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I feel my position is crystal clear-he is entitled to his opinion and you to yours. it's your money bet it any way you wish.
Computer Associates and NewMarket Technology Inc. Announce Joint Initiatives
Monday December 5, 10:00 am ET
NewMarket Subsidiary, RKM IT Solutions, to Expand Long Standing Partnership in Latin America
DALLAS--(BUSINESS WIRE)--Dec. 5, 2005--NewMarket Technology Inc. (OTCBB:NMKT - News) and Computer Associates (NYSE:CA - News) today announced a joint marketing initiative expected to generate more than $3 million in revenue annually. Computer Associates solutions will be integrated in the Andean Region of South America with NewMarket's Latin American subsidiary, RKM IT Solutions, providing consulting and engineering support.
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Computer Associates and RKM IT Solutions have a long-standing partnership in the Andean Region. RKM supports Computer Associates solutions with local consulting and engineering services, training and support, as well as application and systems integration implementation and deployment. With the anticipated success of this current project, Computer Associates and RKM plan to expand their long-lasting and successful relationship to pursue opportunities in the Latin American Oil and Gas, Banking, Utilities and e-Government sectors. With the breadth of state-of-the-art and standards based IT products, CA and RKM are uniquely positioned to take advantage of a booming IT market in the region, projected to grow at an 8% growth rate.
You are quite correct but electronic trading just increases the risks from unethical naked shorters because they gain increased anonymity but using this capability.As electronic trading grows it will be the methodology of choice (IMO) but Wall Street will fight to the death on this issue.Again it also places added stress on the SEC to enforce SHO.
Shorting plays a legitimate role in our market.But lets assume it is eliminated and companies take over making the market for their stock. Please tell me how a small entrepreneur CEO can divert his attention to this while trying to keep his company going. How could any company make a market for its securities. I just don't follow you at all. In terms of the non voting of proxy by shareholders-that is not related to shorting in any form. It's just laziness on part of the shareholder.
What happens to your unused proxy vote??
Newsletter
The Securities Transfer Association, Inc.
A PUBLICATION OF THE SECURITIES TRANSFER INDUSTRY
Established 1911
Excerpt
Street Proxy Tabulation Results:
Over-Voting Still Pervasive
During the 2005 proxy season, one major transfer agent conducted a thorough review of all street proxies submitted for banks and brokers through ADP. The objective of the review was to ensure the accuracy of the voting and to assess the progress in addressing over-voting and other voting conditions. The agent tabulated 341 U.S. equity issuers. Attempted over-voting of street positions occurred for every tabulation! The following is a summary of causative factors observed:
Simple Over-Votes: The agent continued to see over-votes cast by DTC participants, who, when contacted, simply explained that the excess voting is attributable to the brokers stock loan services or other trading-related situations.
,/
Discussion - Over-voting continues to be a problem. The SIA letter indicated that a resolution for this situation was a lottery or proration of voting rights when commingled shares are on loan. This solution has clearly not been implemented across the board. ADP's over-voting service, in its weakest implementation, resolves the issue by simply capping a participant's vote at its DTC record date position. This neither effectively addresses the issues regarding integrity of voting rights nor the excess issuer cost caused by mailing of materials to holders not entitled to vote.
Summary and Conclusions
Street voting problems continue to abound, The over-voting services provided by ADP clearly do not address the issues created by stock lending, trade fails and other record date brokerage record deficiencies. The street proxy system lacks audit accountability required of meeting inspectors and is still too costly and difficult for issuers to effectively communicate with their shareholders. Some improvements were made, but the basic integrity of the system is still questionable. After a year plus of industry proxy committee meetings, the underlying issues appear to remain.
'"
What happens to your unvoted proxy??
The Securities Transfer Association, Inc.
A PUBLICATION OF THE SECURITIES TRANSFER INDUSTRY
Excerpt
Street Proxy Tabulation Results:
Over-Voting Still Pervasive
During the 2005 proxy season, one major transfer agent conducted a thorough review of all street proxies submitted for banks and brokers through ADP. The objective of the review was to ensure the accuracy of the voting and to assess the progress in addressing over-voting and other voting conditions. The agent tabulated 341 U.S. equity issuers. Attempted over-voting of street positions occurred for every tabulation! The following is a summary of causative factors observed:
Simple Over-Votes: The agent continued to see over-votes cast by DTC participants, who, when contacted, simply explained that the excess voting is attributable to the brokers stock loan services or other trading-related situations.
,/
Discussion - Over-voting continues to be a problem. The SIA letter indicated that a resolution for this situation was a lottery or proration of voting rights when commingled shares are on loan. This solution has clearly not been implemented across the board. ADP's over-voting service, in its weakest implementation, resolves the issue by simply capping a participant's vote at its DTC record date position. This neither effectively addresses the issues regarding integrity of voting rights nor the excess issuer cost caused by mailing of materials to holders not entitled to vote.
Summary and Conclusions
Street voting problems continue to abound, The over-voting services provided by ADP clearly do not address the issues created by stock lending, trade fails and other record date brokerage record deficiencies. The street proxy system lacks audit accountability required of meeting inspectors and is still too costly and difficult for issuers to effectively communicate with their shareholders. Some improvements were made, but the basic integrity of the system is still questionable. After a year plus of industry proxy committee meetings, the underlying issues appear to remain.
'"
Sorry wrong board. Please ignore
I look in every so often but no one seems to use this board. There is a very active Board on the Lycos "Raging Bull" and an even better one on iHub. Both are free-just register.
Do you know what happens to the votes represented in your proxy if you fail to vote?? Do you understand what over voting is and how it affects your investment???
What I posted is what he said. It has nothing at all to what my position is and what I said, Just giving a balanced picture of what ios fl;oating around on the internet. Choose whichever you wish or establish a new criteria for yourself.
An Experts Analysis of Naked Shorting
BONI ANALYSIS OF FAILURES-TO-DELIVER
Robert Shapiro November 2004
A new study documents that significant failures to promptly deliver shares sold short ("fails" or "failures") are not, as many market participants assume, rare, brief and inadvertent, but rather pervasive, extended and deliberate. The analysis was done by Dr. Leslie Boni, recently a visiting financial economist at the SEC and now economics professor at the University of New Mexico. Boni's data show that failures-to-deliver affect almost all public companies and usually last several weeks. On any day, there are 180 million-to-300 million shares involving more than 10 percent of public companies that have gone undelivered for at least two months. Failures of these dimensions can seriously distort the normal economic operations of U.S. equity markets.
The National Securities Clearing Corporation (NSCC) gave Boni unique access to data on undelivered stock for three random days (9/23/2003, 11/17/2003, and 1/21/2004), including the number of shares, by company, sold but not delivered for each clearing firm, with how long the shares had gone undelivered, for all listed stocks (NYSE, NASDAQ and AMEX) and unlisted stocks (OTC-Bulletin Board and Pink Sheets). These data produced the following key findings:
.Failure-to-deliver are pervasive: 80.3 percent of all listed stocks and 58.2 percent of unlisted stocks had failures-to-deliver shares sold short on at least one of the three days examined in the study.
.These failures are substantial and extended: Among listed stocks with fails, total failures averaged 0.19 percent of a firm's outstanding shares, and their duration averaged 13 business-days. For unlisted stocks with fails, total failures averaged 1.56 percent of the firm's outstandin'g shares, with an average duration of 56.6 businessdays or almost three months.
.Very extendedfailures-to-deliver are common: On any day, over 1,000 listed stocks have failures-to-deliver shares sold short that have persisted for at least one month (20 business days), and more than 700 listed firms have fails at least two-months old (40 business days). For unlisted stocks, over 900 have fails at least one-month old and over 800 have fails at least two-months old.
.Very extendedfailures-to-deliver are also substantial:
0 On any day, there are 60 million-to-120 million shares of listed companies that
have gone undelivered for at least two months (40 business days); the number of shares of unlisted companies that remain undelivered for at least two months averages 120 million-to-180 million/day.
0On any day, 4 percent of all listed stocks had failures-to-deliver equal to at least 0.5 percent of its outstanding shares for at least 10 business-days (the new standard for "threshold" securities under SEC Regulation SHO).
----
The dimensions and duration of this phenomenon indicate, as Boni concludes, that most failuresto-deliver are "strategic" or deliberate, not "inadvertent delivery errors or delays." It is clear that these failures do not reflect lack of opportunities to borrow shares in order to complete the transaction: In addition to the NSCC's stock-borrow program, a substantial private market in stock loans also exists through institutional investors. Boni believes that the main reason for such extensive failures is cost: Short sellers deliberately choose to not deliver shares that would be expensive to borrow. In this regard, Boni shows that the likelihood of persistent fails increases with a stock's borrowing cost.
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Whatever the motive, the large-scale, extended naked shorts documented by Boni' s data have been part of way Wall Street, the NSCC and its parent Depository Trust and Clearing Corporation (DTCC) conduct business. The DTCC and NSCC, owned by the major broker-dealers and banks, have had these data for years without releasing them, notifying the SEC or even suggesting that a problem has existed. Further, while NSCC rules have long allowed brokers who fail to receive their shares to direct the NSCC to "buy in" those shares, this option has been rarely used: Boni' s data found, for example, that in 1998-1999, one market maker failed to deliver all or part of the shares sold in 69,063 transactions; but the NSCC eventually bought in the shares in only 86 of these cases or barely one-tenth of one percent.
The two major exchanges appear to have tacitly accepted pervasive and extended naked shorts: NYSE and NASD rules have exempted market makers and specialists from requirements to locate shares before selling them short, and NASD rules have exempted market makers, specialists and those conducting hedging or arbitrage transactions from a mandatory buy-in even when failures-to-deliver shares sold short in a company total 0.5 percent of its outstanding shares and at least 10,000 shares. Finally, the SEC seems to have given little attention to naked shorts, holding hearings and conducting inquiries since 1989 without compelling the NSCC to produce these data or taking any action for almost 15 years -- until Regulation SHO, which goes into effect January 2005. Even SHO maintains market-maker and specialist exemptions from requirements to locate shares before selling them short and requires buy-ins only for extended failures that reach a "threshold" level of 0.5 percent of a firm's outstanding shares and 10,000 shares.
The persistent naked shorts of the dimensions found in these data produce significant distortions in the equity markets and losses for investors. When short-sellers can effectively dispense with borrowing and delivering the shares they have sold short, the basic economic constraint on short sales is removed, and manipulative short sellers can drive down a stock's price. There are costs even when such manipulation does not occur: Broker-dealers electronically record the undelivered purchases in the buyers' accounts; and since forced buy-ins are rare under the current rules and practices of the DTCC and the stock exchanges, those naked shorts produce "phantom" shares for weeks or months at a time. This process effectively increases the supply of shares and so tends to depress the value of each share. To the extent that widespread naked shorts do not produce phantom shares in the buyers' accounts, those buyers are not receiving what they paid for. In either case, the integrity of equity trading in the United States has been eroded or impaired, with at least the tacit assent of the institutions charged with ensuring it.
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Missed that. Thanks--here is the statement concerning it
Additional OTC Securities subject to Regulation SHO for January 20, 2005 to April 13, 2005. Note: As of April 14, 2005, all OTC Securities have been included on the Threshold Security List
From another message board
STOCKGATE TODAY
An online newspaper reporting the issues of Securities Fraud
http://www.investigatethesec.com/DP131005.htm
Time to InvestigatetheSEC.com; $1 Billion Investor Fraud Orchestrated by SEC – October 12, 2005
David Patch
Now I am not one to say I told you so but…yea maybe I am.
For the past several years I and a growing number of concerned investors have lobbied for a formal investigation into the Securities and Exchange Commissions participation in covering up massive securities fraud. We started out quietly but soon we orchestrated an on-line petition and gathered momentum. People from across the nation and across the globe came but Congress ignored our requests. Now Congress can’t deny it any longer. It is no longer just investigatetheSEC.com but ‘Time to investigatetheSEC.com’.
On Monday the news that rocked Wall Street was involving one of the largest commodities brokerage houses, Refco Inc.. Refco announced they had placed Chairman and Chief Executive Phillip Bennett and President Santo Maggio on leave regarding 4430 million in undeclared debt. Striking was that this news comes only 8 weeks after Refco Inc. went public under a heralded IPO brokered by some big Wall Street Institutions. The $22.00 August IPO grew to a $30.00 stock in no time.
By Wednesday the Department of Justice was holding a press conference announcing the criminal indictment of Chairman and CEO Phillip Bennett for securities fraud. At the root of the problem was this mysterious bad debt of $430 Million that suddenly surfaced in the Refco books. The debt had originated from a Bennett private firm; a firm managed by Santo Maggio, and was undisclosed at the time of the IPO. This debt reportedly dating back to 1998 and is identified as bad “uncollectible” debt associated with Hedge Funds.
The impact this issue has brought to Refco Inc. shareholders as been boggling. The once $30.00 stock now trades at $10.85 representing over $1 Billion in investor losses since Monday.
Who then is to blame for this most recent investor debacle? Who is responsible for the $1 Billion in investor losses? It would be easy to blame Bennett for his actions but that would be small minded. The real criminals are part of your Federal Government, the Securities and Exchange Commission. They orchestrated this entire debacle.
Time to investigatetheSEC.com.
The story of naked shorting, stock manipulation, and the Securities and Exchange Commission complacency runs deep. It runs so deep that Refco Inc. has reportedly covered up over $500 Million in bad debt, mark-to-market value on today’s stock prices, since 1998. Just last month Bennet had as much as $115 Million of the debt quietly paid down by an unnamed source presumed to be New Jersey Hedge Fund Liberty Corner Capital who was reportedly hiding this debt over the years.
Refco is presently sitting on $430 Million of bad debt associated with unsettled trades executed for hedge funds. The actual value of the debt, mark-to-market at the time of trade, is probably closer to $500 Billion than $500 Million. In other words, Refco sold $500 Billion worth of stock naked short over the years and has never covered the trades. The fails in the system represent the debt remaining on the present day value of the stock. The Hedge Funds have all but disappeared with the money on the short sale leaving the debt to Refco.
So how is it the SEC hasn’t picked this up before?
I believe they have. I believe they not only knew about Refco’s bad debt but know of many other Wall Street Institution debt of this general nature and they tried to cover it up under Regulation SHO.
In February 2003 the SEC concluded a multi-year investigation into the short-selling stock manipulation of Sedona Corporation (OTCBB; SDNA). The result of the SEC investigation was a $1 Million fine against now defunct Rhino Advisors for illegal shorting and stock manipulation.
As part of the investigation the SEC uncovered audio recordings of Rhino Executives bribing US brokers to manipulate Sedona’s stock. The SEC handed these audio recording over to the Department of Justice which led to arrest warrants being issued against Thomas and Andreas Badian. According to the arrest warrants, the audio recordings captured the bribes taking place and captured Andreas Badian telling the brokers to “sell the stock with unbridled levels of aggression” [naked short]. The recording later captured Badian congratulating the brokers on “collapsing” the stocks.
Can anybody guess where those brokers were employed?
If you haven’t guessed by now a source has confirmed they were in fact employed at Refco. The SEC handed over to the DOJ audio recordings of Refco Brokers being bribed to manipulate Sedona. And about those naked shorts used to manipulate Sedona?
For the SEC’s part in this awareness of the near destruction of an American Business, the SEC did nothing. Earlier this year Refco announced in one of their filings that they had received a ‘Wells notice’ from the SEC and was “nearing settlement for their participation in the short selling of Sedona and other matters. Refco reported to have aside $5 Million in liability. Refco also announced that President Santo Maggio would be suspended from administrative tasks for 1 year.
But doesn’t a Wells Notice indicate you uncovered something? It could not have been based solely on the audio recording of bribery and stock manipulation because that is old news – better than 2 year old news. The SEC could not be still negotiating a settlement of stock manipulation based on hard evidence gathered years ago could they?
No way. The SEC must have known about the bad debt, the unsettled trades, and the naked shorts. They have spent 4 years reviewing the case and they had to have more than just the audio recordings or the enforcement would have been settled long ago. The SEC requested trading records for their investigation and most certainly uncovered that trades have not been covered even after all these years.
It is my belief that the SEC fully knew of this bad debt, and all the other bad debt that is visualized by the daily publication of the Regulation SHO threshold list. Hundreds of companies listed as trading on excessive shares that fail settlement. We have already obtained under previous court order, trade records in Eagletech Communications (EATC) where the SEC was aware of trade fails lasting 250+ days and excused the activities. These trades executed short at near $11.00/share and only covered a year later when the stock reached a mere $.0.50.
To address the magnitude of this fraud, industry wide, the SEC incorporated a special clause in the June 2004 short selling reform, Regulation SHO, which hid this bad debt and violated the laws of the Securities Exchange Act of 1934. They created a ‘grandfather clause’. That is right, what was done before can not be touched but what takes place today can no longer be accepted as it was in the past. The ‘grandfather clause’ was intended to hide the bad debt and it may have worked had the auditors of Refco not uncorked the news.
So how does the SEC let a company go public while they are negotiating a settlement with the executives for their participation in stock manipulation and securities fraud? I am not sure but those now sitting on $1 Billion in losses in Refco should certainly be asking those questions. The SEC certainly orchestrated their losses. Refco never should have been allowed to go public.
While you’re at it ask the SEC how many other Institutions are they aware of that have similar bad debt associated with failed trades.
For the DC Beltway, Congress and specifically Senate Banking Chairman Richard Shelby (R; Al) have purposely avoided this subject matter of naked shorting. They have acknowledged that people, issuers, and State Regulators are concerned about the impact the abuse has on our economy yet have taken no actions to date. The Senate Banking Committee approved Regulation SHO and the ‘grandfather clause’ without regard to those who have suffered under the practices the clause was intended to cover up. With the Refco scandal now before us they can hide no longer. Chairman Shelby owes the people and certainly the investors of Refco an explanation as to why this happened. Why the SEC was allowed to cover up securities fraud.
As one who has been mocked repeatedly by the main stream media, I now laugh at how you professionals missed what a mere amateur has scooped you on for all these years. Where you waited for the event to unfold, I found the event and presented it. My “Timeline to financial terrorism” articles of years past are now historical reference to what you all overlooked – willingly.
To the SEC who has ostracized me for holding your feet to the fire, I will now seek the justice of accountability. Government immunity does not prevail over intent to defraud and with SHO there was intent. Mark my words the questions will come and the answers will box you in a corner. The evidence will show that the intent of the ‘grandfather clause’ was to protect the $430 Million liability of Refco and all the other Institutions carrying similar liabilities. A liability that will only grow as the mark-to-market value of these illegal trades grows as companies prosper instead of fold as you expected.
Folks, Congress it is ‘Time to investigatetheSEC.com’. Any further delays simply risk the investments of the remaining investors of these markets. This week was a $1 Billion hit, how many more weeks of this can we handle?
For this investigator and amateur writer, I will not stop until it is finally over. The people of this nation and globally who trade our markets deserve a federal Agency committed to our protection.
I don't know what is motivating you in this matter. I am unalterably opposed to the inaction on the part of the SEC in failing to enforce SHO and putting the DTCC in the loop (do you know who owns the DTCC) is as I've said before is the same as hirting the fox to guard the chicken coop. I hope this makes my position clear.
wHAT IS NAKED SHORTING??
Naked short selling refers to a stock transaction in which the seller agrees to sell shares of stock that he or she neither owns nor has borrowed in time to make delivery to the buyer within the standard three-day settlement period. When done in large volumes, this sales tactic can be used to manipulate a stock's share value while allowing the seller to profit. The SEC adopted Regulation SHO in 2004 to update short-sale regulation and, in part, to address problems associated with abusive naked short selling transactions. Industry compliance with Reg SHO began in January and in May the SEC launched a pilot program to determine the effectiveness of the regulation.
In spite of this regulation a good number of stocks have been on the list for over 100 days or more.
Of course not. And if I did, what would that indicate to you??
For reasons I do not understand the numerical tables which are part of the report by Dr Shapiro faiuled to reproduce after I scanned them into my PC. If anyone has a suggestion as to how I might fix please advise.
The Concentration of Undelivered Shares Among Threshold Securities: Prospects of Stock Manipulation Using Naked Short Sales
Robert J. Shapiro November 2005
American public companies and their shareholders face a significant threat. Last year, researchers determined that naked short sales - short sales in which the shares are credited to buyer, but the short seller fails to borrow and deliver those shares - occur on a large scale, often extending for months at a time. New data now suggest that these "failures to deliver" or "fails" are concentrated in a relative handful of companies. This raises the prospect of naked short sales being used to manipulate some companies' stock prices. The enormous extent of naked shorting and its likely use in stock manipulation could threaten the integrity of our financial markets and international confidence in them.
Since the November 2004 release of research by visiting SEC economist Leslie Boni, it has been well established that on any given day, some 120 to 180 million shares that have been sold have gone undelivered for at least 3 days. The Boni research further established that these failures to deliver are widespread and often extended: On any day, about 80 percent of listed stocks have some undelivered shares. Moreover, more than 1,000 of about 6,100 listed stocks, or about 17 percent, have fails that have persisted for at least one month (20 business days), and more than 700 listed firms, or 11.5 percent, have fails at least two-months old (40 business days). It is virtually certain that the vast majority of these failures to deliver involve naked short sales, since extended uncompleted trades involving sales are typically canceled when the price changes.
In response, the SEC established Regulation SHO in late 2004, directing the exchanges to
use DTCC data on undelivered shares to publish daily "threshold security lists" of companies with outstanding fails equal to at least 10,000 shares and 0.5 percent of their total outstanding shares, and requiring that broker dealers locate and provide shares to back up subsequent short sales of threshold list stocks.
The Boni study did not establish whether the 120 million to 180 million daily failures-to¬deliver are concentrated among a relatively small number of firms or more randomly distributed across the 80 percent of stocks with some fails. The DTCC holds data on the precise number of fails for each stock, including every threshold list company; but has refused to release these data even to the affected companies. This question is critical for the integrity of U.S. equity markets, because as recent allegations in the Refco scandal attest, large-scale naked short sales can be used to manipulate the prices of stocks by flooding the market with sell orders that go undelivered for many days or months.
In response to a request under the Freedom of Information Act (FOIA), the SEC recently released the aggregate number of fails for listed NASDAQ and NYSE securities from
April 30, 2004 to April 30, 2005. As these data cover only fails of 10,000 shares or more -- the minimum for inclusion of the threshold-security list - they approximate the total fails for listed companies on those lists. Based on these data and on public information on trading volume and outstanding short interest for each threshold security, we can generally estimate the level of fails for each threshold security.
Summary of Findings
This new analysis strongly suggests that fails are highly concentrated among a relative handful of threshold security and are not in any way evenly distributed. This raises the prospect of large-scale naked short sales being used to manipulate stock prices.
.On any given day, we estimate that about half of some 125 to 160 NASDAQ¬NM and NYSE threshold securities account for 95 percent or more of all fails¬to-deliver, averaging about 1.5 million-to-2 million fails per-company.
.Based on a combination of trading volume and short interest, we estimate that on any given day, 10 or fewer threshold companies account for two-thirds of all fails, and 20 or fewer threshold companies account for 75 percent of fails
.We further estimate that on any given day, some 20 to 30 threshold companies carry fails of at least 1,000,000 shares each.
The analysis also indicates that designation as a threshold security does not appear to prevent a firm from bearing large numbers of undelivered shares for months at a time.
.Companies can remain on the t eshold list for months: Of the top 25 hreshold securities listed on February 15, 2005, 11 or 44 percent were also listed as threshold securities on both March 22,2005 and on April 26, 2005.
.Designation as a threshold security does not necessarily prevent subsequent naked short sales: In all 11 cases of persistent threshold securities, estimated failures-to-deliver rose from February to March; in five of the 11 cases or 45 percent, estimated fails in also were greater in April than in February.
.Designation as a threshold security does not greatly reduce subsequent short sales: In five of the 11 cases of persistent threshold securities or 45 percent, shorts continued to rise over the nine weeks studied. In the other six cases of persistent threshold securities, shorts fell by less than 12 percent.
.More important, designation as a threshold security does not necessarily prevent subsequent naked sort sales: In all 11 cases of persistent threshold securities, our estimated failures-to-deliver rose from February to March; in five of the 11 cases or 45 percent, our estimated fails also were greater in April than in February.
2. Our estimates rest on assumptions about links between trading volume, short interest, and fails. While these factors are certainly correlated, their precise relationship is unknown because, once again, the DTCC has refused to provide data on the .number of fails for particular securities. Even so, the analysis establishes that fails are highly concentrated, making it imperative that the DTCC both inform companies and investors of the extent of fails affecting each company, and crack down on large-scale, extended fails.
Procedure and Analysis:
Average fails per-threshold security. We analyzed the threshold security lists for three days - February 15, 2005, March 22, 2005, and April 26 2005. The undelivered shares for these three days totaled 136.8 million, 132.7 million and 131.6 million, respectively, based on the SEC release of aggregate fails. The FOI data cover listed securities and not OTC pink sheet and bulletin board companies. Setting aside those companies left the analysis with the following number of threshold companies: 159 securities on February 15,2005; 142 securities on March 22,2005; and 125 securities on April 26, 2005.
Based on the proposition that very thinly-traded stocks are not expected to account for large numbers of failures-to-deliver traded shares, we identified two groups of companies that were thinly traded. First, NASDAQ exchange data show that NASDAQ small-cap stocks account for only 5 percent of trading in NASDAQ-listed companies, with National Market stocks (NM) accounting for 95 percent. Based on those data, we excluded NASDAQ small cap securities from the analysis and appropriately adjusted the aggregate fails reported by the SEC.l By setting aside the small caps, the number of threshold securities declined to 122 for February 15,2005; 109 for March 22; and 93 for April 26.
Second, of the NYSE and NASDAQ-NM threshold-security companies, we identified those that treaded so lightly during the period of their inclusion on the threshold list, as to constitute "statistical outliers": We calculated the average trading volume for the NYSE and NASDAQ NM threshold securities during the month that included the threshold security list in question, and set aside those companies with trading volume equal to less than 10 percent of that average. In fact, our analysis showed that these companies accounted for less than 3 percent of all trades in threshold securities; and we adjusted the aggregate fails reported by the SEC to reflect their trading volume.2 By setting aside these statistical outliers, the number of threshold securities declined to 89 companies on February 15, 2005; 70 companies on March 22; and 64 companies on April 26. The analysis showed that these companies, comprising about half of the original NYSE and NASDAQ-listed threshold securities, could account for more than 95 percent of the aggregate fails reported by the SEC. Based on that analysis, these threshold securities averaged an estimated 1.5 million to 2 million fails each (Table 1).
1 The methodology used to adjust the aggregate fails will be provided if requested.
2 To ensure that "statistical outliers" in the other direction - i.e., very heavily-traded stocks -- did not distort the averages, we did not include any security with trading volume of 10 times or more of the average in calculating those averages. .
securities. In terms of both volume and short interest, the other dominant threshold company was Level 3 Communications (L VL T), accounting for 16.6 percent of trading volume and 16 percent of thresholds shorts. L VL T was followed by American Italian Pasta Company (PLB), a NYSE company which had more than 10 percent of all threshold-company shorts; followed in turn by Delta Airlines (DAL) and Taser International (TASR). All told, 21 companies on the February 15th threshold list had estimated fails exceeding 1,000,000 shares.
Table 3. Distribution of Fails for Threshold Securities, February 15, 2005
Trading Share of Outstanding Share of Estimated Share of
Volume Volume Shorts Shorts Fails Est Fails
_.....
KKD 48,343,600 3.06% 27,900,000 3.59% ¬
GG 30,234,900 1.91% 5,740,000 0.74% 1,762,398 1.33%
"'CYBX""". 29,858,m
.. .. . .:. .
SGI 21,281,000 1.35% 5,820,000 0.75% 1,392,817 1.05%
GLBC 5,116,582 0.33% 10,806,027 1.39% 1,140,023 0.86%
AIJ!'I 4,078,064 0.26% 7,332,628 0.95% 799,065 BSTE 3,472,978 0.2.2% 5,766,270 0.74% 639,558 0.48%
; ==: := t t= : '. " ::4. i : = m_::.. : -.m =:i iit :; = ¬
CREO 12,952.844 0.82% 822,212 0.11% 614,921 0.46%
UL TEQ 4,320,563 0.27% 2,667,206 0.34% 409,933 0.31 %
VLCCF 6,814,054 0.43% 873,099 0.11 % FICC 7,420,777 0.47% 253,450 0.03% 333,668 ACTT 5,071,104 0.32% 200,180 0.03% 230,326 0.17%
NAT 2,908,100 '0.18% 1,030,000 0.13% 210,419 0.16%
VOCL 3,954,447 0.25% 211,297
- EML 3,231,080 0.20% 419.,939 0.05% 171,010 0.13° _¬
NMGC 2,777,153 0.18% 31,494 0.004% 119,449 0.09%
. MH JJ70,700 0.11% 69,000 0.009% 80,347 0.06%
OTIV._1.,Q88,74§ 0.07% - t?Z!36L 0.02 59,241 .05%_¬
. : :. m_-_m
AEPPRA 471,500 0.03% 376,250 0.05% 52,026 0.04%
r Q:9° 1..OZ ..._..........
DA 2,30Q 9.:93% O,QOO Q.003%
Total 1,580,394,600 100% 776,242,438 100%
Adj Fails 132,881,617
Threshold Security List for March 22, 2005. Table 4 provides the level and share of
trading volume, outstanding shorts, and estimated fails-to-deliver for NYSE and NASDAQ-NM threshold companies for March 22, 2005. The two dominant threshold securities from the February list, the QQQQ Fund and Level Three Communications, do not appear on the March 22nd list. This time, the list is led by the NYSE-listed AMR Corp. (AMR) with an estimated 9.9 percent of all fails, based on its position as the most heavily-shorted and third most heavily-traded threshold security in March. The threshold securities with the second and third largest estimated fails were Delta Airlines (DAL) and Taser International (TASR) with an estimated 7.9 percent and 7 percent of all fails, respectively. DAL and T ASR ranked number four and five in the February 15, 2005 threshold list. Completing the top five on March 22, 2005 were TIVO (TIVO) and Krispy Kreme Donuts (KKD), accounting for an estimated 6.8 percent and 6.4 percent of fails. All told, 33 securities had estimated fails of 1,000,000 or more shares on March 22,2005.
Table 4. Distribution of Fails for Threshold Securities, March 22, 2005
Trading Share of Outstanding Share of Estimated Share of
Firm Volume Volume Shorts Shorts Fails l7ails .
AMR 72,482,000 7.85% 4,6720,000 12.00% 12,511,638 9.93%
IMAX 15,275,973 1.66% 6,879,009 1.77% 2,156,473 L71%
9_ . .m._m m m.??,41 &§Q m?,?§r.om... ?,.?: . "(...m¬
AGEt:! 6,428,147 0.70% 8,853,204 2.27% 1,872,102 1:49%
_.
AAII 9,394,799 1.02% 5,369,985 1.38% 1,510,699 1.20%
IDBE . 4;881 ,91? 0.53% 6,69.? ??§"' .. .9,Q?!0}4?,44?. .. ? 2.!0!0
XNVA 4,134,435 0.45% 133,263 0.03% 303,806 0.24%
SHMR 2,613 0.0003% 1,800 0.001 % 470 0.0004%
L8Total: Adj Fails
923,196,952 126,041,445
100%
389,267,922
100%
126,041,445
100%
Threshold Security Listfor April 26, 2005. Table 5, below, provides the level and share of trading volume, outstanding shorts, and estimated fails-to-deliver for NYSE and NASDAQ-NM threshold securities for April 26, 2005. As in the February 15, 2005, threshold list, the NASDAQ-I00 Index Fund, QQQQ, again is the dominant security, accounting for more than half of all trading volume in non-thinly traded threshold securities and for one-quarter of all short interest for those securities. The threshold security with the second-largest estimated fails on April 26, 2005 was Calpine Corporation, which did not appear on the threshold-security lists for February 15, 2005 or March 22, 2005. On April 26, 2005, Calpine had the second highest volume of any security of this list of non-thinly traded threshold issues, and the largest short interest, accounting for nearly one-third of all shorts for non-thinly traded threshold securities. The other three securities in the top five for estimated fails were also among the top six in the lists for February 15, 2005 and March 22, 2005: Delta Airlines (DAL) with an estimated 3.6% of all threshold-security fails; Taser International (TSR) with an estimated 3.6 percent of those fails; and Krispy Kreme Donuts (KKD) with an estimated 2.7 percent of all fails. All told, 15 threshold securities had estimated fails of 1,000,000 or more shares on April 26, 2005.
Table 5.
Distribution of Fails for Threshold Securities, April 26, 2005
Trading ' Share of Outstanding "S-hare cl Estimated Share'-m
Firm Volume Volume Shorts Shorts Fails of Fails
DAL 32,156,500 1.96% 39,230,000 5.32% 4,654,519 3.64%
TZOO 17,858,165 1.09% 1,595,827 0.22% 833,600 0.65%
Ir. I
BBD 8,943,700 0.54% 3,130,000 0.42% 619,650 0.48%
JOR- 11 ,5?4,500 . 70% _..1 :J 000 0.04% -_. 473,865 ... -¬
.. ACI--I 1,3§5,43.4 0.1.1% !,o.
Totals 1,643,612,880 100% 737,650,993 100% 127,964,806 100%
Adj Fails: 127,964,806 -- _m ..
Regulation SHO and Companies' Persistent Status as Threshold Securities. Our analysis also indicates that Regulation SHO has not prevented companies designated as threshold securities from continuing to have large numbers of fails (Tables 6A and 6B). Many threshold companies remain on the list for months: Among the top 25 securities
L10
from the February 15, 2000 threshold list, 11 or 44 percent were also so designated on March 22, 2005 and on April 26, 2005. Nor does a firm's designation as a threshold security significantly discourage or reduce short sales of its shares. Among the 11
companies appearing on the threshold lists on all three dates, short interest increased each month in five cases and fell by an average ofless than 12 percent in the other six cases.
Our analysis further suggests that in many cases, the number of fails can rise while a company remains on the threshold list. Using the combination of trading volume and short interest to estimate fails, estimated fails increased in all 11 cases from February 15, 2005 to March 22,2005. This finding could reflect the fact that the NASDAQ-lOO index fund QQQQ, which dominated the February 15,2005 threshold list, was absent from the March 22, 2005 list. Therefore, we also compared estimated fails in persistent threshold securities for February 15, 2005 and April 26, 2005, both of which included the NASDAQ-I00 index fund. Using a combination of trading volume and short interest to estimate fails (Table 6A), the estimated fails for one company, Napster (NAPS), increased from February 15, 2005 to April 26, 2005. Using short interest alone to estimate fails (Table 6B), the estimated fails for five of the 11 persistent threshold securities increased from February 15,2005 to April 26, 2005.
Table 6A. Short Interest and Estimated Fails, Based on Volume & Shorts
for Persistent Threshold Securities
Shorts Est. Fails - Based on Volume & Shorts
15-Feb 22-Mar 26-Apr 15-Feb 22-Mar 26-Apr
DAL 50,160,000 39,730,000 39,230,000 5,639,996 9,991,193 4,654,519
TASR 22,064,356 18,984,274 17,213,876 5,304,344 8,884,041 4,622,377
KKD 27,900,000 29,910,000 30,620,000 4,420,437 8,112,966 3,498,712
NFLX 15,531,946 14,110,024 14,005,403 1,942,257 3,408,439 1,812,003
ALD 16,100,000 15,030,000 14,950,000 1,647,017 2,71 ,582 1,513,811
MSO 7,240,000 7,160,000 6,710,000 1 ,428,802 3,637,788 928,872
NFl 7,330,000 8,560,000 8,430,000 1 ,255,012 1,966,687 911,897
GLBC 10,806,027 10,782,624 10,392,037 1,140,023 1,986,729 1,013,162
OSTK 4,889,912 5,276,868 5,444,496 1,089,032 1,659,032 892,807
NAPS 6,259,615 7,964,105 6,561,601 984,754 2,775,107 1,260,220
AGEN 7,927,845 8,853,204 7,976,018 892,855 1,872,102 827,297
11
lTable 6B. Short Interest and Estimated Fails, Based on Shorts Alone, for Persistent Threshold Securities
DAL
;tASR
KKD NFLX ALD MSO NFl GLBC OSTK NAPS AGEN
15-Feb
50,160,000 22,064,356 27,900,000 15,531,946 16,100,000 7,240,000
7,330,000
10,806,027
4,889,912 6,259,615 7,927,845
Shorts
22-Mar
39,730,000 18,984,274 29,910,000 14,110,024 15,030,000 7,160,000
8,560,000
10,782,624
5,276,868 7,964,105 8,853,204
26-Apr
39,230,000 17,213,876 30,620,000 14,005,403 14,950,000 6,710,000
8,430,000
10,392,037
5,444,496 6,561,601 7,976,018
Est. Fails - Based on Shorts Alone
15-Feb 22-Mar 26-Apr
8,586,675 12,864,216 6,805,467 3,777,103 6,146,937 2,986,169 4,776,081 9,684,588 5,311,838 2,658,847 4,890,476 2,533,605 2,756,090 4,866,579 2,593,467 1,239,385 2,318,343 1,164,025 1,254,791 2,771,651 1,462,403 1,849,837 3,491,316 1,802,770
837,083 1,708,602 944,490
1,071,557 2,578,705 1,138,281 1,357,134 2,866,588 1,383,648
Once again, while our analysis fairly establishes that fails are concentrated among certain threshold securities, only the DTCC has the data to confirm the level of fails for any particular company. It should release those data to investors and affected companies. More important, the SEC and DTCC should finally crack down on every case of large¬scale, extended naked shorting.
Neither do I. Legitimate shorting is required to offer a balanced market place. If the SEC would enforce their own rule that securities must be delivered to the buyer within 3 days of order execution the problem would be much easier to solve.
By happenstance I did see that video presentation. Very impressive.
I really can't answer at this time. I'll have to do a bit of researching on the convertible debenture issue your raise. But be aware that the SHO list does not address the OTC market place.
In respoonse to your last question I offer the following comment. As the naked shorter drives the price down he is also making it increasingly difficult for the company,assuming they need more operating capital, to obtain other than death spiral financing. If they go that route the usual outcome is bankruptcy and the shorter is thereby off the hook for delivering anything to anybody. There are several companies whose stock has been on the SHO list ever since it was first established. Why hasn't the SEC forced delivery. ONLY THE DTCC KNOWS>
NewMarket Technology Inc. Announces Signing Service Agreement with Wireless Broadband Company
Friday December 2, 9:30 am ET
Two Year Contract Represents Minimum of $2 Million Revenue with High Potential for Increase
DALLAS--(BUSINESS WIRE)--Dec. 2, 2005--NewMarket Technology Inc. (OTCBB:NMKT - News) today announced signing an agreement with RedMoon Inc. to support RedMoon's continued rollout of wireless broadband services. The base two year service contract supporting RedMoon is worth $2 million with a high potential to increase overall revenue for NewMarket as RedMoon deploys its services to more municipalities. RedMoon's revenue is expected to increase from $2.5 million in 2005 to over $10 million in 2006.
ADVERTISEMENT
RedMoon recently announced the completion of the first fully Wi-Fi city in Texas (Addison, Texas) and one of only a few Wi-Fi municipalities in the nation, enabling residents and visitors full coverage access to the Internet in the city limits of Addison. Municipalities are able to benefit from full mobile coverage for Fire and Rescue, Public Safety, EMS, Police, Surveillance and Monitoring, and Meter Reading. With RedMoon's services, Addison's more than 100,000 citizens and daily visitors are able to enjoy wireless access from their homes, cars, restaurants and community parks throughout the city at hourly, daily and monthly rates. Commercial account rates are individually negotiable. Through an agreement with Airpath Wireless, RedMoon subscribers will have access to a global footprint, or "hot spots" outside of Addison in areas where roaming capabilities are available.
About RedMoon Inc. (www.redmoonbroadband.com)
RedMoon Inc., one of the nation's leading providers of mobile data network systems, specializes in the engineering, design, construction and maintenance of city-wide mesh and fixed wireless networks. RedMoon provides wireless high-speed Internet service, as well as support and billing management systems. RedMoon focuses its expertise on the deployment of mobile broadband networks that cover all aspects of Public Safety, including Police, Fire and EMS. RedMoon's unique MetroMesh technology provides full coverage, enabling city agencies to access the tools necessary to efficiently handle both emergency and non-emergency situations. NewMarket Technology (OTCBB:NMKT - News) is currently a RedMoon equity partner holding a minority ownership position in RedMoon.
About NewMarket Technology Inc. (www.newmarkettechnology.com)
NewMarket Technology Inc. Announces Signing Service Agreement with Wireless Broadband Company
Friday December 2, 9:30 am ET
Two Year Contract Represents Minimum of $2 Million Revenue with High Potential for Increase
DALLAS--(BUSINESS WIRE)--Dec. 2, 2005--NewMarket Technology Inc. (OTCBB:NMKT - News) today announced signing an agreement with RedMoon Inc. to support RedMoon's continued rollout of wireless broadband services. The base two year service contract supporting RedMoon is worth $2 million with a high potential to increase overall revenue for NewMarket as RedMoon deploys its services to more municipalities. RedMoon's revenue is expected to increase from $2.5 million in 2005 to over $10 million in 2006.
ADVERTISEMENT
RedMoon recently announced the completion of the first fully Wi-Fi city in Texas (Addison, Texas) and one of only a few Wi-Fi municipalities in the nation, enabling residents and visitors full coverage access to the Internet in the city limits of Addison. Municipalities are able to benefit from full mobile coverage for Fire and Rescue, Public Safety, EMS, Police, Surveillance and Monitoring, and Meter Reading. With RedMoon's services, Addison's more than 100,000 citizens and daily visitors are able to enjoy wireless access from their homes, cars, restaurants and community parks throughout the city at hourly, daily and monthly rates. Commercial account rates are individually negotiable. Through an agreement with Airpath Wireless, RedMoon subscribers will have access to a global footprint, or "hot spots" outside of Addison in areas where roaming capabilities are available.
About RedMoon Inc. (www.redmoonbroadband.com)
RedMoon Inc., one of the nation's leading providers of mobile data network systems, specializes in the engineering, design, construction and maintenance of city-wide mesh and fixed wireless networks. RedMoon provides wireless high-speed Internet service, as well as support and billing management systems. RedMoon focuses its expertise on the deployment of mobile broadband networks that cover all aspects of Public Safety, including Police, Fire and EMS. RedMoon's unique MetroMesh technology provides full coverage, enabling city agencies to access the tools necessary to efficiently handle both emergency and non-emergency situations. NewMarket Technology (OTCBB:NMKT - News) is currently a RedMoon equity partner holding a minority ownership position in RedMoon.
About NewMarket Technology Inc. (www.newmarkettechnology.com)
PUTTING IT IN PERSPECTIVE
NewMarket Technology's aggressive acquisition and growth strategy
is evident in their revenue growth during the past two years.
In 2003, NMKT reported revenues of $2.3 million with a tiny
profit. In 2004, the company reached $25 million, again scratching
out a minute profit. And for the first nine months of 2005, NMKT
has achieved $35 million in revenues with $1.2 million in
earnings.
During the same period, however, the number of outstanding shares
for NewMarket has nearly doubled from 51 million to 98 million.
What's more, on a fully diluted basis (assuming the exercise and
conversion of all outstanding stock options, warrants, etc.) the
company now sports a hefty 175 million shares.
A major portion of the increase in shares outstanding is due to
conversion of debt (used to fund several of NewMarket's
acquisitions) to common shares.
Based on the current shares outstanding, NMKT's market value is a
very modest $36 million, well below the company's annualized
sales. When we calculate market value on the fully diluted figure,
NMKT's market cap goes up to $65 million.
Assuming NewMarket winds up 2005 with revenues topping $50
million, then on a price-to-sales basis the shares are still
modest. To its credit, the company has maintained profitability
while making acquisitions while also suffering through all kinds
of growing pains on the OTC Bulletin Board.
As much as we appreciate management's aggressive strategy for
growth and their ability to change in response to internal and
external events, we do have concerns that go beyond the sharp
increase in shares.
The first is NewMarket's decision to de-emphasize VOIP and rapidly
spread out into the new areas of homeland security technologies
and China -- a heck of a big bite for a small company. The second
is the company's zealous campaign to promote its spin-off and
dividend strategy before ever completing a single transaction.
Finally, in their battle for investor respectability, NewMarket's
management issues press releases more often than Terrell Owens
puts his foot in his mouth, with many of their communications
bordering on the ridiculous. And, most serious, the company often
reports estimates of annual revenue and other developments, only
to fall short of the mark.
Much of NewMarket's problems stem from its lack of experience as a
public company and especially a company listed on the OTC Bulletin
Board. We'll give them a little slack on this point.
But on business fundamentals, we cannot let anything slide. We
will focus very carefully on organic growth of existing operations
and margins. These numbers will tell the story and will largely
determine the true value of NewMarket's growth strategy.
Still, looking at NewMarket's overall picture, we believe the
stock is modestly priced and thus could conceivably double during
the next six to 12 months. Additionally, NMKT's upcoming Amex
listing should improve the trading environment for the shares.
Given all of these developments, we're lowering our Buy Up To 40
cents, which we think is a more realistic level.
From ChangeWave Investing
--------------------------------------------------------------------------------
Simple answer. Many readers of this boared are quite unacquainted with this subject. They need a background upon which to build their information on.
Sorry for the repeats. Never tried this process before. I have several other pertinent documents which I shall scan into my PC and then post. The naked shorting problem exceeds my worst fears.
This is the letter I referred to in my previous post.
January 5, 2004
Jonathan Katz, Secretary
U.S. Securities and Exchange Commission 450 5th Street NW
Washington, DC 20005
Via e-mail to:rule-comments@sec.gov
RE:
SEC Release No: 34-48709, File No. S7-23-03 Short Sales: Proposed Rule
Dear Mr. Katz:
Please accept the following comments from the North American Securities Administrators Association (NASAA)l regarding Release No: 34-48709: "Short Sales: Proposed Rule.'" The Commission approved seeking comment on the proposal for a new RegulationSHO, as well as amendments to Rule 105 of Regulation M, on October 29, 2003. The proposal was published in the Federal Register on November 6, 2003 (Vol. 68, No. 215, 62972).
NASAA commends the Commission for its initiative in this area. From the time the socalled "naked short selling" controversy was initially identified in early 2003 by national commentators, a NASAA Project Group has monitored this issue from the perspective of its impact on small-business issuers, the securities of which are traded in the over-the-counter market, as well as their public stockholders, who have contended that the trading market for their shares has been adversely affected by manipulative short selling activity. While the issue
involves national trading markets soch as the Over-the-Counter Bulletin Board and the Pink Sheets, every state has small-business issuers whose securities trade in the over-the-counter marketplace, as well as public investors holding the securities of those issuers. NASAA thus regards it as critical that the existing rules in place nationally to govern short selling be revised to effectively remedy potential trading abuses.
The Commission's rulemaking proposal is extensive. It includes not only specific rules to deal on a near-term basis with certain aspects of the short selling issue, but also poses numerous questions on various technical aspects of short selling, suggesting that additional Commission rulemaking is envisioned. NASAA will take this opportunity to provide comments on specific aspects ofthe Commission's proposal.
.] The oldest international organization devoted to investor protection, the North American Securities Administrators, Inc. was organized in 1919. Its membership consists of the securities administrators in the 50 states, the District of Columbia, Canada, Mexico and Puerto Rico. NASAA is the voice of securities agencies responsible for grass-roots investor protection and efficient capital formation.
NASAA Short Sales Comments January 5, 2003 - Page 2
Unifonn Locate and Delivea Rule
The essence of naked short selling is selling short without borrowing the necessary securities to make delivery, potentially resulting in a "fail to deliver" securities to the buyer. NASAA acknowledges the importance of the aspect of the Commission's proposal that requires short sellers to locate the securities they will be borrowing before they proceed with the short sales. There have been well-publicized instances of unethical individuals and finns shorting a stock without having identified adequate shares to borrow, then maliciously working to drive down the price of the underlying stock.
The Commission's proposal contains a unifonn standard in Proposed Rule 203 that specifies procedures for short sellers to locate securities for borrowing. Under Rule 203, a broker-dealer would be prohibited :trom executing a short sale order unless the broker-dealer, or the person for
whose account the short sale is executed, either: (i) b:mowed the security or entered into an arrangement for the borrowing the security; or (ii) had reasonable grounds to believe that it could borrow the security so as to be able to deliver the security on the settlement date. Also, and
consistent with current self-regulatory organization requirements, proposed Rule 203 would mandate that the "locate" be made and established in writing prior to effecting any short sale, regardless of whether the seller's short position will be closed out by purchasing securities the same day. NASAA concurs that efforts to locate securities to borrow for short sales always should be supported by written documentation.
NASAA also supports the Commission's proposal for a delivery. requirement targeted at securities where there i; evidence of significant settlement failures. For short sales of any security meeting the current fail-to-deliver threshold in NASD Rule 11830, the selling brokerdealer would have to deliver the securities no later than two days after the settlement date, as opposed to the current 10-day requirement. If such delivery is not made within the two-day period, the s ller will be barred :trom short sales in the particular security for a 90-day period, unless the seller has "pre-borrowed" sufficient securities to deliver against the short sale.
The effectiveness of this "penalty box" sanction/restriction on those who have previously failed to properly settle short sales will obviously have to be evaluated on an ongoing basis. In that regard, NASAA recommends that the restrictions be made tougher - failure to abide by the rules should not only limit broker-dealers or short sellers :trom executing future short sales in that security, but should limit their ability to execute future short sales in any security until such time as the broker-dealer or short seller has implemented a short-sale-delivery compliance plan satisfactory to the Commission. In the interest of meaningful deterrence, the Commission may also want to explore the implementation of certain remedies, such as buy-ins and disgorgement of profits. Violations of the rule in its final fonn also should provide grounds for conditioning, suspending or revoking the securities licenses of violators.
L
--
-
- -
--
-- --
- -
NASAA Short Sales Comments January 5, 2003 - Page 3
Further, NASAA is unable to determine why the Commission proposes to permit significant settlement failures at all. While there are instances when settlement may be legitimately delayed, existing regulations provide for extensions for settlement. If the Commission continues to allow settlement failures, it may well facilitate the harm that the proposal is designed to remedy.
NASAA urges the Commission to reconsider its stance regarding the role of the Depository Trust and Clearing Corporation (the DTC). As a threshold matter, NASAA believes that the Commission should explicitly prohibit the DTC from lending more shares of a security than it actually holds. The utility of the overall proposed rule would be severely impaired unless the Commission undertakes to implement such a prohibition.
Uniform Price Test
The Commission's proposal includes replacing the so-called "tick test" with proposed Rule 201 that would provide a uniform price test using the "consolidated best bid" as the reference point for permissible short sales. However, the Commission's proposal concedes that such a bid test may not adequately address problems relating to the naked short selling of smaller, less liquid securities. Specifically, because the proposed bid test requires the use of a consolidated best bid, it could not be applied to securities that are not subject to real-time consolidated quotes, with the result that NASDAQ Small Cap, OTCBB and Pink Sheet securities would be excluded from the proposed price test. Consequently, reliance would be on the proposed Uniform Locate and Delivery requirements referenced above to address concerns regarding naked short selling of those less liquid securities .
The Commission states that it is not contemplating extending the uniform bid test to the above- mentioned securities"... in part because these markets have not been subject to the rule in the past." NASAA questions why the Commission would not extend the proposed bid test to all securities markets and exchanges. NASAA recognizes the difficulties inherent in monitoring the securities traded on the NASDAQ Small Cap, OTCBB, and Pink Sheets. However, the small business issuers whose securities trade in those markets are those most regularly victimized by
naked short selling market- makers and brokers. NASAA hopes that the Commission will explore methodologies to extend the uniform bid test to those markets most affected by naked short selling practices.
Market-Maker ExemQtion
NASAA also believes that the uniform bid rule should be just that: uniform. To that end, we question whether tre rule should be applied to both market- makers and specialists alike. NASAA looks forward to further clarification by the Commission on how this exemption benefits the investing public.
NASAA believes that the blanket exemption for market-makers engaged in "bona fide market-making activity" may need a specific definition. Such definition should explicitly exclude certain naked short-selling-based trading strategies currently implemented by some market-makers, such as the typical "bear raid."
= i
.
NASAA Short Sales Comments January 5, 2003 - Page 4
Conclusion
These proposed rules are an appropriate and important exercise of the Commission's rulemaking responsibilities with respect to the national marketplace. It is a welcome step forward in protecting investors and markets. We look forward to continuing to work with the Commission on such matters of mutual interest.
For further information regarding these matters, please do not hesitate to contact either Rex Staples, Senior Enforcement Attorney for the Washington Department of Financial Institutions at (360) 902-8760, and Randall E. Schumann, Legal Counsel for the Wisconsin Division of Securities at (608) 266-1064. John Veator and Mark Davis of NASA A's Legal Department also stand ready to provide any assistance necessary to facilitate the Commission's deliberations.
Sincerely,
f41C!
Ralph A. Lambiase
NASAA President and
Director, Connecticut Division of Securities
In reference to the forum-- The credential of the panelists were impeccable. SEC,DTCC Academia and State Regulators all were impressive. I was somewhat disappointed by the small number of attendees. something between 75-100. As the meeting went forward one could get the feeling that the larger part of the audience were strongly biased against the SEC and even some of the panelists had a difficult time not berating the DTCC and its staff members who were present. I shall try to scan a letter from the sponsoring entity and addressed to the SEC wherein recommendations are made in regard to controlling naked shorting.
The NASAA Forum I attended on Thursday was designed to discuss naked short selling effect on small business within a system that tolerates failure to deliver securities to a buyer within the 3 day limit from the sale date. Failure to enforce this rule presents a huge opportunity to unethical naked shorters. The intent of the current regulations is to make every share authorized by a company eligible for shorting. But failure to enforce delivery destroys the equality the SEC seeks. It would be a very simple act by the SEC that would effectively stop all naked shorting. Prohibit and transfer of funds from a margin account until the shares concerned are delivered to the buyer-and of course strictly enforce this rule. The American investing public have every right to demand a level and legal playing field. After all it is their money that is being ripped off.
Further evidence of the SEC reluctance to take action is seen in the SHO itself where all non-deliveries prior to the date the act became effective are grandfathered. That means legal or not they will not be looked at. But the DTCC still refuses to admit that these fails still exist or not. They have refused to release such information-even to the company whose shares are involved and who may have been forced into bankruptcy by the naked shorting of their shares. Today 4% of all trades are grandfathered. There are about 7000 company's on the regulated exchanges in our country. Jessie James and the Dalton Brothers had a much harder job ripping off their victims than those who hide their illegal trading behind the curtain of the DTCC.
To really understand how our markets funtion an d how the DTCC plays a role in permitting naked shorting go here and read
http://www.dtcc.com/AboutUs/managebio.htm
When the SEC established the SHO regulation they directed the exchanges to use DTCC data on undelivered shares to publish "daily" threshold security lists of companies with outstanding fails equal to at least 10,000 shares and 0.5% of their total outstanding shres, and requiring that broker dealers locate and provide sgares to back up subsequent short sales of threshold list stocks. BUT THE SEC HAS YET TO FORCE COMPLIANCE BY THE DTCC.
I have a copy of a paper written by Dr. Robert Shapiro,titled
"The Concentration of Undelivered Shares Among Threshold Securities: Prospects of Stock Manipulation Using Naked Short Sales", dated Nov 2005. Want a copy?? E-mail me your snail mail address and I shall forward copy to you.
Since SHO was implemented 223 trading days have come and gone. On that list one stock stands out--TASR- Its been on the list every single one of those days. Yet theSEC has done not one single thing to force or penalize the brokers who have fail;ed repeatedly to deliver the shares to the buyers. That is the crux of the problem. The regulationms are not being enforrced. Even when SHO was first implemented on 1 Jan 2005 the SEC grandfathered the existing undelivered certificates. To me it is like the prosecuter of a serial rapist forgiving the first five cases against the accused and then punishing him for the remainder. There should be no free rides in either case.
The issue is not about stopping all shorting. The issue is to force brokers to deliver the certificates to the buyer as our regulated exchanges require. Do you understand how a naked shorter gets his profits?? In very simple terms. To short a stock the shorter must have a margin account. In that account he must hold asses (stocks,cash bonds etc) with a face Bale of 150% of the value of the short position he wishes to establish. When those shares are not delivered by the broker to the buyer it creates a naked short and synthetically increases the apparent float. With the number of shares now apparently available for trading being increase the share value drops. As the share value drops so does the security requirement in the shorters margin account. He can at that point withdraw cash from his account or use the unused security to back more short sales. No only is this contrary to SECV regulations but is also contrary to our regulated exchange trading regulations. It is interesting to note that today on our regulated exchanges about 25% of all trades are shorts. On our rapidly growing electronic exchanges which provide much better anonymity to traders the similar short trading statistic is now 40% and growing.
This is an evolving story that has been boiling below the surface for over 20 years. I will post comments on the forum I attended earlier today that I hope shall shed more light on the current situation with DTCC,SEC Wall Street and the SEC.
phillip@newmarkettechnology.com
North American Securities Administrators Association:
Today,more than 85 million investors,or roughly half of all U.S. Households rely on securities markets to plan and prepare for their financial futures. While security markets are global. securities are sold by professionals who are licensed in every state where they conduct business. Each state has a securities regulator to protects its citizens. The principal focus of state securities regulators is preventing fraud and abuse at the retail point of sale.
The membership of the NASAA are the state regulators plus their equivalents from Canada, Puerto Rico and the U.S. Virgin Islands. To learn more visit the organizations web site.
Meeting Announcement
Current NASAA Headlines
-
November 17, 2005
NASAA to Host Forum on Naked Short Selling
Experts to Examine Efforts to Curb Market Manipulation
by Stemming Abusive Naked Short Selling Activity
WASHINGTON-The North American Securities Administrators Association, Inc. (NASAA) today announced plans to host a public forum to explore possible market manipulation through naked short selling activity. The "NASAA Listens" Forum is scheduled for November 30 from 1 p.m. to 3 p.m. at the Paris Ballroom of the Sofitel Lafayette Square Hotel, 806 15th Street NW, in Washington, D.C.
"NASAA commends the SEC for its efforts to address short-selling abuses through Regulation SHO and we encourage the agency to consider additional measures to limit the detrimental impact of abusive naked short-selling on the stock of small businesses, the entrepreneurial engines that drive our nation's economy," said NASAA President and Wisconsin Securities Administrator Patricia D. Struck.
Naked short selling refers to a stock transaction in which the seller agrees to sell shares of stock that he or she neither owns nor has borrowed in time to make delivery to the buyer within the standard three-day settlement period. When done in large volumes, this sales tactic can be used to manipulate a stock's share value while allowing the seller to profit. The SEC adopted Regulation SHO in 2004 to update short-sale regulation and, in part, to address problems associated with abusive naked short selling transactions. Industry compliance with Reg SHO began in January and in May the SEC launched a pilot program to determine the effectiveness of the regulation.
"Since the pilot program has reached the midway point, we believe this Forum offers a timely opportunity for a thorough discussion of the. effectiveness of Regulation SHO from a variety of perspectives," Struck said.
The "NASAA Listens" Forum will bring together a panel of leading financial and academic experts to examine problems associated with abusive naked short selling and the impact of Regulation SHO on naked short-selling transactions.
The Forum is free and open to the public on a first come, first serve basis. To reserve a seat, please contact Lonnie Martin, at 202-737-0900 or Im@nasaa.org, by November 28. NASAA is the oldest international organization devoted to investor protection. Its membership consists of the securities administrators in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Canada, and Mexico.
For More Information: Bob Webster
Director of Communications 202-737-0900
In order to establish a base for my remarks on today's conference I shall scann several documents that were handed out at the meeting. First shall be the announcement of the meeting.
I have just returned to my office after having attended the NASAA forum on naked shorting.Learned a lot I was unaware of and also was unable to understand some of the panel presentations. It is a very serious and difficult to understand situation. I was a bit surprised when only about 75 people showed up for this educational meeting. I'll post more later--I think I now can explain very simply how a naked shorter gains his income.
Wrong. There are many disgruntled shareholders who bought at much higher prices. Unfoortunately they can't get to attend the annual meeting in the company lawyer's back room.
Although I don't really understand the info any drastic change such as reflected here has got to raise red flags.Thanks for the info