Yup one disaster we know of CTCC
Some people don't bother to research them thoroughly.
Of course when I talk about trading shells, I mean clean ones. Why would someone bother on purchasing shares of a dirty mess?
Those guys are pretty good. But here's the real comparison:
What they call a "direct IPO": Therefore, all in, most companies are looking at total costs to go public through a Direct IPO of $100,000 to $150,000, and anywhere from 7 to 12 months.
A reverse merger: Therefore, all in, most companies are looking at total costs to go public through a reverse merger of $150,000 to $550,000 (largely dependent on the cost of the shell) and anywhere about 6 weeks to acquire the shell and another 2-8 weeks of post-transaction filings.
I know I'd go with the "direct IPO". I'd spend less, and know I had a clean company, with no surprises. Doesn't look to me as if they allow for very thorough vetting of possible shell candidates, and choosing a dirty one can be a complete disaster.
In any case, what's going to be interesting is to see what impact the JOBS Act has on any of this.
I shudder to think...
Not true. Registering stock so your business can trade publicly isn't all that expensive. You can start with an S-1 or a 10-12g. The process may take from six months to a year or so, but it's not such a big deal if you're serious about building a business.
Should people take a company public with just an "idea"? No. They should be DOING something, not merely imagining that one day--after they try to pump their brand new stock--they might.
I realize it's interpreted to be legal, but the SEC would prefer it not to be. There was a HUGE story two years ago or so in several of the national papers about shelf companies, penny scams, etc. Mainly revolving around Montana or Utah or one of those states where there was like over 500 shelf companies at one address. Basically the argument was if you wanted to be a publicly traded company, you should have to register, report, and comply with the rules in place. If you aren't willing to bare the costs associated with that, you shouldn't be bothering attempting to get access to the public equity market. And, I would argue they are generally right: the public equity market is for people that are trading far away from your company, so they NEED honest, transparent companies that file and comply with the law because they don't have the same ability for oversight as private investors in a private company (who are usually close to the action) would.
Anyways, the whole point of the story was FINRA and the SEC were going to start cracking down on these because they believed they were counter to the mission of transparency they had and the Securities laws on the books. As you can see, this has clearly what has happened since between the SEC microcap conference, the changes at DTCC regarding hedging, etc. And, OTC Markets seems to have gotten the message too, hence why they have been doing such an awesome job categorizing the market and just received ATS status. And, also why the OTC BB (FINRA's old bulletin board) is largely irrelevant - because FINRA was largely told by the SEC to get out of the game of OTC listing.
In any case, what's going to be interesting is to see what impact the JOBS Act has on any of this.
It IS legal.
Most of those "companies" don't bother on reporting with the SEC because that carries audited financial costs and a clean shell has neither assets, liabilities nor an operating business to be able to pay for those costs.
Most times shells are the remains of a former failed business that fortunately didn't get into debt, with their listing as their only asset, that can be used for either implementing another business idea by its owners, or selling it into a real company that wants to go public by using the Reverse Merger route as it's WAY cheaper than going thru the burden and costs of an IPO.
If every company that wanted to go public had to go through an IPO, it'd require an already existing privately-held business generating several million $$$ a year just to get started, there would be no place for people on the markets with an idea but no real money.
It's questionable whether it is legal: I'm not a securities lawyer, but basically you have a company that doesn't exist anywhere other than on paper trading. It's trading as an unregistered security, so is it really trading legally? I imagine the SEC's argument is something along the lines as to trade as a publicly traded company, you should be a registered, fully reporting company; you cannot be a registered, fully reporting company if you aren't a real company. Unregistered securities have been the bane of the SEC and clearing firms for a decade or so due to penny scams - so, by cutting off unregistered securities, you can cut off the headaches involved with most penny scams.
Why clamp down a perfectly legal business? As long as the information disclosed is true, the SEC shouldn't interfere.
One thing is protecting investors against scams and another telling'em what to buy or sell!.
Yup, it's called shelf companies. Another practice the SEC is attempting to crack down on.
Excellent points, kudos.
Because most of those unregistered companies aren't "companies" at all, but empty listed clean shells whose value is actually their listing.
While they have no value "on their own", once some real company purchases controlling stake on a shell to reverse merge onto it (a cheaper & faster alternative to an IPO), those who own shares of the shell are likely to make a killing.
Well you just pointed it out, one of the factors one can clearly say Penson was one of the largest. They had 437+ brokers under them only behind Pershing with it’s 800+ brokers making them the second largest clearing service as to the number of brokers they serviced. It is a factor in which one can support such a statement but there is another one relative to here, as each clearing firm specialized in clients and markets for that matter. You cannot compare Pershing to Penson, two completely different cliental involved, Pershing was mostly institutional investment brokers as opposed to Penson with majority retail.
The thing that Penson was known for as being the largest for is the OTC Marketplace, they cleared the majority of OTC marketplace transaction. Not exactly a huge claim in the grand scheme of things, but none the less it was the largest online clearing firm for the OTC.
I agree the degree of their operations does not amount to much when put up against JP Morgan and GS for that matter, but here on Ihub you have to remember almost everything revolves around the OTC and therefore when you say the largest clearing firm it is correct to say Penson as that was the largest clearing firm involved in the OTC.
Yeah, they've been accepting them since November if I'm not mistaken. It's a little patchy though.
And, you just nailed it on the head: ETrade charges $9.99; if I'm not mistaken there is also account minimum. With with ETrade being a low-cost brokerage firm, there still still a big difference between low-cost brokerages and discount brokerages like Zecco: whereas Zecco and the other discount costs firms pass through the costs in order to keep the trade cost low, low-cost firms pad the price and work through volume to cover the costs not passed through.
So, what happens: to trade regular stocks you end up paying 101.8% more, and when you trade fully registered pennies, you end up paying 43.74% more. I'm perfectly content with the price I'm trading at currently with Zecco (don't get me wrong, their customer service sucks and Zecco Editor is a gaint jack-hole). Why? Because I'm not an idiot that trades unregistered securities. I do my DD and look at look at the filings of a company I'm looking to invest in; why you would want to invest in a company that doesn't file and doesn't comply with SEC regulations (unless you are investing in an ADR that is regulated in its home country) is beyond me.
Just noticed that Zecco now accepts orders on OTC PINK reporting stocks (that is, the tier below OTCQB that reports to otcmarkets.com instead of the SEC) even if the order size exceeds 10%-20 day ADV.
At least that's what I got by placing a dummy buy order for YGDC at a price far below bid, with no intention of getting it executed at all.
BTW eTrade for example doesn't even charge non-DTC eligible fees, they figured out that the customer isn't the one who has to know how a trade is cleared; couple that with $9,95 per-trade fees acting as insurance against extreme low-probability exceptional cases and the fact most penny stock trades are cleared thru them, and that pretty much explains why there aren't certificate fees...since shares are held in street name, I guess non-DTC trades are cleared by simply changing ownership from eTrade (mention to account A) to eTrade (mention to account B).
Tradeking's policy regarding pennies is pretty brutal - so you better hope Zecco's policy rules. Otherwise, we're all screwed.
So whatcha think about the merger with Tradeking?
Maybe they'll become more friendly to pennies, or it's likely to be the same crap but twice as big?
in my opinion, zeccos customer service turned from being awful when I started with them to actually being pretty good near the end. almost felt bad for some of the poor bastards answering the phones and resolving problems.. im sure they were deluged from customers leaving and complaining..other than that zecco did everything wrong. this whole apex thing now just reeks of desperation to get the customers back they lost..wont happen imo
just my personal opinion
No they weren't, as someone has posted: larger firms like Goldman and JPMorgan have done self-clearing under strict separation of operations. It was the second largest or third largest for the number of firms it cleared for, but most of those correspondents were tiny, so their volume paled in comparison to the others. They are still probably one of the largest via correspondents.
That's actually probably one of the reasons that led to their poor fiscal condition: they went on a M&A warpath and kept buying up indie clearing houses to expand their correspondent base.
Nope! They were the largest at one point. Crazy huh?
Penson was never really a leader to begin with - it's just been someone that small discount brokerage firms have gone with because they offered low rates when these brokerage firms didn't have the economy of scale to do their only clearing.
Generally speaking most clearing house businesses aren't doing well, but their losses seem to take the cake.
Hey man, you're entitled to it. I tend to agree - poor customer service tends to indicate poor management, and where there is poor management, there tends to be losses.
I don't know. Especially don't know who's clearing for MMs. You'd think that would be a big part of Penson's business. But maybe not anymore.
Who is doing the majority of the clearing now that PNSN is no longer the leader?
Nothing recent, except for one that was dismissed.
Any pending lawsuits against them?
Yes. It'll be interesting to see who might, ah, take revenge.
But more seriously, their clearing business must not be doing well at all anymore.
With PNSN closing at $0.17 today, they are getting awfully close to $0.10.
PEAK6 and Penson Announce Formation of Apex Clearing:
yea im sure it was the evil penny market that made them lose so much, not horrible mngmt...like zecco..together they are perfect for each other
just my personal opinion
Here is a great story on it:
The final three sentences are great:
Penson, which posted its eighth consecutive quarterly loss earlier this month, has been trying to improve its balance sheet and bottom line through asset sales and streamlining its operations.
In March, Standard & Poor's Ratings Services downgraded its speculative ratings on Penson Worldwide by five notches on the brokerage and clearing firm's planned debt restructuring and expectations that Penson's business won't materially improve any time soon.
Shares of Penson were halted after hours Thursday. The stock is off 92% over the past 12 months
See that's what happens when most of the stocks you clear are pennies and you are hit with hedging fees and VaR fees. Hence why they started passing along the costs after the price increases by NSCC that largely targeted Penson in the first place.
Still operating, of course, our opinions don't matter.
Post some links, I would be interested in reading about that.
Penson still holds a majority interest.
Since Penson's clearing firm has just been sold (and renamed to Apex) they might consider changing their policies...
Oh, I completely agree that the ADV limit was incorrectly applied. In fact, I would argue that the Penson's incorrect application of the ADV limit actually distorted the market for fully SEC registered and fully reporting companies that were trading on the OTCBB and PinkSheets. And, I was one of the ones complaining LOUDLY about this to both Zecco, Penson, and here on the boards in September and October.
As far as the changes made: I'm not sure where you got your formula from, but I don't think it is what drove the changes at Penson. NSCC notices put out through 2011 state the following:
"OTC Bulletin Board and Pink Sheet Stocks and stocks with insufficient pricing history are margined according to a haircut rather than based on VaR methodology. The haircut, currently at 10%, will be increased to 20%, in order to achieve 99% coverage levels."
So, when the stock is illiquid and the position is open, the clearing house has to put away 20% of the trade's value to cover the risk. Furthermore, the NSCC also sent updated VaR reports to the clearing houses for an 8 week period in the summer 2011 to highlight their potential risk beyond the the above increases and the capital they would need to cover those trades. I would imagine Penson's potential loses according to the VaR reports were EXTREMELY high given the amount of pennies that are cleared via their firm, so their set-aside for the new fees likely would have been huge.
And, as far as I know, Penson is actually just passing on the illiquid cost charge (that people are complaining about) they get from the NSCC dollar for dollar. The ADV limit and the illiquid charge changes are really intermingled and I think the changes in illiquid securities risk management mandated by NSCC on Sept. 12, 2011 caused the ADV limit enforcement at Penson.
That being said, since it was first rolled out, Penson has revised the ADV restriction - in fact, within about a month of the roll-out - and it now, as far as I'm aware, generally only applies to non-SEC registered/reporting securities.
That being said, how this relates to the conversation we have been having, I have absolutely no idea other than to demonstrate that Penson is a poor vendor for clearing. I have suggested to Zecco in my communications - for what it's worth - that they look into getting another clearing house. But that still doesn't change the fact that Zecco/TradeKing combined do not have the economy of scale to start clearing their own trades (as you have suggested).
Lastly, the TradeKing and Zecco firms combined will account for nearly half of Apex’s accounts, making us one of Apex’s most valued customers, again heightening the attention and service we can expect to receive from the new organization.
That's interesting. TradeKing and Zecco aren't especially big firms. And it's my understanding that Penson clears for a lot of MMs; you think that would account for a lot of business.
Perhaps Penson's clearing business has really gone down the tubes in the past year?
Frank, the 10% of 20-day ADV order size restriction on crap shell companies that Penson imposed never did any sense:
What the NSCC requires on illiquid penny stocks (on orders bigger than 10% 20-day ADV) is a deposit of (($0.01*number_of_shares)-trade_value) which is returned to the clearing firm after trade settlement at T+3.
It's only a small hindrance to the clearing firm as they'd miss 3-day interest charge on the funds they had to wire...but Penson did a knee-jerk reaction to that and chose to block the orders (BS policy) rather than charging interest charges on the wired funds to customers, at a 10% yearly rate or like that, a solution which would have let customers selling the shares and running away, rather than getting'em stuck in the account unable to do anything with them.