SR-FINRA-2010-028
34-62288 Jun. 11, 2010 Notice of Filing of a Proposed Rule Change, as Modified by Amendment No. 1, to Adopt NASD Rule 3210 (Short Sale Delivery Requirements) as FINRA Rule 4320 in the Consolidated FINRA Rulebook
Comments due: July 8, 2010
See also: Order: Rel. No. 34-62533
'In reality, FINRA and the SEC gave abusive short sellers an ultra-generous seventy (70) months from the effective date of Reg SHO (1/7/05) to clean up their naked short positions in NON-REPORTING “THRESHOLD SECURITIES” before mandated buy-ins occur. A non-reporting “threshold security” is a security with 5 consecutive days of having delivery failures at “registered clearing agencies” (RCAs) totaling at last 10,000 shares AND $50,000 worth in value. Any delivery failures older than 13 consecutive days is subject to a buy-in. Note that it is expressly forbidden to “cross” a delivery failure via an illegal “wash sale” to a co-conspirator after 12 days in order to reset the time clock.
The bad news is that not only do you have to qualify as cited above but you also have to be on the FINRA Threshold List. You qualify for this list via the 5 straight days of 10,000 or more shares worth of delivery failures worth at least $50,000. The problem is that abusive MMs have not had to label their naked short sales as “short sales exempt” (SSE) in the past. This ends on 11/11/10. The combination of these two rules is very good. The next question is will the law be enforced? I’m guessing yes because Bob Khumazi is now the head of the SEC’s Enforcement Division. He’s a hard @@@ ex-U.S. Attorney.
For the average corporation with a gazillion delivery failures out there they’ll do quite nicely. They survived the 70-month “hands off” period. The companies that will excel are those with gigantic preexisting naked short positions that can make breakthroughs that generate large amounts of sustained buying. As a wave of buying comes in the shorts will now have to decide to cover immdiately or naked short sell into these buy orders in order to keep manageable their daily collateralization requirements. This is a lose-lose prospect. If they elect to naked short sell into this buying then they’ll be subject to buy-ins on day #13. Buy-ins are ultra-painful for abusive short sellers. It is the clearing firms of the crooks that will be executing the buy-ins. They won’t care what they pay for the shares they just don’t want to be found in violation of the law or they’ll lose business from their other clients. Finally we have a law aimed at the clearing firms facilitating these thefts. The umbilical cord between corrupt MMs and corrupt clearing firms is now cut. Before these laws corrupt clearing firms loved the business thrown at them by corrupt MMs and their co-conspiring corrupt hedge funds.
The good part is that when a clearing firm hits the 13 day time limit NONE OF ITS CLIENTS INCLUDING MMs CAN EFFECT ANY MORE SHORT SALES in that security without a borrow or arrangement to borrow having occurred. In other words out goes the universally-abused “bona fide” MM exemption which is the foundation for these crimes. When this occurs the hedge funds lose their leverage. These crooks had all of the time in the world to either cover these open naked short positions or bankrupt their target.
Share repurchase programs followed by cash dividend distributions will be much more effective from here on out. Pulling certs out of the DTCC is no longer a way to keep the DTCC honest because brokerage firms will block you from reinserting your certs when you want to sell. The solution to that is a share repurchase program BY MANAGEMENT followed by their demanding for delivery and cancellation because they have no intent in reinserting certs back into a brokerage account.
The buying by management will no doubt be naked short sold into by many crooks which is just fine. Firstly, it will allow management to buy that many cheap shares. Secondly, it will help keep the company on the protective “threshold list”. Thirdly, it will decrease the # of shares outstanding which will increase the % ownership of all shareholders and the per share size of any cash dividends and/or cash tender offers made by suitors. Medinah’s assets are either going to get promptly taken out by a tender offer or the company will become a cash dividend ATM machine for its shareholders. The key is to aggressively budget for a share repurchase program with the funds available right from the get go. You only have one shot at buying back shares inexpensively in order to undo some of the dilution caused by having to pay your monthly burn rate by selling shares at ridiculously low share price levels.
It’s a little bit complex but since all clearing firms in the U.S. are technically “registered clearing agencies” being that they are “participants” of the NSCC this new law also addresses that black hole for hiding delivery failures known as “ex-clearing”.'
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