CMKM Diamonds Inc (fka CMKX)

[jetfish]

The NFI Naked Short Selling Story - Is it bad when 12.5% of all shares are FTDs?

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Location: Blogs Bob O'Brien's Sanity Check Blog
Posted by: bobo 4/3/2006
I smell massive suit coming.

Why?

Well, we just got the 2004 FTD info in on NFI (huge kudos to Tommytoyz), and it is shocking - way worse than I would have thought. One highlight that sticks out is that in Q4, the company's FTDs hit the mind boggling number of 3.143 million failed shares, in addition to a short interest up to 11.3 million shares - and this was on a company with about 25 million shares outstanding at that point.

Now, does anyone think that having 12.5% of your total outstanding shares as failed deliveries is bad for a big board stock?

Would that be a problem, you think?

Would that tell anyone that there is a major flaw in the system that is getting gamed by miscreants?

Try this - that number DOESN'T include any of the naked short sales from offshore. It doesn't include ex-clearing. It doesn't include desked trades. It doesn't include "open positions." It doesn't include any of the mismarked trades, where short sales are "mistakenly" labeled "long" - to keep them out of the SI.

So there were almost 40 million shares of NFI trading in Q4, not counting that additional number, which we can call X.

Call it a nice even 50 million. Why not? That is probably low.

So, does anyone have a problem understanding why NFI has been trading at a 100% discount to peer yields? Yes? No?

This is around the time that geniuses like Cuban and Mathews were insisting that delivery failures are not a big deal, and that most are as a result of the dog eating one's certificates, and whatnot.

3.143 million lost shares, steadily increasing trading day by trading day as the year progressed, from not that many in April, to millions by the end of the summer.

As the short interest was also climbing.

Seems like a huge amount of shares being created out of thin air to keep the price depressed, at all costs.

I can pick random periods where the price increased by $12, like from around November 11 to December 11, and note that, surprise, the FTDs declined by 500-600K shares.

How bad is it now? Who knows? Are we into a new season where this is running up from 1.8 million, where we left off, back to the 3 million or higher numbers?

This is just an isolated data point. You have to compare it to the legit short interest, and that gives you another data point. But the real way to tell is to compare the OBO and NOBO and ADP and DTC sheets, and see how many millions of share entitlements are out there that have no shares to support them - and even that is a bit flawed, because Malaysia and Canada and the Caribbean may not be reporting everything, but rather just netting. In fact, many of the clearing agencies could be netting, skewing the numbers to appear radically lower than they are.

So for all the apologists who say it is no big deal, and that naked shorts and manipulation can't keep a stock depressed for a long time, I've got news for you - you are now provably full of it.

This is a huge problem, and companies like NFI and OSTK are being eviscerated by a system that allows miscreants to eat its young.

That is despicable.

And true.

Copyright ©2006 Bob O'Brien

kudos to Tommytoyz for this FOIA data

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