DD Support Board and Research Team

[BigBake1]

Form T’s

I find it funny how these are so poorly understood to the point of making up myths like “manipulation” and proof of large players “buying”. Although entertaining they are far from the real truth as to what is happening. Obviously everything that occurs during trading hours is to be reported within 30 seconds of the transaction occurring, that is per FINRA and their rules. Now not all trade transaction occur during market hours, those would not be your typical trade transaction, but market hours are from 9:30 to 4:00. A little unknown fact is that transactions that do not involve the market can occur up to 8pm and can be as early as 8am on the following day.

There are two distinctions here in the OTC Market. Premarket Form T can occur for two reasons, late reporting of a transaction from the day before, which is very rare to see and actual pre market trades if allowed by the broker. Rarely are these ever pointed out because they are usually a sign of buying up before the market opens. Never mind they rarely occur that frequently, typically during huge promotions you will see premarket trading activity in the OTC. The premarket Form T is quit boring since they do not conjure up MM manipulation of the PPS since typically the PPS is rising before the market open.. lol

Now as we all know there isn’t afterhours trading in the OTC, NONE and because a trade transaction gets recorded to the consolidated tape after market close does not make it an aftermarket trade. There are several causes of after market close transactions, the most common is the missed “Paint” attempt at closing the security higher. These individuals try to time their trade right at the last few seconds in hopes of sniping the close in a positive direction. They sometimes fail as latency is a real bitch in the matter, their network, their brokers network speed and various other factors create these issues and well, there it is, a Form T for 100 shares to hide the ugly that just missed. Because the transaction was executed during market hours but could not be posted during market hours it is reported in a Form T.

Nothing too crazy yet as far trading, pretty standard stuff, but now we will dive into an area that is not so well known. Large Form T’s reported after the closes are something completely different, you will see this in exchange traded securities also on a daily basis. The standard theory has been that this is just the MMs settling their books at the end of the day, somewhat true, but here in the OTC it is a specific action that is occurring. The OTC has changed over the years and contrary to popular belief MMs do not buy and sell these securities for their own principle account, instead they use Riskless Principle transactions.

So lets say you were given 200,000,000 shares of stinky MDIN as part of your debt deal to them, now it takes a specific broker that will accept the deposit of these newly issued free trading shares. You are not going to Etrade, Scottrade, Schwab…etc with these shares as they will not touch them. This “boutique” broker charges a deposit fee, typically 10-15%, which is a good rate considering the NSCC would charge you 20% on the same shares. Now you have them on deposit and you want them sold, you don’t just say sell them all on the market at once. This action would crush the market and instead your broker will advise you to piece it out with the market volume throughout the day.

So the broker will sell at the market price all day long based upon volume moving in and out, you typically see these broker on the offer, VNDM, VFIN, VERT, BKRT, BMAS..etc.. with undisclosed offer sizes because it is a “BLOCK POSITION”. They sell to retail all day long at market and at some point they will post a transaction for all the shares they sold, this sometimes is below the current Bid and it will be a large transaction. Now these are often reported after market close but they do occur during the trading day also. These Weighted Average Transactions are the Broker buyin for the sales they sold throughout the day, so for example:

200,000@ .0017 
 1,000,000@ .0017 
 3,500,000@ .0017 
 2,000,000@ .0017 
 300,000@ .0017

These were the transactions recently on a security last week, these are the individual transaction on the consolidated tape. Now 4 minutes after market closed a transaction for 7,000,000@ .0016 shares was reported to the consolidated tape in a Form T. This is a Weighted Average Trade Transaction, the MM sold all day long at market, which in this case was a PPS of .0017, these shares were sold short because the MM already has a Block Position to work from of actual shares. The MM at the end of the day has now purchased the cover from the block position less their commission for the transactions at .0016.

Here is a FINRA example:

Section 404: Weighted Average Price/Special Pricing Formula Transactions

Q404.1: Member BD1 executes multiple trades to satisfy a customer order and then trades with the customer at a price equal to the volume-weighted average cost of the original trades plus a net difference in accordance with a net trading agreement with its customer. How should BD1 report the trade with its customer?

A404.1: The original trades and the customer leg of the transaction should be reported to the tape, and the report of the customer leg should include the weighted average price (.W) modifier. For example, member BD1 receives an order from a customer to buy 5,000 shares of ABCD security and accumulates the shares through five separate trades. Each of these five trades is reported to the tape. BD1 then sells the 5,000 shares of ABCD to its customer at its volume-weighted average cost with a net difference to reflect the compensation agreement between BD1 and its customer. BD1 should report the sale of 5,000 shares to its customer to the tape with the weighted average price modifier.

In this example it is talking about buying, but reverse the process for selling, the idea is to not to significantly affect the market by displaying a massive block of shares and also slowly bleeding the shares out on the market.

Essentially when you see an undisclosed block position on the offer and the notorious VNDM, VFIN, VERT, BKRT, BMAS, SUNR… and large Form T or even large block trades during trading hours below the current Bid are going off it is 100% dilution occurring.

FINRA frowns upon late reporting for transaction that occur during market hours that are not reported correctly, Form Ts are not a problem. If one is really interested in Trade Reporting I highly recommend these two sources to learn about it:

http://www.finra.org/Industry/Regulation/Guidance/p038942

http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=4410

As you can see there is nothing mysterious about them, and when you see these huge million share lots being reported after market close it is 100% dilution related and nothing else.