is I like stocks
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Slayton: I never said you wer bashing, as for the rest OH TO BE THE FLY ON THE WALL OF THE CEO'S OFFICE
Soooooooooooooooon TRADE WELL-PEACE~T
Our-Street: Now ,now lets remember your REVEREND TIM and should be able to forgive those who think otherwise without those kind of remarks WWHAT WOULD YOUR FLOCK THINK?
EOM~T
Slayton: This was NOT !!! an over night thing, this was to be utilized elsewhere in another public entity but things & people happen and then these things had to be disasembled and is now being reasembled back into the private company that is/was prepairing to go into an R/V. public situation (SHELL IF YOU WISH TO CALL IT THAT).... Hence I suspect more to come and sooooooooner then later JIMHO. of course
TRADE WELL-PEACE~T
rookiecrd1/ ;~) TRADE WELL-PEACE~T
Dimmy: Spoke with Jimmy at the Yacth Club and He said you already have an over due tab. Hehehehehehehe. Oh well cash is what I have and cash it what I will use .
BUT THANXS ANYWAY LOL~T
INVESTORS: Have A GREAT WEEKEND WITH FAMILY & FRIENDS~T
Colt Peace Maker: Thank you dear , HAVE A GREAT WEEKEND DARLING
TRADE WELL-PEACE~T
KNTSKC: I know it does.But we made need a few more soon lol~T
Dimmy: I'm hurt now,I guess I'll just have to TGIF. AT THE CLUB you cruel,cruel person Hehehehehe~T
Dimmy: Well you know the SPEAK,SEE, HEAR thingy Hehehehe
AS FOR THE GED thingy THANXS But I'm also having a prob with multiple table these days and my calculator don't go that high. I need one with more spaces on it
AND GOOD LUCK TO YOU WITH THE LIC TEST TOO BUD ~T
Dimmy: How ya doing bud, as for me fine. I'm still trying to past that GED thing. I hope you do better with that real estate lic test the next time around LOLOL
HAVE A GREAT WEEKEND AND DON'T STUDY TO HARD
BYE.BYE~T
STREET: THANXS !!! THAT'S A KEEPER ;~) ~T
Our-Street: But of course you would know this rule >
""Rule 10b-5 -- Employment of Manipulative and Deceptive Devices
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
To employ any device, scheme, or artifice to defraud,
To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,
in connection with the purchase or sale of any security.""
BECAUSE OF THIS BELOW >>>>>>>>>>>>>>>>>>>
I was working with a company called Auric Enterprises, Inc. and had structured a 504 offering for the stock. A number of my friends wanted to invest but lived in California and Ohio, states that had not been approved for the offering. I was told that if they drove to a neighboring state like Nevada where the offering was approved, they could invest. Rather than having them do this, I made the mistake of telling them instead to put down addresses in approved states and filed these inaccurate documents with the NASD. I also was not accurate as to the relationships of some investors as well.
http://www.investors.com/breakingnews.asp?journalid=22312898&brk=1
PLEASE DON'T SHOOT THE MESSINGER AS I DIDN'T MAKE THIS UP~T
ldbobby: Yes it does TRADE WELL-PEACE~T
Charlie48:Maybe you could notify them and come back and lets us know what they said OF COURSE WITH NAMES & NUMBERS
TIA~T
STREET " and nearly 20 years of full time work in the securities industry. That has allowed me to develop some very keen insight and the ability to form opinions such as that one.. and to have a high degree of accuracy in doing so"
AND THEY SAID THIS>>>
Miles, a former broker and self-professed failed public company executive,
http://www.investors.com/breakingnews.asp?journalid=22312898&brk=1
PLEASE DON'T SHOOT THE MESSINGER AS I DID NOT MAKE THIS UP~T
street"Well.. it certainly isn't to try to convince a professional message board shill that I am right... and as far as DD is concerned.. you and I know you haven't done any.. you are hired to go pump the stock and attack the critics. Of all the non-shareholders on this board and there are many.. I am the only one who has chosen to let you know who I am"
Our-Street.com, whose bizarre proprietor Timothy Miles had masqueraded for months as "Nick Tracy" to avoid public disclosure <<<<<<. ACCORD TO THIS >
http://www.investors.com/breakingnews.asp?journalid=22312898&brk=1
You stated the above
annnnd they stated this
Don't shoot the messinger as I did not make this up ~T
Our-Street: Do you think AIDS is funny too in ref to>gives you a real clear understanding of exactly how little I worry about this stock being reset now to $25.63...
FO
STREET:"I thought it was kinda funny myself..">>ladeytrader.. Frankly I worry more about dying from ovarian cancer....
FO
STREET: YOU JUST LOST IT THERE .... EOM~T
Our-Street:Well that is your choice BUT PLEASE DO KEEP US INFORMED AS TO WHAT THE SEC has to say and of course with names and numbers TIA~T
Our-Street: Thank you for that ! This way IF any wrong doing going on THE SEC will close all down . AGAIN THANK YOUUUU
for helping all here IF this is a scam ...One question before I take my leave for the day Have you checked out the BOND A+ IN THE PR? TIA.
PEACE~T
Investors: There was a brother and sister singing duet named The Carpenters and they wrote a song which I believe was named, We've only just _ _ _ _ _ Hmmm? Now what was that last part ???
TRADE WELL-PEACE&&&&&PATIENCE~T
The bond is loaded in the systems with the following codes:
Lehman Brothers Holdings PLC 6 1/8 A+
Common Code: 010924251
ISIN: XS0109242510
BB Number: EC2377199
ACCORDING TO THE PR INFO.
TRADE WELL-PEACE~T
Conversion Solutions Holdings Corp Updates Shareholders
KENNESAW, Ga., Aug. 18 /PRNewswire-FirstCall/ -- Conversion Solutions
Holdings Corp (OTC Bulletin Board: CSHD), a Delaware Corporation announces
that during the 10-K filing process the following current events have taken
place.
CSHD would like to announce the signing of a Global Funding Agreement
with the Humanitarian & Scientific World Foundation, LTD a Georgia LTD
Foundation. The Foundation's Co-Operators are Adnan Sakli FD# 8216 and
8217, Craig M. Cason and Steven Canady.
The funding agreement brings a 450 Million Euro ($579,149,833 USD
converted) denominated Note on Lehman Brothers Holdings PLC with a 6 1/8%
coupon to CSHD's Asset Back Management facility. (The MTN holds an S&P,
Fitch, and Composite A+ rating with a Moody's A1 rating).
The bond is loaded in the systems with the following codes:
Lehman Brothers Holdings PLC 6 1/8 A+
Common Code: 010924251
ISIN: XS0109242510
BB Number: EC2377199
"With the addition of this Asset to the corporation, we are now looking
at a new justifiable reorganization release price of $25.63, up $10.63 from
the original estimated $15.00 per share ($12.81 Book X 2). The exact number
will be disclosed in the SEC filings," stated Rufus Paul Harris, CEO.
About Conversion Solutions Holdings Corp
CSHD is a diversified holdings corporation, which was formed to
originate, fund and source funding for asset-based transactions in the
private market. CSHD's main service will be to acquire, fund and provide
insurance to target companies in the currently underserved $15,000,000 to
$100,000,000 asset finance market. Our funding will enable our businesses
to compete more effectively, improve operations and increase value. CSHD is
headquartered in Kennesaw, Georgia, a suburb of Atlanta. For more
information, please visit us at http://www.cvsu.us.
SOURCE Conversion Solutions Holdings Corp
--------------------------------------------------------------------------------
Related links:
http://www.cvsu.us
Colt Peace Maker
Check the time frame the last few nights and you will see that Bud has the mid shift and street is gone Oh but he did drop in only once tonite for a qwickie .But soon street will take his shift and bud is in most cases gone buy 9 or 10
GOOD NITE~T
TO ALL INVESTORS: Have a great evening TRADE WELL-PEACE~T
sceptor: See if this works >Globalization and Trilateral Labor Markets en lighting (Illumini.)
TRADE WELL-PEACE&&&&PATIENCE~T
OT? A good read >Monday, August 14th, 2006
Press Releases, Venezuela, Front Page
Monday, August 14
Hugo Chávez’s Challenge to U.S. Preeminence in Latin America
Chávez’s rise to power represented the end of non-pluralist democracy in Venezuela.
In the aftermath of September 11, the Bush administration has specifically and wrongfully targeted Venezuela as a threat to regional security.
Chávez has further distanced himself from Washington by courting the favor of anti-U.S. nations.
But Chávez’s anti-U.S. initiatives remain more bark than bite.
Venezuelan President Hugo Chávez’s political and ideological opposition to the United States has led to an escalating antagonism between the two countries, challenging the super-power’s deep-rooted preeminence in the region. Though Washington has historically enjoyed a positive, albeit asymmetrical, relationship with Venezuela, the U.S. has increasingly resorted to verbal jabs and more menacing gestures at its former ally since the dramatic rise to power of Venezuela’s flamboyant president in 1998. Unlike his predecessors, Chávez refuses to kowtow to U.S. policy. He has presented a socialist-leaning economic and social program that rejects both the neoliberal reforms promoted by the U.S.-endorsed Washington Consensus and the imperialist nature of U.S. activity in Latin America. Endowed with vast supplies of oil, Chávez seeks to expand his utopian vision throughout the entire region by working to export his populist “Bolivarian Revolution.” Fearing that its own historical hegemony over the region is being threatened, the U.S. has expressed grave concern over Chávez’s leftist orientation, authoritarian character and support of countries it classifies as “rogue regimes.” Ultimately, we can best understand the deterioration of U.S.-Venezuelan relations as a result of Chávez’s rejection of the long-standing status quo that confirms U.S. dominance in Latin America.
From Lesser Partner to Upstart Challenger: Longstanding Continuity Shifts Under Chávez
Chávez’s electoral victory, a result of widespread disillusionment with Venezuela’s corrupt political system, presented the U.S. with a markedly defiant leader who would not obediently adhere to Washington’s policy initiatives. Prior to Chávez, in the period of Punto Fijo democracy (1958-1999), the United States commanded significant influence within Venezuela’s relatively stable, bipartite representative democracy. This incommensurate relationship was based on Washington’s traditional ability to coerce lesser Latin American powers and, more importantly, on Venezuela’s ability to tend to U.S. national security concerns through its capacity to be a dependable supplier of petroleum operating outside the Middle East. According to this mutually beneficial agreement, “economic relations expanded during the Punto Fijo era, and through the end of the twentieth century, the United States consumed 50 percent of all Venezuelan exports… [while] U.S. goods made up 45 percent of Venezuela’s total imports.” Nevertheless, Washington’s special relationship with Venezuela was unable to prevent the deterioration of political stability in the country in the late 1980s and 1990s. The unique political and societal changes that came with the fall of the Punto Fijo regime would ultimately jeopardize U.S. influence in the oil-rich nation and signaled Washington’s waning influence in the region as a whole.
Although the 1958 Punto Fijo agreement which established the cooperative two-party corporative system in Venezuela resulted in unprecedented stability during a wave of antidemocratic authoritarian coups in the rest of Latin America, the deeply ingrained flaws of the nominally representative democracy only temporarily staved off the inevitable demands of the impoverished and disempowered populace. Social disturbances began in the late 1980s when, in light of the global decline in oil prices that helped undermine Venezuela’s petro-based economy, President Carlos Andrés Pérez pursued the neoliberal economic reforms dictated by the Washington Consensus. The austerity measures enacted therein sparked an increase in social tension as the social welfare benefits, previously enjoyed by most Venezuelans, rapidly diminished. In turn, these socioeconomic developments, which particularly have harmed the lower classes, have gone some distance in exposing the corrupt and exclusionary nature of the Venezuelan political system.
In the vacuum of popular politicians and political parties brought about by this political crisis, Hugo Chávez won the presidency in 1998 by offering a political program that genuinely showed a concern for the impoverished majority who composed approximately 75 percent of the nation’s population. His priorities were in stark contrast to those of the corrupt elite of the traditional political establishment, who had done little to alleviate the indigence weighing down the average citizen. Elected on a platform of radical change, Chávez immediately restructured the Venezuelan political system through the promulgation of a new “Bolivarian” constitution that passed through a national referendum. The document underscored his belief in a populist-oriented participatory democracy and the concentration of power in an energetic executive.
Chávez’s vision also entailed reducing the U.S. hegemonic influence in Venezuela and throughout the region. The international superpower traditionally used Latin America countries as surrogates to promote its own self-interest, often at the cost of Latin America’s most marginalized citizenry, such as the indigenous and the indigent. However, despite Chávez’s strong anti-American rhetoric, it initially appeared that U.S. policy makers were unwilling to risk the loss of economic interests by hostilely responding to the new president. Under the Clinton administration, the government “hoped to retain the cordiality that characterized relations between the two countries as long as the Chávez government respected the rule of law and the personal integrity and property of American citizens in Venezuela, abstained from nationalizing American businesses, and remained a secure source of petroleum for the United States.” With American interests not visibly threatened and Chávez abiding by the democratic rules of the game, Washington chose not to pursue a confrontational approach. Nonetheless, diplomatic relations between the U.S. and Venezuela would quickly deteriorate when George W. Bush came to power and began a new era of neoconservative U.S. foreign policy in early 2001.
To the Brink: Chávez Takes on “Mr. Danger”
With Bush’s 2000 election victory, Washington revived an outdated and uncompromising “Cold Warrior” attitude towards the regional political left, characterizing Chávez as an enemy of the United States and all of Latin America. The U.S.-Venezuela war of words began in the aftermath of the September 11 attacks. Chávez has attracted the ill-will of the Bush administration when, in a statement aired on Venezuela TV, he drew moral equivalency between the inadvertent deaths of Afghani noncombatants during the U.S. bombing campaign and Al Qaeda’s purposeful targeting of American civilians. The tense situation worsened following the coup attempt by Chávez’s main opposition on April 11, 2002. Rather than denouncing the patently undemocratic attempted military takeover, the Bush administration quickly backed the new government and offered U.S. government support to the plotters. Not until military and widespread popular support restored Chávez to power two days later did the U.S. condemn the coup and promise to never again back a military takeover. Washington’s initial support of the coup led to acrimonious accusations by Chávez, who, although failing to present any irrefutable evidence to support such claims, continues to accuse the U.S. of inciting action to topple his government. As a consequence of the short-lived coup and the hostilities exchanged in its wake, the ideological gap between the U.S. and Venezuela widened, a symptom of Washington’s intolerance of Chávez’s indisposition to follow the official U.S. line in the region.
For his part, Chávez’s anti-American ideology has not been limited to political grandstanding. The hugely popular president has refused to cooperate with Washington in consistently aiding next-door neighbor Colombia’s military operations against the Revolutionary Armed Forces of Colombia (FARC), the Marxist guerrilla movement labeled by the U.S. State Department as a foreign terrorist organization. Unsurprisingly then, the United States has issued several public statements that accuse Chávez of knowingly harboring FARC forces in Venezuelan territory and providing safe-haven to some of the organizations most important commanders. Though Chávez has surely not gone out of his way to disprove such rumors, and with Colombian President Álvaro Uribe making such claims, the connection between Venezuela and the FARC has not been credibly established and, with Washington’s anti-terror efforts focused on the Middle East, it is unlikely that this transgression alone would gain much attention within the U.S. government.
On the other hand, Chávez’s growing personal, economic and ideological relationship with Fidel Castro has been an impetus for significant debate as to how the United States should deal with the leader who is “increasingly out of step with the world community.” This connection between the two leftist rulers has provoked the ire of the influential Cuban-American community, who regard Chávez’s trade of oil in exchange for Cuban doctors as a means of buttressing Castro’s faltering regime. The impact of the Chávez-Castro connection on U.S. politics was evident in the 2004 U.S. presidential election when John Kerry, the Democratic candidate, took a hard-line stance against Chávez similar to that of the Bush administration, ostensibly to garner votes among the firmly Republican Cuban-American population in the swing-state of Florida. Like Chávez’s anti-American rhetoric, there are clear political advantages for both Republican and Democratic politicians to advocate an intransigent position against the Venezuelan leader, though there may be little substance behind their incendiary remarks. What is lucid though is the Bush administration’s black-and-white Cold War mind-set that exaggerates Chávez’s assertive attitude, portraying the Venezuelan president as simply another one-dimensional menace to the U.S. and Latin America, rather than addressing the full complexity of the situation.
Regional Spillover: Chávez’s Influence in Latin America and Beyond
Further plaguing Washington’s Latin America agenda are Chávez’s aspirations to export his revolution beyond the borders of Venezuela. Chávez is challenging the long-established U.S. dominance through his advocacy of a leftist form of governance that, according to Chávez, stands for the empowerment of the disaffected masses of Latin America, rejection of U.S.-sponsored neoliberal reforms and a populist interpretation of democracy. He has been explicit in his overarching desire to extend his influence throughout the region and reduce American military presence in his country while forging an independent and contentious foreign policy that makes his presence very well known on the world stage.
To this end, Chávez’s oil diplomacy is not limited to Cuba; he provides oil on preferential terms to countries throughout Latin America, focusing on the Caribbean through the 13-nation PetroCaribe group and on the left-leaning governments of Argentina and Brazil. The victory of Evo Morales, the Chávez-backed leader of the Movement for Socialism, in the 2005 Bolivian presidential elections confirmed U.S. fears that Chávez’s Bolivarian Revolution was gaining momentum on the continent. An essential factor in this recent rise of the Left has been the desperate poverty of the lowest sectors of society, aggravated by U.S.-endorsed neoliberal reforms of which Chávez is an ardent opponent. In his mission against this species of economic policy, Chávez rallied Latin American leaders, such as Argentinean President Néstor Kirchner and Brazilian President Luiz Inácio Lula da Silva, to successfully block an attempt by the U.S. to revive talks on the Free Trade of the Americas in 2005 and promote his own Bolivian Alternative for the Americas. Furthermore, in light of the Free Trade Agreement Colombia and Perú signed with the U.S., Chávez withdrew Venezuela from the Andean Community in April 2006 and has recently joined the alternative regional trade bloc of South America, MERCOSUR, a step of very real consequence.
Within Venezuela, Chávez has been curbing cooperation with the U.S. military. Historically, the U.S. has exercised protrusive military influence in Latin America. In Venezuela, the U.S. has exerted this influence “through its large Military Assistance Group, a diverse team of army, air force, and navy personnel which regularly trains its Venezuelan counterparts.” Chávez’s efforts to limit the role of the U.S. military within his country came to head in April 2005 when Chávez called for the termination of military ties with the U.S., evicting one or more U.S. diplomatic attachés he accused of inciting dissent within the Venezuelan armed forces. At the same time, Chávez has secured agreements with Russia in a $3.5 billion deal to purchase 100,000 AK-103 assault rifles along with combat helicopters and fighter jets, supposedly preparing for what he claims to be an imminent U.S. invasion. Further distancing the two parties, the U.S. announced this past May a ban on all military sales to Venezuela, ludicrously claiming, with no evidence, that Chávez was not playing his part in the war on terrorism.
Also frustrating Washington is Venezuela’s independent, multipolar foreign policy extending beyond the customary hemispheric limits of Latin America’s political involvement that includes strengthening relations with countries the U.S. regards as threatening rogue regimes. While the U.S.’s hegemonic influence in the region has often predetermined the foreign policy of its subservient allies there, Chávez has forged closer ties with China and such rouge nations as North Korea and Iran.
Of particular consternation to the U.S. is Venezuela’s developing relations with Iran, listed as a state sponsor of terrorism by the U.S. State Department. Notwithstanding Iran’s terrorist links, U.S. suspicions regarding the Venezuelan-Iranian connection seem to be overplayed, especially as long as their relations persist along commercial and not military lines. Moreover, Venezuela has the sovereign right to conduct its own foreign policy according to the universally recognized principle in international law of non-interference in the internal affairs of other states. Considering both countries share mutual goals as regional rivals of the U.S. and price hawks within OPEC, Venezuela’s association with Iran seems perfectly logical from its perspective. With Chávez his canceling previously scheduled visit the virulently anti-U.S. dictator of North Korea, Kim Jong-Il, Washington’s ability to set policy in the region appears to retain at least some leverage.
Bad Neighbor Policy: U.S. and Venezuela Head to Head
Hugo Chávez represents an alternate, appealing vision to the indigenous, nonwhite masses that threatens the U.S.’s traditional sphere of influence in Latin America. Judging by its already significant clout in the region, “it has been clear that Venezuela, with a population of 26 million, is too small a stage for Chávez’s ambitions…. He has skillfully managed to establish himself as a global and regional leader, using oil money and brash anti-Americanism to attempt to construct a counterweight to U.S. power.” In response, Washington has attempted to contain the spread of Chávez’s Bolivarian Revolution by political, diplomatic, and economic means, rather than resort to covert or overt military operations as was typical during the Cold War era. At the same time, room for compromise still exists; at her confirmation hearings in 2005, Secretary of State Condoleezza Rice expressed hope “that the government of Venezuela will continue to recognize what has been a mutually beneficial relationship on energy” and “continue to pursue counter-drug activities in the Andean region.” Nonetheless, the clashing regional aspirations between the long-established hegemon and its upstart ideological adversary, along with the ongoing hostile rhetoric will continue to lead to conflict between the two parties. This is particularly true regarding resolute U.S. opposition to Venezuela’s seemingly non-threatening bid for a seat on the UN Security Council. As the U.S. tries to retain its loosening grip in Latin America through political sparring with the independent-minded, anti-American Chávez, regional stability is threatened as the other countries in the region are reluctantly forced to side between the two divergent camps of the U.S. and Venezuela in a manner akin to the polarization characteristic of the Cold War.
This analysis was prepared by COHA Research Associate Matan Shamir
August 14th, 2006
Word Count: 2500
TRADE WELL-PEACE~T
sceptor: Hehehehe TRADE WELL-PEACE&&&&&PATIENCE~T
REPOST: A good read >DTCC Clarification on Fails to Deliver
The Depository Trust & Clearing Corporation (DTCC) today issued a clarification of a statistic it reports each year in its annual report. The clarification is intended to provide a more accurate description of a statistic on failed transactions – including “Fails To Deliver” (FTD) – that certain third parties have persistently misinterpreted or misrepresented, seeking to buttress their contention that the levels of FTDs is evidence of abusive short selling and “naked short selling.” These parties cite DTCC’s reported statistic as the amount of FTDs each day. Their characterizations are grossly inaccurate and paint a distorted picture of the reality of the marketplace.
National Securities Clearing Corporation (NSCC), a subsidiary of DTCC, acts as a central counterparty to virtually all broker-to-broker trades in the U.S. As such, the numbers NSCC reports relating to “failed transactions” reflect both buy and sell sides of a trade. These numbers include both fails to deliver and their offsetting fails to receive, so that the number thus doubles the amount involved (i.e., the same transaction is counted twice, once on the “deliver” side and once on the “receive” side).
DTCC’s most recent annual report indicated that as of December 31, 2005, NSCC had fails outstanding worth approximately $6 billion. This value is persistently described by third parties as the value of FTDs as of that date. Since it is actually the value of all fails – i.e., both fails to deliver and fails to receive – effectively, the $6 billion cited by third parties actually represents $3 billion in fails to deliver, or about 1.1% of the $266.5 billion in trades processed on the average day by NSCC in 2005. Moreover, the $3 billion figure also represents all fails to deliver at NSCC, including fails in fixed income trades (corporate and municipal bonds). While the number of fails and percentage of fails in fixed income trades changes each trading day, on December 31, 2005, fixed income trade fails were equal to approximately 15% of all fails. Importantly, DTCC notes that this FTD total reported is not just for equities on the “threshold list” of companies, but rather reflects fails on all equities and corporate and municipal bonds.
For over one year, DTCC’s Web site has reported that the $6 billion as “fails to deliver and receive” thus enabling people interested in the topic to understand that the figure reflects both halves of a transaction. (See http://www.dtcc.com/Publications/dtcc/mar05/naked_short_selling.html.) Nonetheless, third parties persist in applying the number to fails to deliver only. The DTCC Web site has also made clear that the figure is not a daily amount of fails, but a combined figure that includes both new fails on the reporting day as well as aged fails.
While DTCC does not know the reasons for a fail to deliver (this is only known by the broker-dealer and the marketplace), as the SEC has pointed out, “There are many reasons why NSCC members do not or cannot deliver securities to NSCC on the settlement date. Many times the member will experience a problem that is either unanticipated or is out of its control, such as (1) delays in customer delivery of shares to the broker-dealer; (2) an inability to borrow shares in time for settlement; (3) delays in obtaining transfer of title; (4) an inability to obtain transfer of title; and (5) deliberate failure to produce stock at settlement which may result in a broker-dealer not receiving shares it had purchased to fulfill its deliver obligations.”
With information on the actual FTD situation readily available, DTCC believes the failure to use the proper number in any meaningful discussions of naked short selling reflects a conscious attempt to mislead the investing public and undermine confidence in the workings of our capital markets.
TRADE WELL-PEACE~T
REPOST: A good read >Cases Filed Against The Depository Trust & Clearing Corporation (“DTCC”)
--------------------------------------------------------------------------------
Cases Filed Against The Depository Trust & Clearing Corporation (“DTCC”)
and its Affiliates Related to the Issue of Naked Short Selling
There have been 14 cases filed against DTCC involving naked short selling. Of those, as of May 2006, 10 cases have been either dismissed by the courts involved or withdrawn by the plaintiffs. In one case, the court allowed legal sanctions against the plaintiff, which allowed DTCC to seek partial reimbursement of its legal costs. Three cases have been filed but not served (to date) against DTCC. One motion to dismiss a case is still pending decision.
Name of Case Filed Disposition
1.
Williamson v. Goldman, Sachs & Co., et al.
January 31, 2003
Dismissed by court, March 17, 2004 (as to moving defendants - DTCC Defendants never served).
2.
Nutek v. Ameritrade, Inc., et al.
March 21, 2003
Dismissed voluntarily by plaintiffs as against DTCC Director Defendants, with prejudice, May 18, 2004. Dismissed as against remaining DTCC Defendants, July 30, 2004.
3.
Genemax Corp. v. Knight Securities, LP, et al.
November 14, 2003
Dismissed by court, November 9, 2004 (DTCC Defendants not served).
4.
Capece v. Elgindy, et al.
April 28, 2004
Dismissed voluntarily by plaintiff as against DTCC Defendants, August 3, 2004.
5.
Nanopierce Technologies, Inc. v. The Depository Trust Co., et al.
April 29, 2004
Dismissed by court on DTCC Defendants’ motion to dismiss, April 28, 2005. Appeal pending in Supreme Court of Nevada.
6.
Sporn v. Elgindy, et al.
August 30, 2004
Dismissed by court on DTCC Defendants’ motion to dismiss, July 25, 2005. Sanctions awarded in favor of DTCC Defendants.
7.
Walters v. DTCC, et al.
August 30, 2004
Dismissed by court on DTCC Defendants’ motion to dismiss (no opposition filed), December 7, 2004.
8.
Pet Quarters, Inc. v. The Depository Trust & Clearing Corporation, et al.
October 29, 2004
DTCC Defendants’ motion to dismiss and plaintiffs’ motion to remand to state court pending.
9.
Capece v. DTCC, et al.
April 29, 2005
Dismissed by court on DTCC Defendants’ motion, October 11, 2005.
10.
Whistler Investments, Inc. v. DTCC, et al.
May 12, 2005
Dismissed by court on DTCC Defendants’ motion, May 31, 2006. DTCC’s motion for the award of sanctions pending.
11.
Miller, as Trustee v. Boston Partners Management LP, et al.
January, 2006
Filed, not served, and DTCC Defendants dropped from litigation.
Related Early Cases
1.
X-Clearing Corporation v. Depository Trust Corporation, et al. (Intergold, Inc. action)
February 18, 2003
Dismissed by court on DTCC Defendants’ motion to dismiss, October 3, 2003.
2.
Intergold Corporation v. Depository Trust Corporation, et al.
March 10, 2003
Filed, never served.
3.
X-Clearing Corporation v.
Depository Trust Corporation, et al.
(Petrogen Corp. action)
February 25, 2003
Dismissed by court on DTCC Defendants’ motion to dismiss, September 5, 2003.
June 2 , 2006
TRADE WELL-PEACE~T
REPOST: A good read >Naked Short Selling and the Stock Borrow Program
In recent months, there has been a fair amount of media coverage of naked short selling, Regulation SHO and even DTCC’s role in that via the Stock Borrow program operated by DTCC subsidiary National Securities Clearing Corporation (NSCC). Because there has been much confusion about these issues, and much misinformation, @dtcc sat down with DTCC First Deputy General Counsel Larry Thompson to discuss these issues.
@dtcc: Let’s start with the question, what is naked short selling and why has it suddenly become an issue?
Thompson: Short selling is a trading strategy where a broker/dealer or investor believes that a stock is overvalued and is likely to decline. It is an integral part of the way our capital market system works. Basically, it involves borrowing stock that you don’t own and selling it on the open market. You then buy it back at a later date, hopefully at a lower price, and as a result, making a profit.
Naked short selling is selling stock you don’t own, but not borrowing it and making no attempt to do so. While naked short selling occurs, the extent to which it occurs is in dispute.
@dtcc: DTCC and some of its subsidiaries have been sued over naked shorting. What has been the result of those cases?
Thompson: We’ve had 12 cases to date filed against DTCC or one of our subsidiaries over the naked shorting issue. Nine of the cases have been dismissed by the judge without a trial, or withdrawn by the plaintiff. The other three are pending, and we have moved to dismiss all those cases as well. While the lawyers in these cases have presented their theory of how they think the system works, the fact is that their theories are not an accurate reflection of how the capital market system actually works.
@dtcc: One of the allegations made in some of the lawsuits is that the Stock Borrow program counterfeits shares, creating many more shares than actually exist. True?
Thompson: Absolutely false. Under the Stock Borrow program, NSCC only borrows shares from a lending member if the member actually has the shares on deposit in its account at the DTC and voluntarily offers them to NSCC. If the member doesn’t have the shares, it can’t lend them.
Once a loan is made, the lent shares are deducted from the lender’s DTC account and credited to the DTC account of the member to whom the shares are delivered. Only one NSCC member can have the shares credited to its DTC account at any one time.
The assertion that the same shares are lent over and over again with each new recipient acquiring ownership of the same shares is either an intentional misrepresentation of the SEC-approved system, or a profoundly ignorant characterization of this component of the process of clearing and settling transactions.
@dtcc: Another allegation is that the Stock Borrow program has become “a reliable source of income” for NSCC? Some articles have said we make almost $1 billion from it.
Thompson: This statement is purposely misleading. One billion dollars represents our total revenue from all our operations of all subsidiaries. The fact is that there are NO separate fees for transactions processed through the Stock Borrow program. There is just the normal fee for delivery of the shares, which is 30 cents per delivery. If you assume we make an average of 22,000 deliveries through Stock Borrow a day, there would be about $6,600 extra a day in revenue over 253 trading days, or about $1.67 million a year in additional revenue, out of $1 billion.
All of our members know that DTCC and all its subsidiaries operate on a “not for profit” basis. What that means is that we aim to price our services so that our revenues cover our expenses.
@dtcc: Just how big is the fail to delivers, and how much of those fails does the Stock Borrow program address?
Thompson: Currently, fails to deliver are running about 24,000 transactions daily, and that includes both new and aged fails, out of an average of 23 million new transactions processed daily by NSCC, or about one-tenth of one percent. In dollar terms, fails to deliver and receive amount to about $6 billion daily, again including both new fails and aged fails, out of just under $400 billion in trades processed daily by NSCC, or about 1.5% of the dollar volume. The Stock Borrow program is able to resolve about $1.1 billion of the “fails to receive,” or about 20% of the total fail obligation.
The Stock Borrow program was created in 1981 with the approval of the SEC to help reduce potential problems caused by fails, by enabling NSCC to make deliveries of shares to brokers who bought them when there is a “fail to deliver” by the delivering broker. However, it doesn’t in any way relieve the broker who fails to deliver from that obligation. Even if a “fail to receive” is handled by Stock Borrow, the “fail to deliver” continues to exist, and is counted as part of the total “fails to deliver.” If the total fails to deliver for that issue exceeds 10,000 shares, it gets reported to the markets and the SEC.
@dtcc: If the volume in the Stock Borrow program is so small, why are these companies suggesting it is a major issue?
Thompson: Frankly, we believe that the allegations are attempting to purposely mislead those who are not familiar with this program. A number of small OTCBB and so-called “pink sheet” companies have contended that this practice is driving down the price of their shares and driving them out of business.
According to their own 10K and 10Q reports financial auditor’s disclosure statements, many of these firms have admitted that “factors raise substantial doubt about the company’s ability to continue as a going concern.” They have had little or no revenue, according to their financial reports, and substantial losses, for periods of seven or eight years. One of these companies has been cited for failing to file financial statements since 2001. Another has been cited by the SEC for press releases that misled investors on expanding business contracts that didn’t exist. They will do anything they can do that takes people’s attention off that kind of record, especially if they can convince a law firm to take the case on a contingency basis, which is what has happened.
@dtcc: Who are the law firms bringing these suits?
Thompson: The main law firms engaged in these lawsuits, and they have been behind virtually all of them, were principally involved with the tobacco class action lawsuit. They like to bring suits in multiple jurisdictions in an attempt to find any jurisdiction where they might be successful in winning large judgments.
@dtcc: What causes a fail to deliver in a trade? Is it all naked short selling?
Thompson: There can be any number of reasons for a “fail to deliver,” many of them the result of investor actions. An investor can get a physical certificate to his broker too late for settlement. An investor might not have signed the certificate, or signed in the wrong place. There may have been human error, in that the wrong stock (or CUSIP) was sold, so the delivery can’t be made. Last year, 1.7 million physical certificates were lost, and sometimes that isn’t discovered until after an investor puts in an order to sell the security. There are literally dozens of reasons for a “fail to deliver,” and most of them are legal. Reg SHO also allows market makers to legally “naked short” shares in the course of their market making responsibilities, and those obviously result in fails. We can’t do anything about them but what we are doing: that is, report all fails of more than 10,000 shares in any issue to the marketplaces and the SEC for their action.
@dtcc: What happens then?
Thompson: The markets check to see if the amount of fails to deliver is more than 1/2 of 1% of the total outstanding shares in that security. If it is, then it goes on a “Threshold List.” If it is then on the Threshold List for 13 consecutive settlement days, restrictions on short selling then apply. The “close-out” requirement forces a participant of a registered clearing agency to close out any “fail to deliver” position in a threshold security that has remained for 13 consecutive settlement days by purchasing securities of like kind and quantity. If the participant does not take action to close out the open fail to deliver position, the participant is prohibited from making further short sales in that security without first borrowing or arranging to borrow the security. Even market makers are not exempt from this requirement.
@dtcc: So Reg SHO doesn’t force them to close out the position, but if they don’t, they are prohibited from making any additional short sales without borrowing the shares first?
Thompson: That’s right.
@dtcc: Does DTCC have a regulatory role in naked short selling? What authority does it have to force companies to settle a fail?
Thompson: Naked short selling, or short selling, is a trading activity. We don’t have any power or legal authority to regulate or stop short selling, naked or otherwise. We also have no power to force member firms to close out or resolve fails to deliver. That power is reserved for the SEC and the markets, be it the NYSE, Nasdaq, Amex, or any of the other markets. The fact is, we don’t even see whether a sale is short or not. That’s something only the markets see. NSCC just gets “buys” and “sells,” and it’s our job to try and clear and settle those trades.
@dtcc: Why won’t you reveal the number of fails to deliver in each position to the issuer of the security?
Thompson: There are a couple of reasons. First, we provide that information to regulators and the SROs so they can investigate fails and determine whether there are violations of law going on. Releasing that information might jeopardize those investigations, and we feel they are the appropriate organizations to get that information since they can act on it. Second, NSCC rules prohibit release of trading data, or any reports based on the trading data, to anyone other than participant firms, regulators, or self-regulatory bodies such as the NYSE or Nasdaq. We do that for the obvious reason that the trading data we receive could be used to manipulate the market, as well as reveal trading patterns of individual firms.
@dtcc: How does DTCC respond to claims that shares from cash accounts and/or retirement accounts and/or institutional accounts are being put into the lending pool of the Stock Borrow program?
Thompson: It is our broker and bank members who control their DTC accounts. They can and do segregate shares that they are not permitted to lend out. Neither NSCC nor DTC monitor or regulate that activity. It is done by the SROs and the SEC. However, there is no requirement that brokers or banks participate in the Stock Borrow program, and neither DTC nor NSCC can take shares from an account unless those shares are voluntarily offered by the broker or bank member.
@dtcc: Do you think there is illegal naked shorting going on?
Thompson: Certainly there have been cases in the past where it has, and those cases have been prosecuted by the SEC and other appropriate enforcement agencies. I suppose there will be cases where someone else will try to break the law in the future. But I also don’t believe that there is the huge, systemic, illegal naked shorting that some have charged is going on. To say that there are trillions of dollars involved in this is ridiculous. The fact is that fails, as a percentage of total trading, hasn’t changed in the last 10 years. @
TRADE WELL-PEACE~T
REPOST: A good read >Division of Market Regulation:
Responses to Frequently Asked Questions Concerning Regulation SHO
Responses to these frequently asked questions were prepared by and represent the views of the staff of the Division of Market Regulation (“Staff”). They are not rules, regulations, or statements of the Securities and Exchange Commission (“Commission”). Further, the Commission has neither approved nor disapproved these interpretive answers.
For Further Information Contact: Any of the following attorneys in the Office of Trading Practices, Division of Market Regulation, Securities and Exchange Commission, 100 F Street, N. E., Washington, D.C. 20549-1001, at (202) 551-5720: James Brigagliano, Assistant Director, Josephine Tao, Branch Chief, Joan Collopy, Lillian Hagen, Elizabeth Sandoe, and Victoria Crane, Special Counsels.
I. Introduction
A short sale is the sale of a security that the seller does not own and any sale that is consummated by the delivery of a security borrowed by, or for the account of, the seller. In order to deliver the security to the purchaser, the short seller will borrow the security, typically from a broker-dealer or an institutional investor. The short seller later closes out the position by purchasing equivalent securities on the open market, or by using an equivalent security it already owned, and returning the borrowed security to the lender. In general, short selling is used to profit from an expected downward price movement, to provide liquidity in response to unanticipated demand, or to hedge the risk of a long position in the same security or in a related security.
Regulation SHO became effective on September 7, 2004. (Securities Exchange Act Release No. 50103 (July 28, 2004), 69 FR 48008 (August 6, 2004) (“Adopting Release”)). The commencement date to comply with the provisions of Regulation SHO is January 3, 2005. Pursuant to the terms of Regulation SHO, the Commission approved an order establishing a one-year pilot program (“Pilot”) suspending the provisions of Rule 10a-1(a) under the Securities Exchange Act of 1934 (“Exchange Act”) and any short sale price test of any exchange or national securities association (“SRO”) for short sales of certain securities for certain time periods. (See Securities Exchange Act Release No. 50104 (July 28, 2004), 69 FR 48032 (August 6, 2004) (“Pilot Order”)). The Adopting Release and the Pilot Order may also be found on the Commission’s Internet web site (http://www.sec.gov/spotlight/shortsales.htm). (See also http://www.sec.gov/rules/final/34-50103.htm for the Adopting Release, and http://www.sec.gov/rules/other/34-50104.htm for the Pilot Order). On November 29, 2004, the Commission approved an order resetting the Pilot to commence on May 2, 2005 and end on April 28, 2006. (See Securities Exchange Act Release No. 50747 (November 29, 2004), 69 FR 70480 (December 6, 2004) (“Second Pilot Order”)). The Second Pilot Order may be also be found on the Commission’s Internet web site (http://www.sec.gov/spotlight/shortsales.htm). (See also http://www.sec.gov/rules/other/34-50747.htm). Although the Second Pilot Order resets the start date and end date for the Pilot, the other terms of the Pilot Order remain unchanged, and the compliance date for all other provisions of Regulation SHO remains January 3, 2005. The Commission from time to time may approve further orders affecting the Pilot.
Regulation SHO provides a new regulatory framework governing short selling of securities. Regulation SHO is designed, in part, to fulfill several objectives, including (1) establish uniform locate and delivery requirements in order to address problems associated with failures to deliver, including potentially abusive “naked” short selling (i.e., selling short without having borrowed the securities to make delivery); (2) create uniform marking requirements for sales of all equity securities; and (3) establish a procedure to temporarily suspend Commission and SRO short sale price tests in order to evaluate the overall effectiveness and necessity of such restrictions. Moreover, the rules are consistent with the objective of simplifying and modernizing short sale regulation, providing controls where they are most needed, and temporarily removing restrictions where they may be unnecessary.
Specifically, Regulation SHO replaces Commission Rules 3b-3, 10a-1(d), 10a-1(e)(13) and 10a-2 with the following provisions:
Rule 200 – Definitions and Marking Requirements. Rule 200 incorporates and amends Rules 3b-3, 10a-1(d) and 10a-1(e)(13). It defines ownership for short sale purposes, and clarifies the requirement to determine a short seller’s net aggregate position. It also incorporates requirements to mark sales in all equity securities “long,” “short,” or “short exempt.”
Rule 202T – Pilot Program. Rule 202T is a temporary rule that creates a procedure by which the Commission issued the Pilot Order to establish the Pilot. It also creates a procedure by which the Commission may issue additional orders relating to the Pilot. This rule is scheduled to expire on August 6, 2007.
Rule 203 – Locate and Delivery Requirements. Rule 203 incorporates Rule 10a-2 and existing SRO rules into a uniform Commission rule. It requires broker-dealers, prior to effecting short sales in all equity securities, to locate securities available for borrowing in order to be able to deliver securities on the settlement date of the transaction. It also imposes additional requirements on broker-dealers for securities in which a substantial amount of failures to deliver have occurred.
The Commission decided to defer consideration of proposed Rule 201, which would have replaced the current “tick” test of Rule 10a-1(a) with a new uniform bid test restricting short sales to a price above the consolidated best bid, subject to certain exceptions. (See Securities Exchange Act Release No. 48709 (October 28, 2003), 68 FR 62972 (November 6, 2003) (“Proposing Release”), which may also be found on the Commission’s Internet web site at http://www.sec.gov/rules/proposed/34-48709.htm). The Commission will reconsider any further action on these proposals after the completion of the Pilot.
Regulation SHO sets forth the requirements for conducting short sale transactions in equity securities. Other rules and regulations may apply also to short sales; for example, the margin requirements of Regulation T. Market participants conducting short sale transactions are responsible for complying with Regulation SHO as well as any other rules and regulations that may apply to their short sale transactions.
The following questions and answers regarding Regulation SHO have been compiled by the Staff to assist in the understanding and application of this regulation and the Pilot. These questions and answers are intended to provide general guidance. Facts and circumstances of a particular transaction may differ, and the Staff notes that even slight variations may require different responses. The Commission is not bound by the statements and may interpret Regulation SHO in any manner that it deems necessary or appropriate in the public interest or for the protection of investors.
The Staff may update these questions and answers periodically. In each update, the questions added after publication of the last version will be marked with “NEW!”
II. Responses to Frequently Asked Questions
1. General
Question 1.1: When should market participants comply with Regulation SHO?
Answer: Regulation SHO became effective on September 7, 2004. However, market participants are required to begin complying with Regulation SHO on January 3, 2005. Regulation SHO has a long compliance period to permit broker-dealers and SROs to make necessary systems changes and other order processing adjustments.
On November 29, 2004, the Commission approved an order resetting the Pilot to commence on May 2, 2005 and end on April 28, 2006. Although the Second Pilot Order resets the start date and end date for the Pilot, the other terms of the Pilot Order remain unchanged. Furthermore, the compliance date for all other provisions of Regulation SHO remains January 3, 2005.
Question 1.2: When does Regulation SHO supplant existing SRO Rules?
Answer: Regulation SHO supplants any conflicting SRO short sale rule. For example, SROs that have their own rules regarding locate and delivery have filed and are filing proposed rule changes with the Commission that will suspend such rules.
However, Regulation SHO does not conflict with SRO rules that have a purpose other than short sales. For example, NYSE Rule 80A is not directed at short sales, as such, but rather has a different purpose (i.e., reducing market volatility). For this reason, Regulation SHO does not supplant NYSE Rule 80A.
Question 1.3: How does Regulation SHO apply to overseas transactions?
Answer: Footnote 54 of the Adopting Release states that any broker-dealer using the United States jurisdictional means to effect short sales in securities traded in the United States are subject to Regulation SHO, regardless of whether the broker-dealer is registered with the Commission or relying on an exemption from registration. The Proposing Release explains that short sale regulation applies to trades in reported securities when the trades are agreed to in the United States, even if the trades are booked overseas. (68 FR at 62997 and 62998). Whether a short sale is executed or agreed to in the United States will depend on the particular facts and circumstances of the transaction. The Proposing Release provides some examples of when we would consider a short sale to have been agreed to in the United States. (68 FR at 62997 and 62998). For further information about how the provisions of Regulation SHO may apply to overseas transactions, please refer to Question 4.6.
Question 1.4: Does Regulation SHO apply to bonds?
Answer: Regulation SHO applies to short sales of equity securities. The term “equity security” is defined in Section 3(a)(11) of the Exchange Act and Rule 3a11-1 thereunder (17 CFR 240.3a11-1). A security convertible into an equity security is an equity security. Therefore, short sales of bonds that are convertible into equity would be subject to Regulation SHO. The Staff will consider on a case-by-case basis securities, including structured products, to which the “equity” status may not be clear.
Question 1.5: Do the requirements of Rule 203 of Regulation SHO apply to short sales made in connection with underwritten offerings?
Answer: Syndicate activity is not expressly addressed in Regulation SHO. However, the Staff will not recommend enforcement action for violation of Rule 203(b)(1) of Regulation SHO (locate requirement) with regard to any sale by an underwriter, or any member of a syndicate or group participating in the distribution of a security, in connection with an over-allotment of securities, or any lay-off sale by such a person in connection with a distribution of securities through rights or a standby underwriting commitment.
In addition, the Staff will not recommend enforcement action for violation of Rule 203(b)(3) of Regulation SHO (close-out and pre-borrow requirements) with respect to a net syndicate short position created in connection with a distribution of a security that is part of a fail to deliver position at a registered clearing agency in a threshold security that has persisted for 13 consecutive settlement days, if action is taken to close out the net syndicate short position no later than the 30th day after commencement of sales in the distribution.
2. Order Marking Requirements – Rule 200(g)
Question 2.1: Should a broker or dealer mark a short sale order “short exempt” if the order involves an OTCBB stock?
Answer: Rule 200(g)(2) provides that a short sale shall be marked “short exempt” if the seller is relying on an exception from the tick test of Rule 10a-1 or any short sale price test of any SRO. Securities traded on the over-the-counter bulletin board (“OTCBB”) are not subject to any short sale price tests and are therefore do not rely on an exception from such price tests. As such, they need not be marked “short exempt.” Short sales in such securities may continue to be marked “short.”
Question 2.2: May market participants presume that an “S” designation on an order indicates that an order is “sell long” and an “SS” designation on an order indicates that an order is “sell short?” Do these designations satisfy the new marking requirements under Regulation SHO?
Answer: Under Rule 200(g), brokers and dealers must mark all sell orders of any equity security as “long,” “short,” or “short exempt.” The primary objective is to make sure that orders are marked and executed properly and that accurate data on those orders is available for the pilot study and for surveillance and compliance purposes. For this reason, the Staff strongly suggests that firms use the designations specified in Rule 200(g) of Regulation SHO. The firms, however, may use other designations to identify long, short and short exempt trades, and to process the orders properly. The designations should follow a clear and consistent methodology for marking orders, and clear and accurate records must be maintained to demonstrate compliance.
Question 2.3: May a seller mark an order “long” if the seller owns the security pursuant to Rule 200(b) but is not “net long” in the security?
Answer: Rule 200(c) provides that a person shall be deemed to “own” securities only to the extent that the person has a “net long” position in such securities. Therefore, a seller must be net long in a security in order to mark “long” an order for that security. Rule 200(c) does not change the “net long” requirement of former Rule 3b-3.
3. Trade Execution
Question 3.1: How should brokers and dealers process orders when the normal closing time for a regular trading day has changed (e.g., early closing of markets for holidays)?
Answer: Footnote 17 of the Pilot Order explains that 4:15 pm was designated as the end of regular trading activity for Regulation SHO because regular trading hours normally end at 4:00 pm, and an extra 15 minutes was added because trade reporting can be delayed and continue past 4:00 pm. For days when regular trading hours end earlier than 4:00 pm, the time designated as the end of regular trading for the purposes of Regulation SHO should be the time the trading hours end on those days plus 15 minutes.
4. Locate and Delivery Requirement – Rules 203(b)(1) and (2)
Question 4.1: How should broker-dealers determine “reasonableness” to satisfy the locate requirement of Regulation SHO?
Answer: Rule 203(b)(1)(ii) permits a broker or dealer to accept a short sale order in an equity security if the broker-dealer has reasonable grounds to believe that the security can be borrowed so that it can be delivered on the settlement date. “Reasonableness” is determined based on the facts and circumstances of the particular transaction. What is reasonable in one context may not be reasonable in another context. The Commission provided some examples of reasonableness in the Adopting Release. (69 FR at 48014 and Footnotes 58, 61 and 62).
Question 4.2: How may broker-dealers use Easy to Borrow lists?
Answer: The Adopting Release states that Easy to Borrow lists generally may be used to establish a reasonable basis for a locate. (69 FR at 48104). Easy to Borrow lists are prepared by a firm to indicate that firm’s ability to supply the identified securities. Therefore, for example, introducing firms may rely on Easy to Borrow lists of the clearing firms through which they clear and settle transactions unless circumstances indicate that it would not be reasonable to rely on such lists. For example, if the securities on the Easy to Borrow list have experienced delivery failures, it would not be reasonable to rely on the list. Furthermore, if the Easy to Borrow list is prepared by a clearing firm through which the introducing firm does not clear or settle transactions, or otherwise does not maintain a relationship in which the clearing firm agrees to make securities on its Easy to Borrow lists available to the introducing firm, then it would not be reasonable to rely on the list.
Question 4.3: May an executing broker rely on customer representations that a short sale is supported by a locate from the stock loan department of the executing broker, then execute the order, and then confirm the locate later in the same day or the next morning?
Answer: The executing broker has the responsibility to perform the locate prior to effecting a short sale, and must have a reasonable basis to believe that the security can be delivered on the settlement date. Footnote 58 of the Adopting Release explains that a broker-dealer may obtain an assurance from a customer that the customer can obtain securities from another identified source in time to settle the trade. The executing broker may rely on a customer’s representation that an order to sell short a security is supported by a locate obtained by the customer from the stock loan department of the executing broker, or any other identified entity that is authorized to loan stock, as long as reliance on such representation is reasonable. However, where a broker-dealer knows or has reason to know that a customer’s prior assurances resulted in failures to deliver, assurances from such customer would not provide the reasonable grounds required for a locate.
Rule 203(b)(1) requires that the executing broker document the locate. Documentation should include the source of the securities cited by the customer. Documentation should also include support for the reasonable grounds to rely on customer assurances. For example, an executing broker may provide information showing that previous borrowings arranged by the customer resulted in timely deliveries of securities to settle the customer’s transactions.
After the executing broker executes a short sale, the executing broker may take steps to confirm the locate information provided by the customer. Confirmation of the locate after the execution of a short sale may provide information on whether the locate based on customer representations was reasonable. However, confirmation after the fact is not a substitute for a locate that is required to be performed before a short sale may be executed.
(NEW! 11/04/05)
Question 4.3(B): How does a customer's history with respect to timely delivery of securities in settling short sale transactions affect a broker-dealer's "reasonable grounds" obligation under Rule 203(b)(1)?
Answer: Rule 203 requires that the executing broker has the responsibility to perform the locate prior to effecting a short sale, and must have a reasonable basis to believe that the security can be delivered on the settlement date. Reasonableness is based on the facts and circumstances of a particular transaction. In some instances, it may be reasonable for an executing broker to rely on assurances from a customer that the customer can obtain the securities from an identified source in time to settle the trade. If the executing broker knows or has reason to know that a customer's prior assurances resulted in failures to deliver, however, reliance on further assurances from that customer would not be reasonable.
Rule 203(b)(1) requires that the locate be made and documented prior to effecting any short sale, including the broker-dealer's reasonable grounds to believe that the security can be borrowed so that it can be delivered on the date delivery is due. Information important to assessing the broker-dealer's "reasonable grounds" includes information about whether securities were delivered on a timely basis for settlement in situations where the broker-dealer relied on representations from the customer to support its locate. Accordingly, the executing broker-dealer must consider information, either from its own records or from the records of its clearing firm, about settlement of the customer's trades. It would not be reasonable for an executing broker to assert that it did not know or have reason to know whether a customer's prior short sale trades resulted in delivery failures if the executing broker made no reasonable effort to obtain such information. See Footnote 58 of the Adopting Release.
If the executing broker discovered that the customer's prior assurances resulted in a single failure to deliver, the executing broker should consider the relevant facts and circumstances to determine whether it would be reasonable to rely on the customer's assurances for other transactions. For example, it may be reasonable for an executing broker to rely on the customer's assurances if the circumstances of the fail in a prior transaction were unusual, or if previous locates relying on the customer's assurances resulted in timely deliveries of securities to settle the customer's transactions and the fail in the prior transaction was an anomaly.
Question 4.4: May an executing broker-dealer re-apply a locate for intra-day buy-to-cover trades?
Answer: A locate for a security may be re-applied for an intra-day buy-to-cover trade in the following scenario:
Prior to a customer’s short sale of 100 shares of XYZ stock, the executing broker-dealer obtains an appropriate locate for the securities. The short sale is then executed. Subsequently that day, the broker-dealer purchases 100 shares of XYZ stock for the customer, and the customer’s net trading position is flat. If the customer wants to then sell short another 100 shares of XYZ stock in the same trading day, the executing broker-dealer may apply the original locate to that sale, provided that such subsequent short sale is for an amount of securities that is no greater than the amount of securities obtained in the original locate, and provided further that the source of the located shares indicates that the original locate is good for the entire trading day.
For a "hard to borrow" security or a threshold security, a broker-dealer may not re-apply a locate for intra-day buy-to cover trades. Without obtaining locates prior to each short sale in such securities in the scenario described above, it is unlikely that the broker-dealer executing such trades would have reasonable grounds to believe that such securities can be borrowed so that they can be delivered on the date that delivery is due on each trade. A broker-dealer, however, may have reasonable grounds to believe that securities will be available when delivery is due on such short sales if the broker-dealer pre-borrows the securities.
Question 4.5: Does the locate requirement apply to convertible securities?
Answer: The locate requirement applies to all equity securities. The term “equity security” is defined in Section 3(a)(11) of the Exchange Act and Rule 3a11-1 thereunder (17 CFR 240.3a11-1). A security convertible into an equity security is an equity security; therefore, such convertibles would be subject to the locate requirement. The Staff will consider on a case-by-case basis securities, including structured products, to which the “equity” status may not be clear.
A convertible security that is subject to the locate requirement may qualify for an exception. Rule 203(b)(2)(ii) provides an exception from the uniform locate requirement for situations in which a broker-dealer effects a sale on behalf of a customer that is deemed to “own” the security although, through no fault of the customer or the broker-dealer, it is not reasonably expected that the security will be in the physical possession or control of the broker-dealer by the settlement date. The Adopting Release states that such circumstances could include the situation where a convertible security, option, or warrant has been tendered for conversion or exchange, but the underlying security is not reasonably expected to be received by the settlement date. (69 FR at 48015). In such situation, delivery should be made on the sale as soon as all restrictions on delivery have been removed, and in any event within 35 days after trade date. If delivery is not made within 35 days after the trade date, the broker-dealer that sold on behalf of the person must either borrow securities or close out the open position by purchasing securities of like kind and quantity.
Question 4.6: May a U.S. broker-dealer that executes orders on behalf of a foreign broker-dealer rely on a locate by such foreign broker-dealer in the same way that the U.S. broker-dealer may rely on a locate by a U.S. broker-dealer or customer?
Answer: Rule 203(b)(1)(ii) permits a broker or dealer to accept a short sale order in an equity security if the broker-dealer has reasonable grounds to believe that the security can be borrowed so that it can be delivered on the settlement date. The U.S. broker-dealer may rely on a locate of a foreign broker-dealer in the same way that the U.S. broker-dealer may rely on a locate of a U.S. broker-dealer or customer: the facts and circumstances must provide a basis for a reasonable belief that the security will be available for delivery on the settlement date.
Moreover, the locate information must be documented. Consistent with Footnote 58 of the Adopting Release, the documentation should include the source of the securities given by the foreign broker-dealer as the basis for the locate and support for the reasonableness of the reliance on the foreign broker-dealer. For further information about how the provisions of Regulation SHO may apply to overseas transactions, please refer to Question 1.3.
Question 4.7: Market makers, as defined in Section 3(a)(38) of the Exchange Act, include block positioners. Regulation SHO provides an exception to the locate requirement for market makers. Are all block positioners excepted from the locate requirement?
Answer: Rule 203(b)(2)(iii) provides an exception from the locate requirement for short sales effected by market makers, but only in connection with bona-fide market making activities. Rule 203(c)(1) provides that the term “market maker” has the same meaning as in Section 3(a)(38) of the Exchange Act, which defines “market maker” as “any specialist permitted to act as a dealer, any dealer acting in the capacity of a block positioner, and any dealer that, with respect to a security, holds itself out (by entering quotations in an inter-dealer communications system or otherwise) as being willing to buy and sell such security for its own account on a regular or continuous basis.”
The term “block positioner” is not defined in Regulation SHO or the Exchange Act. However, for purposes of Regulation SHO, the Staff interprets this term to have the same meaning as in Rule 3b-8(c) of the Exchange Act (17 CFR 240.3b-8(c)), which defines a “qualified block positioner” as a dealer that: (1) is a broker or dealer registered pursuant to Section 15 of the Exchange Act; (2) is subject to and in compliance with Rule 15c3-1 of the Exchange Act (17 CFR 240.15c3-1); (3) has and maintains minimum net capital, as defined in Rule 15c3-1, of $1,000,000; and (4) except when such activity is unlawful, meets all of the following conditions: (i) engages in the activity of purchasing long or selling short, from time to time, from or to a customer (other than a partner or a joint venture or other entity in which a partner, the dealer, or a person associated with such dealer, as defined in Section 3(a)(18) of the Exchange Act, participates) a block of stock with a current market value of $200,000 or more in a single transaction, or in several transactions at approximately the same time, from a single source to facilitate a sale or purchase by such customer, (ii) has determined in the exercise of reasonable diligence that the block could not be sold to or purchased from others on equivalent or better terms, and (iii) sells the shares comprising the block as rapidly as possible commensurate with the circumstances.
Therefore, block positioners may rely on the exception to the locate requirement in connection with bona-fide block positioning activities.
Question 4.8: What constitutes “bona-fide market making activities?”
Answer: The term “bona-fide market making” refers to bona-fide activities described in Section 3(a)(38) of the Exchange Act. Whether activity is “bona-fide” will depend on the facts and circumstances of the particular activity. However, the Adopting Release sets forth examples of activities that would not be considered to be “bona-fide market making activities.” (69 FR at 48015).
Question 4.9: How does the locate requirement apply to short sales of securities in a Rule 144 transaction?
Answer: Rule 203(b)(2)(ii) provides an exception from the uniform locate requirement for situations in which a broker-dealer effects a sale on behalf of a customer that is deemed to “own” the security although, through no fault of the customer or the broker-dealer, it is not reasonably expected that the security will be in the physical possession or control of the broker-dealer by the settlement date. Footnote 71 of the Adopting Release states that one such situation is where a customer owns stock that was formerly restricted, but presently may be sold pursuant to the provisions of Rule 144 under the Securities Act of 1933 (17 CFR 230.144). Rule 144 securities may not be capable of being delivered on settlement date due to processing to remove the restricted legend. In such situation, delivery should be made on the sale as soon as all restrictions on delivery have been removed, and in any event within 35 days after trade date. If delivery is not made within 35 days after the trade date, the broker-dealer that sold on behalf of the person must either borrow securities or close out the open position by purchasing securities of like kind and quantity.
5. Close-Out and Pre-Borrow Requirements – Rule 203(b)(3)
Question 5.1: Does the close-out requirement apply to open fail positions in securities that exist prior to January 3, 2005?
Answer: The Adopting Release states that the requirement to close out fail to deliver positions in threshold securities that remain for 13 consecutive settlement days does not apply to any positions that were established prior to the security becoming a threshold security. (69 FR at 48018, and Rule 203(b)(3)(i)). On January 3, 2005, no securities will have been identified as threshold securities. Therefore, open fail positions in securities that exist prior to January 3, 2005 will not be required to be closed out under Regulation SHO. However, this does not affect the obligation of sellers of securities to deliver those securities to buyers under existing delivery and settlement guidelines.
As explained in Question 6.1, on January 3, 2005, the SROs will begin the calculations necessary to determine whether securities qualify as threshold securities. January 10, 2005 is the first day on which SROs will publish threshold lists. Until a security appears on a threshold list for 13 consecutive settlement days and an open fail position for such security exists for those days, Regulation SHO does not require a broker or dealer to close out the open fail position. Therefore, the first day on which a close-out action would be required is January 28, 2005.
Question 5.2: Must an open fail position be closed out if a security is not a threshold security on the trade date but later appears on a threshold list? Must an open fail position be closed out if a security is a threshold security on the trade date but later does not appear on a threshold list?
Answer: The close-out and pre-borrow requirements of Regulation SHO are based on settlement days, not trade days. Under Regulation SHO, it is irrelevant whether a security is a threshold security on the date that it is sold short. The close-out and pre-borrow requirements apply if a security is a threshold security for 13 consecutive settlement days and a participant in a registered clearing agency has open delivery failures in that security on each of those days.
For example, if a participant sells short a security that is not a threshold security on the date of sale, the close-out and pre-borrow requirements would not apply to a fail to deliver position on the participant’s net short settlement obligation unless the security later becomes a threshold security and it maintains that status for 13 consecutive settlement days and the participant has delivery failures for all of those days. On the other hand, a participant must close out a fail to deliver position in a threshold security that has persisted for 13 consecutive settlement days irrespective of the dates of the participant’s trades in that security. If the security ceases to be a threshold security prior to the 13th consecutive settlement day that a participant has a fail position in the security, there would be no obligation under Regulation SHO to close out the fail position.
Question 5.3: Does the close-out requirement apply to delivery failures that do not occur at a registered clearing agency?
Answer: We interpret the close-out requirement to apply only to fail to deliver positions at a registered clearing agency. Our interpretation is based on our understanding that transactions conducted outside the Continuous Net Settlement System (“CNS”) operated by the National Securities Clearing Corporation (“NSCC”) are rare. If this historical pattern changes and a significant level of fails are not included in CNS, we will reconsider this position.
Question 5.4: When entering into an arrangement to pre-borrow a threshold security, must a firm clean up the entire amount of the fail before accepting additional orders to sell short such threshold security? Or, may the firm effect short sale orders up to the amount of shares of the threshold security that is pre-borrowed?
Answer: Under Rule 203(b)(3), when a participant of a registered clearing agency has a net settlement failure in a threshold security for 13 consecutive settlement days, two consequences follow: (1) the participant must immediately take steps to close out the fail to deliver position; and (2) until the fail to deliver position is closed out, the participant and any broker or dealer for which it clears transactions must borrow the security that is the subject of the fail, or enter into a bona-fide arrangement to borrow such security before the participant or such broker or dealer may effect any subsequent short sales in such security. This pre-borrow requirement remains in place until the participant closes out the entire fail to deliver position. Therefore, a participant that has a close-out obligation for a threshold security may effect short sale orders for such threshold security up to the amount pre-borrowed.
Rule 203(b)(3)(iv) permits the participant to reasonably allocate a portion of a fail to deliver position to another registered broker or dealer for which it clears trades or for which it is responsible for settlement, based on such broker’s or dealer’s short position. If the participant has reasonably allocated the fail to deliver position, the provisions of Rule 203(b)(3) relating to such fail to deliver position shall apply to the portion of such registered broker or dealer that was allocated the fail to deliver position, and not to the participant.
Question 5.5: When must the close-out be initiated?
Answer: Rule 203(b)(3) provides that participant of a registered clearing agency that has a net settlement failure in a threshold security for 13 consecutive settlement days must immediately take steps to close out the fail to deliver position. The close-out process must be initiated no later than the beginning of trading on the trading day following the 13th consecutive settlement day with a net short settlement obligation.
Question 5.6: If a threshold security also qualifies as an “owned” security within the meaning of Rule 203(b)(2)(ii), when should the firm close out the short position: after the 13th consecutive settlement day; or the day that is 35 days after the trade date?
Answer: The close-out requirement that applies to threshold securities in Rule 203(b)(3)(iii) is based on net short positions, not trade dates. If a participant of a registered clearing agency has a fail to deliver position at a registered clearing agency in a threshold security for 13 consecutive settlement days, the participant must take action to close out the fail to deliver position after the 13th consecutive settlement day (see Question 5.5), and, until the close-out obligation is satisfied, the participant must pre-borrow securities prior to effecting any subsequent short sales in such threshold security (see Question 5.4).
The close-out requirement that applies to “owned” securities in Rule 203(b)(2)(ii), however, is a sale-based provision that does not apply directly to net short positions and is not limited to sales of threshold securities. It provides an exception from the locate requirement for a short sale of an “owned” security, provided that the broker or dealer has been reasonably informed that the person intends to deliver such security as soon as all restrictions on delivery have been removed. If the person has not delivered such security within 35 days after the date of sale, the broker or dealer that effected the sale must borrow securities or close out the short position by purchasing securities of like kind and quantity.
These close-out requirements operate independently and concurrently. Therefore, if an “owned” security is a threshold security, the security must be delivered within 35 days of the trade date, and a fail to deliver position in that security must be closed out after 13 consecutive settlement days of delivery failures.
(NEW! 05/24/05)
Question 5.7: If a participant of a registered clearing agency has a fail to deliver position at a registered clearing agency in a threshold security for 13 consecutive settlement days and immediately thereafter purchases securities of like kind and quantity to close out the fail to deliver position as required under Rule 203(b)(3), will the participant be deemed to have satisfied the close-out obligation on the day the purchase is executed, or on the day the purchase settles?
Answer: Rule 203(b)(3) provides that a participant of a registered clearing agency that has a fail to deliver position in a threshold security for 13 consecutive settlement days must immediately thereafter close out the fail to deliver position by purchasing securities of like kind and quantity. Until the close-out obligation is satisfied, a participant must pre-borrow securities to effect any new short sales in such threshold securities.
The Staff interprets the phrase "purchasing securities of like kind and quantity" in Rule 203(b)(3) to mean that a participant satisfies the obligation to close out an open fail to deliver position in a threshold security that has persisted for 13 consecutive settlement days when such participant executes a purchase of securities, and where:
the purchase is a bona fide transaction;
the purchase is executed on settlement day 11, 12 or 13;
the purchase is submitted to a registered clearing agency for settlement;
the purchase is of a quantity of securities sufficient to close out the entire amount of the open fail position that has persisted for 11, 12 or 13 consecutive settlement days, as applicable; and
the net purchases of the threshold security effected by the participant on that day, as reflected in such participant's books and records, are at least equal to the amount of such participant's open fail to deliver position in such threshold security on that day.
Purchases to close out fail to deliver positions in threshold securities must be bona-fide purchases. Rule 203(b)(3)(v) provides that where a participant enters into an arrangement with another person to purchase securities to close out an open fail to deliver position in a threshold security, and the participant knows or has reason to know that the other person will not deliver securities in settlement of the purchase, the participant will not be deemed to have fulfilled the close-out requirements of Rule 203(b)(3).
The Staff's interpretation that a participant satisfies the close-out obligation on the day when such participant executes a purchase of securities applies only to fail positions that are or are projected to be subject to the close-out requirements of Rule 203(b)(3); i.e., to purchases made on settlement day 11, 12, or 13. Therefore, this interpretation does not apply to purchases made on settlement day 10 or earlier, because there is no present or projected close-out requirement and such purchases would settle on or before 13 consecutive settlement days has elapsed.
(NEW! 03/17/06)
Question 5.8: If a participant of a registered clearing agency has a fail to deliver position at a registered clearing agency in a threshold security at the end of each day for 13 consecutive settlement days, but during the 13-day period the participant experiences a reduction in its end of day fail to deliver position at NSCC, how should the participant apply that reduction to its open fail position(s)?
Answer: Rule 203(b)(3) of Regulation SHO requires a participant to close out a fail to deliver position in a threshold security that has persisted for 13 consecutive settlement days by purchasing securities of like kind and quantity. A participant's close-out requirement is determined by the change in the participant's end-of-day net fail to deliver position, in excess of any grandfathered amount, as recorded at NSCC that has remained open for 13 consecutive settlement days. In determining its close-out requirement, the participant must look to its total fails position at NSCC and not to fails positions at the customer account level.
If, prior to the 13th consecutive settlement day, the participant reduces its open fail to deliver position and such reduction is reflected in the participant's end-of-day net fail to deliver position at NSCC, the participant may first apply the reduction to the most recent increase in its fail to deliver position reflected at NSCC and then to any increase in its fails position that existed at NSCC on the day preceding that day and so forth until the entire amount of the reduction has been applied. If the participant wishes to apply any reduction reflected in its end-of-day net fail to deliver position at NSCC, the participant must do so in accordance with the methodology described in this Question 5.8.
Example
In this example, the participant has a fail to deliver position at NSCC of 5,000 shares in threshold security X that is subject to both increases and decreases during the 13 consecutive settlement day period. Assume, in this example, that there is no grandfathered amount.
Settlement Day Participant's End-of-Day Fail to Deliver Position Increase/(Reduction) in Fail to Deliver Position from Previous Settlement Day Participant's Close-out Requirement
1 5,000 5,000 0
2 5,000 0 0
3 5,500 500 0
4 5,500 0 0
5 5,500 0 0
6 5,500 0 0
7 5,900 400 0
8 5,300 (600) 0
9 5,300 0 0
10 5,300 0 0
11 10,000 4,700 0
12 10,000 0 0
13 10,000 0 5,000
14 10,000 0 0
15 10,000 0 300
16 5,000 (5,000) 0
17 5,000 0 0
18 4,700 (300) 0
19 4,700 0 0
20 4,700 0 0
21 4,700 0 0
22 4,700 0 0
23 4,700 0 4,700
24 4,700 0 0
25 4,700 0 0
26 0 (4,700) 0
In the above example, the participant has three separate increases in its fail to deliver position at NSCC that persist for 13 consecutive settlement days and must be closed out by the participant at the end of the 13th settlement day following the day of the increase, or on the morning of the 14th settlement day following the day of the increase, by purchasing shares of like kind and quantity.
The participant has an initial increase in its fail to deliver position of 5,000 shares that persists for 13 consecutive settlement days and must be closed out at the end of the 13th settlement day following the day of the increase, or on the morning of the 14th settlement day following the day of the increase.
In addition, the participant's fail to deliver position increases by 500 shares to 5,500 and then again by 400 shares to 5,900 shares on settlement days 3 and 7, respectively. On settlement day 8, however, the participant's end of day fail to deliver position reflects a 600 shares reduction from the prior day. This 600 shares reduction is applied first to the 400 shares increase on settlement day 7 and the excess amount of 200 shares is then applied to the 500 shares increase on settlement day 3. As a result of the 600 shares reduction at NSCC, the 400 shares increase in the participant's position that occurred on day 7 is reduced to 0 and the 500 shares increase in the participant's position that occurred on day 3 is reduced to 300. There are no further reductions in the participant's end-of-day net fail to deliver position. Thus, the 300 shares increase must be closed out at the end of the 13th settlement day following the day of the increase to 500 shares, or on the morning of the 14th settlement day following the day of the increase to 500 shares.
On settlement day 11, the participant's fail to deliver position is 10,000 shares, an increase of 4,700 shares from the prior settlement day. The participant's position then decreases by 5,000 shares on settlement day 16 as a result of the purchase to close out the 5,000 share open fail position that occurred on day 1 and that has persisted for 13 consecutive settlement days. On settlement day 18, the participant's fail to deliver position decreases to 4,700 shares, a 300 shares reduction from the prior settlement day, as a result of the purchase to close out the 300 shares open fail to deliver position that has persisted for 13 consecutive settlement days. On settlement day 26, the participant's fail to deliver position decreases to 0 shares, a 4,700 shares reduction from the prior settlement day, as a result of the purchase to close out the 4,700 shares increase in the participant's fail to deliver position that occurred on settlement day 11 and that has persisted for 13 consecutive settlement days.
Although there are reductions in the participant's fail to deliver position at NSCC on settlement days 16, 18 and 26, these reductions are as a result of the participant fulfilling its close out requirement of 5,000, 300 and 4,700 shares, respectively, at the end of the 13th settlement day and, therefore, are not allocated to prior increases in the participant's fail to deliver position.
To the extent that a reduction in a participant's fail to deliver position at NSCC is equal to, and results from, a prior close out requirement, the participant may not allocate the reduction to prior increases in its fail to deliver position because the participant has already received credit for such reduction due to the reduction being applied to the amount of the participant's close out requirement. If, however, the reduction in the participant's fail to deliver position at NSCC is greater than the amount of the participant's close out requirement, the participant may allocate any amount in excess of the close out requirement in accordance with this Question 5.8.
6. Threshold Securities – Rule 203(c)(6)
Question 6.1: Who is responsible for providing lists of threshold securities? When will the threshold lists be provided?
Answer: The SROs will disseminate threshold lists that will contain securities that are listed on their market systems and that exceed the specified fail level for at least five consecutive settlement days. A threshold security is expected to appear on one list. If a threshold security is listed on more than one market system, we understand that the SROs have agreed that the security will appear only on the threshold list of the SRO that maintains the primary listing.
On January 3, 2005, the SROs will begin the calculations necessary to determine whether securities may qualify as threshold securities. This process is described in greater detail in Question 6.2. On January 10, 2005, the SROs should disseminate the first threshold lists. SROs are expected to disseminate their threshold lists before the commencement of each trading day. We understand that the SROs have agreed to make all their lists publicly available at or before midnight each trading day. Therefore, these threshold lists will be in effect for the open of trading immediately following the posting of the threshold lists. We further understand that SROs will make threshold data available on their web sites in a downloadable, uniform, pipe-delimited ASCII format.
Question 6.2: How will SROs determine which securities should be included on a threshold list?
Answer: Any equity security of an issuer that is registered under Section 12 or that is required to file reports pursuant to Section 15(d) of the Exchange Act could qualify as a threshold security. Therefore, threshold securities may include those equity securities that trade on the OTCBB or on the pink sheets, as well as those that trade on the exchanges or Nasdaq.
At the conclusion of each settlement day, NSCC will provide the SROs with data on securities that have aggregate fails to deliver at NSCC of 10,000 shares or more. For the securities for which it is the primary market, each SRO will use this data to calculate whether the level of fails is equal to at least 0.5% of the issuer’s total shares outstanding of the security. If, for five consecutive settlement days, such security satisfies these criteria, then such security will be a threshold security. Each SRO should include such security on its daily threshold list until the security no longer qualifies as a threshold security.
(NEW! 05/06/05)
7. Clearance and Settlement
Question 7.1: Do naked short sale transactions create "counterfeit shares?"
Answer: Some believe that naked short sale transactions cause the number of shares trading to exceed the number of shares outstanding, which in turn allows broker-dealers to trade shares that don't exist. Others believe that the U.S. clearance and settlement system, and specifically the National Securities Clearing Corporation's ("NSCC") Continuous Net Settlement System ("CNS"), produces "phantom" or "counterfeit" securities by accounting for fails to deliver.
Naked short selling has no effect on an issuer's total shares outstanding. There is significant confusion relating to the fact that the aggregate number of positions reflected in customer accounts at broker-dealers may in fact be greater than the number of securities issued and outstanding. This is due in part to the fact that securities intermediaries, such as broker-dealers and banks, credit customer accounts prior to delivery of the securities. For most securities trading in the U.S. market, delivery subsequently occurs as expected. However, fails to deliver can occur for a variety of legitimate reasons, and flexibility is necessary in order to ensure an orderly market and to facilitate liquidity. Regulation SHO is intended to address the limited situations where fails are a potential problem (for example, fails in securities on a threshold list).
Similarly, CNS has no effect on an issuer's total shares outstanding. With regards to the contention that the U.S. clearance and settlement system, and specifically NSCC's CNS system, creates counterfeit shares, this is not the case. CNS is essentially an accounting system that indicates delivery and receive obligations among its members (i.e., broker-dealers and banks). These obligations do not reflect ownership positions until such time as delivery of shares are actually made. Ownership positions are reflected on the records of The Depository Trust Company ("DTC").
Question 7.2: Does NSCC's stock borrow program ("SBP") create "counterfeit shares"?
Answer: The SBP was implemented in the late 1970s to allow NSCC to satisfy its members' priority needs for stocks that they do not receive because of fails. It is governed by NSCC rules approved by the Commission. Under the SBP, NSCC uses shares voluntarily made available to the SBP by some of its members to complete deliveries to members that did not receive their securities on settlement day. The SBP moves securities that are actually on deposit at DTC from the lending member to the NSCC member who did not receive securities. NSCC then records the lender's right to receive the same amount of shares that it loaned just as if the lender had purchased securities but not received them (i.e., the member lending the securities replaces the member receiving the loaned securities in the CNS system). The lending and delivery of shares through the SBP, however, does not relieve the member that has failed to deliver from its obligation to deliver securities.
The shares loaned by NSCC members for use in the SBP must be on deposit at DTC and are debited from members' accounts when the securities are used to make delivery. Once a member's shares are used for delivery to another member, the lending member no longer has the right to sell or relend those shares until such time as the shares are returned to its DTC account. Accordingly, NSCC's SBP does not create "counterfeit shares." In fact, the program facilitates the delivery of securities to buyers while maintaining the obligation of the sellers to deliver securities to NSCC. This outcome is consistent with the NSCC's obligation to facilitate the prompt and accurate clearance and settlement of securities transactions and in general to protect investors and the public interest.
Question 7.3: Should NSCC buy-in all fails to deliver in CNS?
Answer: A "fail to deliver" in NSCC's CNS occurs when an NSCC member (e.g., a broker-dealer or a bank) fails to deliver securities on settlement date. There are many reasons why NSCC members do not or cannot deliver securities to NSCC on the settlement date. Many times the member will experience a problem that is either unanticipated or is out of its control, such as (1) delays in customer delivery of shares to the broker-dealer; (2) an inability to borrow shares in time for settlement; (3) delays in obtaining transfer of title; (4) an inability to obtain transfer of title; and (5) deliberate failure to produce stock at settlement which may result in a broker-dealer not receiving shares it had purchased to fulfill its deliver obligations. In addition, market makers may maintain temporary short positions in CNS until such time as there is sufficient trading to flatten out their position.
NSCC does not have the authority to execute buy-ins on behalf of its members. Moreover, forcing close-outs of all fails can increase risk in clearing and settling transactions as well as potentially interfering with the trading and pricing of securities.
http://www.sec.gov/divisions/marketreg/mrfaqregsho1204.htm
TRADE WELL-PEACE~T
REPOST: A good read >Merger with Elections are currently handled as two separate events, one for the mandatory portion and the other for the voluntary. Will handling it as a single event require processing changes?
No. This will be processed with the “mandatory with option” indicator. The mandatory payout will be added when the information becomes available. This is often after the election period for the voluntary option.
TRADE WELL-PEACE~T
REPOST: A good read >Currently some reverse splits have different options depending on how many shares are held. Additionally, this often requires Participants to submit hard copy forms. How will this be handled in the new system?
DTC will list all the options and share requirements in the event. Participants can submit the appropriate instructions and attest to the fact that they are submitting them at the beneficial owner level. As for hard copy forms, DTC will be provide the mechanism to attach electronic versions if the agent agrees to accept them.
TRADE WELL-PEACE~T
REPOST: A good read >Currently, when DTC updates a rate on a distribution event, stock loans and fails are updated separately, after the fact. Will that change with the new system?
Yes, the system will recalculate stock loans and fails based on the new rate separately, but concurrently
TRADE WELL-PEACE~T
REPOST: A good read >Reverse Mergers generally take approximately two months. Although Reverse Mergers used to be able to be done in a shorter period of time, the SEC adopted Release 33-8587, “Use of Form S-8, Form 8-K, and Form 20-F by Shell Companies” in 2005, which now requires the filing no later than four days after merger closing of the same disclosure information and audited financial statements about the private company that are required in the SB-2 filing in a Going Public Directly transaction. Because in practice this information takes a month or more to compile, the time required for the closing of Reverse Merger transactions has increased.
Timing advantage: Reverse Merger
TRADE WELL-PEACE~T
bluediamonds: It's somewhere in my files, But to go back would take some time . But it is a great repost every once in awhile
Going back out for the rest of the day as the weather is great ..
TRADE WELL-PEACE~T
DTCC Clarification on Fails to Deliver
The Depository Trust & Clearing Corporation (DTCC) today issued a clarification of a statistic it reports each year in its annual report. The clarification is intended to provide a more accurate description of a statistic on failed transactions – including “Fails To Deliver” (FTD) – that certain third parties have persistently misinterpreted or misrepresented, seeking to buttress their contention that the levels of FTDs is evidence of abusive short selling and “naked short selling.” These parties cite DTCC’s reported statistic as the amount of FTDs each day. Their characterizations are grossly inaccurate and paint a distorted picture of the reality of the marketplace.
National Securities Clearing Corporation (NSCC), a subsidiary of DTCC, acts as a central counterparty to virtually all broker-to-broker trades in the U.S. As such, the numbers NSCC reports relating to “failed transactions” reflect both buy and sell sides of a trade. These numbers include both fails to deliver and their offsetting fails to receive, so that the number thus doubles the amount involved (i.e., the same transaction is counted twice, once on the “deliver” side and once on the “receive” side).
DTCC’s most recent annual report indicated that as of December 31, 2005, NSCC had fails outstanding worth approximately $6 billion. This value is persistently described by third parties as the value of FTDs as of that date. Since it is actually the value of all fails – i.e., both fails to deliver and fails to receive – effectively, the $6 billion cited by third parties actually represents $3 billion in fails to deliver, or about 1.1% of the $266.5 billion in trades processed on the average day by NSCC in 2005. Moreover, the $3 billion figure also represents all fails to deliver at NSCC, including fails in fixed income trades (corporate and municipal bonds). While the number of fails and percentage of fails in fixed income trades changes each trading day, on December 31, 2005, fixed income trade fails were equal to approximately 15% of all fails. Importantly, DTCC notes that this FTD total reported is not just for equities on the “threshold list” of companies, but rather reflects fails on all equities and corporate and municipal bonds.
For over one year, DTCC’s Web site has reported that the $6 billion as “fails to deliver and receive” thus enabling people interested in the topic to understand that the figure reflects both halves of a transaction. (See http://www.dtcc.com/Publications/dtcc/mar05/naked_short_selling.html.) Nonetheless, third parties persist in applying the number to fails to deliver only. The DTCC Web site has also made clear that the figure is not a daily amount of fails, but a combined figure that includes both new fails on the reporting day as well as aged fails.
While DTCC does not know the reasons for a fail to deliver (this is only known by the broker-dealer and the marketplace), as the SEC has pointed out, “There are many reasons why NSCC members do not or cannot deliver securities to NSCC on the settlement date. Many times the member will experience a problem that is either unanticipated or is out of its control, such as (1) delays in customer delivery of shares to the broker-dealer; (2) an inability to borrow shares in time for settlement; (3) delays in obtaining transfer of title; (4) an inability to obtain transfer of title; and (5) deliberate failure to produce stock at settlement which may result in a broker-dealer not receiving shares it had purchased to fulfill its deliver obligations.”
With information on the actual FTD situation readily available, DTCC believes the failure to use the proper number in any meaningful discussions of naked short selling reflects a conscious attempt to mislead the investing public and undermine confidence in the workings of our capital markets.