM

ECYT,Endocyte Inc,Q,7/18/2011 6:10:47 AM
ORRF,Orrstown Financial Services In,R,7/18/2011 6:10:49 AM
SGEN,"Seattle Genetics, Inc.",Q,7/18/2011 6:10:51 AM
FLIR,FLIR Systems Inc,Q,7/18/2011 6:10:51 AM
PRLS,Peerless Systems Corporation,R,7/18/2011 6:10:52 AM
QLIK,Qlik Technologies Inc.,Q,7/18/2011 6:10:53 AM
WBMD,WebMD Health Corp,Q,7/18/2011 9:30:00 AM
WSB,"WSB Holdings, Inc.",Q,7/18/2011 9:30:00 AM
ESLR,"Evergreen Solar, Inc.",R,7/18/2011 9:30:00 AM
ENTR,Entropic Communications Inc,Q,7/18/2011 9:30:02 AM
SKYW,SkyWest Inc,Q,7/18/2011 9:30:38 AM
CSKI,"China Sky One Medical, Inc.",Q,7/18/2011 9:30:51 AM
VISN,"VisionChina Media, Inc.",Q,7/18/2011 9:31:25 AM
ONAV,"Omega Navigation Enterprises,",Q,7/18/2011 9:34:58 AM
FREEZ,Freeseas Inc Warrant Z,Q,7/18/2011 9:37:15 AM
DMED,D Medical Industries Ltd,R,7/18/2011 9:37:32 AM
HOGS,Zhongpin Inc.,Q,7/18/2011 9:40:02 AM
NABI,Nabi Biopharmaceuticals,Q,7/18/2011 9:45:00 AM
LAKE,Lakeland Industries Inc,Q,7/18/2011 9:53:59 AM
RJET,Republic Airways Holdings Inc,Q,7/18/2011 9:56:13 AM
CYTXW,Cytori Therapeutics Warrants,Q,7/18/2011 10:01:41 AM
CAFI,Camco Financial Corporation,Q,7/18/2011 10:04:07 AM
USATW,"USA Technologies, Inc Warrants",Q,7/18/2011 10:05:13 AM
SORL,"SORL Auto Parts, Inc.",Q,7/18/2011 10:07:22 AM
TSPT,"Transcept Pharmaceuticals, Inc",Q,7/18/2011 10:11:28 AM
ZGNX,"Zogenix, Inc.",Q,7/18/2011 10:13:51 AM
DPTRD,Delta Petroleum Corp,R,7/18/2011 10:32:35 AM
ONCY,Oncolytics Biotech Inc,R,7/18/2011 10:34:15 AM
MVISW,Microvision Warrants,Q,7/18/2011 10:35:00 AM
ORRF,Orrstown Financial Services In,R,7/18/2011 10:39:48 AM
SBSAD,Spanish Broadcasting Sys Cl A,Q,7/18/2011 10:41:10 AM
LTBR,Lightbridge Corp Cmn Stk,R,7/18/2011 10:46:45 AM
SREV,"ServiceSource Intl, Inc.",Q,7/18/2011 10:49:11 AM
PERF,"Perfumania Holdings, Inc",R,7/18/2011 10:52:00 AM
CALI,China Auto Logistics Cmn,Q,7/18/2011 10:56:07 AM
FTWR,FiberTower Corporation,Q,7/18/2011 10:59:33 AM
SANWW,S&W Seed Company,R,7/18/2011 11:06:02 AM
STEMD,StemCells Inc,Q,7/18/2011 11:06:16 AM
RODM,Rodman & Renshaw Capital Group,Q,7/18/2011 11:07:44 AM
CMED,China Medical Technologies Inc,Q,7/18/2011 11:09:08 AM
CFBK,Central Federal Corporation,R,7/18/2011 11:31:13 AM
CTDC,Tramford International Ltd,R,7/18/2011 11:40:09 AM
PGEB,97% Notes Linked to GEB,Q,7/18/2011 11:44:34 AM
ALTI,Altair Intl Inc,R,7/18/2011 11:55:28 AM
CNET,"ChinaNet Online Holdings, Inc.",Q,7/18/2011 12:12:09 PM
CIIC,China Infrastructure Invst Cp,R,7/18/2011 12:12:17 PM
EMMSP,Emmis Communications Pfd A,Q,7/18/2011 12:14:40 PM
ICCC,ImmuCell Corp,R,7/18/2011 12:21:07 PM
CABL,China Cabelcom Hldgs Ord,R,7/18/2011 12:35:14 PM
CARV,Carver Bancorp Inc,Q,7/18/2011 12:43:24 PM
BCAR,Bank of the Carolinas Corp.,Q,7/18/2011 12:45:10 PM
RCON,"Recon Technology, Ltd.",R,7/18/2011 12:49:58 PM
PTSX,Point.360 Common Stock,R,7/18/2011 1:17:02 PM
SAPX,Seven Arts Pictures PLC Cmn,R,7/18/2011 1:33:02 PM
WBNK,Waccamaw Bankshares Inc,Q,7/18/2011 1:37:23 PM
SMED,Sharps Compliance Cmn Stk,R,7/18/2011 1:52:35 PM
YAVY,Yadkin Valley Financial Corp,Q,7/18/2011 2:05:22 PM
PFED,"Park Bancorp, Inc.",R,7/18/2011 2:29:20 PM
CBAN,"Colony Bankcorp, Inc.",Q,7/18/2011 2:31:32 PM
BOVA,Bank of Virginia,R,7/18/2011 2:33:41 PM
MAYS,J W Mays Inc,R,7/18/2011 2:49:10 PM
DITC,"Ditech Networks, Inc.",Q,7/18/2011 3:45:15 PM
GNVC,GenVec Inc,R,7/18/2011 3:59:32 PM
20110718163018

[basserdan]

Taser Settles Its Lawsuit Against Financial Firms Alleging Short Selling

By Edvard Pettersson
Jun 29, 2011 6:30 PM ET

Taser International Inc. (TASR) and a group of shareholders settled a lawsuit against financial firms in which the stun-gun maker alleged stock-price manipulation through illegal short selling.

Both sides told a federal court in Atlanta they had reached a binding agreement. The judge yesterday put the case on hold pending the filing of a dismissal notice. The case was filed in 2008 against companies including Goldman Sachs Group Inc. (GS)

Terms of the settlement are confidential and won’t have to be approved by the judge, Steven Rosenwasser, a lawyer for Taser and about 40 of the company’s investors, said today in a telephone interview.

“After lengthy litigation, the plaintiffs are happy to have the case resolved,” Rosenwasser said.

In routine short selling, stocks are borrowed and then sold in anticipation of falling prices in hopes of repaying the loan with cheaper shares bought at a later date. The Taser investors accuse the brokerages of so-called naked short selling by placing electronic orders to sell shares without borrowing the corresponding shares or actually delivering them to the buyer.

The plaintiffs accused the firms of creating phantom or counterfeit Taser shares and diluting the value of authentic shares.

Goldman Sachs spokeswoman Andrea Raphael and Morgan Stanley (MS) & Co. spokesman Pen Pendleton declined to comment.

The case is Taser International v. Morgan Stanley, 10- 03108, U.S. District Court, Northern District of Georgia (Atlanta.)

To contact the reporter on this story: Edvard Pettersson in Los Angeles at [e-mail]

To contact the editor responsible for this story: Michael Hytha at [e-mail].

http://www.bloomberg.com/news/2011-06-29/taser-settles-lawsuit-against-financial-firms-over-short-selling.html

[Stock]

Not that this board is about OTC stocks, but all that recent hoopla about nekkid shorts and new regs turned out to be the usual pile of elephant dung, didn't it?

All that has resulted is more stupid Chinese CEO press releases alleging more elephant dung -- you would think they would have more respect for short people:

...NEW YORK, May 2, 2011 /PRNewswire/ -- Deer Consumer Products, Inc. (Nasdaq:DEER - News) (website: www.deerinc.com/), a leading provider of "DEER" branded consumer products to Chinese consumers and a leading vertically integrated manufacturer of small household and kitchen appliances for global customers, publicly announces today that the Company has received additional evidence of continuing illegal short selling in DEER stock...

--

...Xl'AN, China, May 5, 2011 /PRNewswire-Asia-FirstCall/ -- Sino Clean Energy Inc. (Nasdaq:SCEI - News) ("Sino Clean Energy," or the "Company"), a leading producer and distributor of coal-water slurry fuel ("CWSF") in the People's Republic of China ("China"), announced today its intention to take action against those responsible for the malicious and fraudulent attacks on Sino Clean Energy, which were orchestrated and conducted by or on behalf of certain short sellers...

--

...NEW YORK, NY--(Marketwire - 04/19/11) - Healthnostics, Inc. (Pinksheets:HNSS - News) provided short-sale defense details.

Strong circumstantial evidence indicates that there is a sizable short position in the stock. This evidence includes:
1. Contacts with the Company by individuals and firms seeking to buy large amounts of discounted stock;
2. Increased selling volume when positive news is released;
3. Attempts to dispense negative rumors on chat boards;
4. Trading activity that appears to circumvent normal trading procedures (T-trades, unfilled orders, etc.)

Shorting falls into several categories:
1. Normal market-making shorting that maintains liquidity;
2. Hedge fund and investor shorting to profit from stock price declines;
3. Predatory shorting designed to drive a stock into oblivion.

There are two types of shorting:
1. Legal shorting in which the short-seller borrows stock and sells it;
2. Illegal shorting in which the short-seller fails to borrow and fails to deliver stock. This is naked shorting.

Short selling entails substantial risk because the potential loss is virtually unlimited. When a stock begins to make significant gains, short sellers may be forced to cover, creating a short-covering rally...

[Stock]

Have General Tso's Chicken at City Wok and City Broker get right witch you after calling Wing at City Shirt about you order

http://southpark.wikia.com/wiki/City_Wok