Bioelectronics Corp (BIEL)

[srinsocal]

Very well, setting aside speculation, what are the Facts re Naked Shorting and MMs


<<<<<< The daily short report doesn't mean what you think it means >>>>>>

* FINRA's Daily Short Data "reflects the aggregate volume of trades executed and reported as short sales on each trade date.” a Short Trade could be covered same day or 13 days later

* Market Makers don't have to locate shares before Naked Short Selling if they are involved in "bona fide market making activities" this determination is largely self regulated

* FINRA, a Self Regulatory Organization, SRO, is responsible for policing Broker Dealers/Market Makers on the OTC Markets

* Broker Dealers/MMs have up to the Trade Day + 13 Days to closeout their Shorting before it goes to the twice a month FTD list

* Market Makers set the Bid & Ask Prices for the companies they cover

* Investors 'Buy from' & 'Sell to' Market Makers on the OTC Markets

* Market Makers are supposed to keep an inventory of shares for the companies they cover, this can added up to many millions of dollars for MMs like Citadel who cover 7,000 plus companies

Why was Reg SHO implemented?

"Compliance with Regulation SHO began on January 3, 2005. Regulation SHO was adopted to update short sale regulation in light of numerous market developments since short sale regulation was first adopted in 1938 and to address concerns regarding persistent failures to deliver and potentially abusive “naked” short selling."

"Due to continued concerns about failures to deliver, and to promote market stability and preserve investor confidence, the Commission has amended Regulation SHO several times since 2005 to eliminate certain exceptions, strengthen certain requirements and reintroduce the price test restriction."

"“Naked” short selling is not necessarily a violation of the federal securities laws or the Commission’s rules. Indeed, in certain circumstances, “naked” short selling contributes to market liquidity. For example, broker-dealers that make a market in a security generally stand ready to buy and sell the security on a regular and continuous basis at a publicly quoted price, even when there are no other buyers or sellers. Thus, market makers must sell a security to a buyer even when there are temporary shortages of that security available in the market. This may occur, for example, if there is a sudden surge in buying interest in that security, or if few investors are selling the security at that time. Because it may take a market maker considerable time to purchase or arrange to borrow the security, a market maker engaged in bona fide market making, particularly in a fast-moving market, may need to sell the security short without having arranged to borrow shares. This is especially true for market makers in thinly traded, illiquid stocks as there may be few shares available to purchase or borrow at a given time."

"Rule 204 Close-out Requirement. Rule 204 requires brokers and dealers that are participants of a registered clearing agency to take action to close out failure to deliver positions. Closing out requires the broker or dealer to purchase or borrow securities of like kind and quantity. The participant must close out a failure to deliver for a short sale transaction by no later than the beginning of regular trading hours on the settlement day following the settlement date. If a participant has a failure to deliver that the participant can demonstrate on its books and records resulted from a long sale, or that is attributable to bona fide market making activities, the participant must close out the failure to deliver by no later than the beginning of regular trading hours on the third consecutive settlement day following the settlement date. If the position is not closed out, the broker or dealer and any broker or dealer for which it clears transactions (for example, an introducing broker) may not effect further short sales in that security without borrowing or entering into a bona fide agreement to borrow the security (known as the “pre-borrowing” requirement) until the broker or dealer purchases shares to close out the position and the purchase clears and settles. In addition, Rule 203(b)(3) of Regulation SHO requires that participants of a registered clearing agency must immediately purchase shares to close out failures to deliver in securities with large and persistent failures to deliver, referred to as “threshold securities,” if the failures to deliver persist for 13 consecutive settlement days."
https://www.sec.gov/investor/pubs/regsho.htm

Trading over the counter
"Unlike exchanges, OTC markets have never been a “place.” They are less formal, although often well-organized, networks of trading relationships centered around one or more dealers. Dealers act as market makers by quoting prices at which they will sell (ask or offer) or buy (bid) to other dealers and to their clients or customers."
https://www.imf.org/en/Publications/fandd/issues/Series/Back-to-Basics/Financial-Markets#:~:text=Trading%20over%20the%20counter&text=Dealers%20act%20as%20market%20makers,to%20their%20clients%20or%20customers.

"The process of purchasing or selling over-the-counter (OTC) stocks can be different from trading stocks listed on the New York Stock Exchange (NYSE) or the Nasdaq. This is because OTC stocks are, by definition, not listed on the exchange. Purchases of OTC securities are made through market makers who carry an inventory of stocks and bonds that they make available directly to buyers."
https://www.investopedia.com/ask/answers/buy-over-the-counter-stock/


When the MMs/Broker Dealers get Caught

FINRA fines Wedbush Securities for Regulation SHO violations
Maria Nikolova 0 Comments September 28, 2022

(note the time frames here, 1/1/2016 - 7/31/2020, 4.5 years of violations and 2 more years before FINRA took action, the SEC places much of the financial policing on SROs like FINRA )

The Financial Industry Regulatory Authority (FINRA) has fined Wedbush Securities for alleged violations of Regulation SHO.

During the periods of January 1, 2016 through July 31, 2020 and December 9, 2020 through April 7, 2021, Wedbush Securities, Inc. violated Regulation SHO Rules 204(a), (b), and (c) and FINRA Rule 2010 by failing to timely close out approximately 2,056 fail-to-deliver positions as required by Rule 204(a), and, on approximately 390 occasions failing to place securities in the “penalty box” as required by Rule 204(b) and failing to comply with the notice requirement of Rule 204(c).

The Securities and Exchange Commission adopted Regulation SHO to address concerns regarding persistent failures to deliver and potentially abusive “naked” short selling, e.g., the sale of securities that an investor does not own or has not borrowed.
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SEC Charges Chicago-Based Broker-Dealer with Violations of Regulation SHO
ADMINISTRATIVE PROCEEDING
File No. 3-20961
August 12, 2022 - The Securities and Exchange Commission today announced settled charges against Chicago-based registered broker-dealer IMC Chicago, LLC ("IMC") for violations of Rule 203(b)(1) of Regulation SHO through its Single-Dealer Platform ("SDP").

The SEC's order finds that from approximately June 2017 through November 2020, IMC violated Regulation SHO by executing millions of short sale trades through the SDP while improperly relying on the bona-fide market making exception to the "locate requirement" for short sales in Rule 203(b)
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June 15, 2020
Broker-Dealer Settles FINRA Charges for Reg SHO Violations
A broker-dealer settled FINRA charges for violating certain rules on short sales practices and related supervisory failures. The broker-dealer self-reported Regulation SHO concerns arising from system coding errors that resulted in its miscalculating the supply of available securities for approximately two years. Upon discovery of the issues, the broker-dealer halted relevant trading the next day and resumed trading in the relevant securities upon fixing the Regulation SHO issues.

FINRA found that the broker-dealer violated Rule 203(b)(1) of Regulation SHO ("Borrowing and Delivery Requirements") by executing short sale transactions without (i) producing a bona-fide arrangement to borrow securities or (ii) having "reasonable grounds" to believe that the securities could be borrowed by the delivery date.
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FINRA And Citigroup Global Markets Not SHO Enough
December 20, 2022
FINRA the self-regulatory-organization apparently examined Citigroup Global Markets Inc. the FINRA Large Member firm during 2008 through 2022 because the regulator cited the firm's Reg SHO aggregation misconduct in three AWC settlements. Notably, the fines increased in each ensuing AWC. At some point, FINRA has to have an epiphany, however, that simply ratcheting up each ensuing fine on CGMI and other Large Member Firms doesn't accomplish anything. At best, the fines are an inconvenience for the violators. At worst, they are of no consequence. When it comes to Small Member Firms and the industry's hundreds of thousands of associated persons, FINRA selects sanctions seemingly designed to inflict pain. For the industry's big boys, well, y'know, it's more in the fashion of charging a modest toll on Wall Street.

2022 AWC Sanctions
In accordance with the terms of the 2022 FINRA CGMI AWC, FINRA imposed upon CGMI a Censure, $1,500,000 fine, and an undertaking to certify compliance with the supervisory issues cited.
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UBS fined US$2.5 million for Reg SHO failures Oct 6, 2022
FINRA has fined UBS Securities LLC US$2.5 million for Regulation SHO violations and for supervisory failings extending over a nine-year period.

The US regulatory watchdog, which works under the supervision of the Securities and Exchange Commission (SEC), ruled that UBS had failed to close out at least 5300 failure-to-deliver positions between 2009 and 2018.

Over the same timeframe, UBS had also routed or executed more than 73,000 short-sale trades without first having borrowed, or arranged to borrow, the shares.

FINRA also ruled that, between 2009 and August 2022, UBS’ supervisory systems and procedures were not “reasonably designed” to meet compliance with Reg SHO Rule 204.