A good Summary by Kash ...
Some Info from the mp3 with Dave Patch regarding SHO:
Dave Patch has been very skeptical that the SEC/DTC would ever pass, and more importantly that they would enforce any significant regulation that would clean up the current "naked shorting" mess while preventing the continuation of additional "naked shorting.
He has been very skeptical over the past few months that Regulation SHO would actually have any "bite" as evidenced by his comments in several PRs relating to the SEC/DTC and what he knew about Regulation SHO at the time.
Well if you listen to this mp3 audio from December 7th it was very refreshing and very encouraging to hear Dave Patch give Regulation SHO a grade B+ and back up why he feels this way based on the SEC's most recent meeting regarding this subject.
His belief is, even though this regulation will be tweaked as the year goes on, that there is enough "bite" and penalties initially involved that there will be significant pressure on the MMs/Hedge Funds to begin to cover their naked short positions on all "Reporting" OTC/Pink Sheet companies that are indeed "legitimate".
3 days after SHO takes effect on January 3rd a daily list will be published for all reporting companies as to whether or not they are a "Threshold" company based on the percentage of "fail to deliver shares" there are against the OS for each company.
If a company is labeled a "Threshold" company, then the MMs will no longer be able to short sell that company's stock while they are listed as a "Threshold" company.
More importantly, the MMs will no longer be able to "wash" trades of naked short shares back and forth between each other to wipe their short positions clean every so many days and then "re-wash" these same naked short shares to other MMs again and again every time they become due for accountability.
When SHO takes effect, the only way to cover a fail to deliver share is to replace it with a real actual registered share of stock for that company.
So when buyers come into the marketplace to buy shares of stock for any "reporting" OTC company that is listed as a Threshold security, the MMs will have to buy actual registered shares. They can no longer create them out of thin air.
On the reverse side, as shareholders sell shares in their accounts of listed "Threshold" companies, the MMs will also have to go into the market to buy shares for these sales as the shares being sold were never real shares to begin with and they must now be replaced by real shares before they can be sold.
**This is how the grandfathered "naked short" positions will eventually be taken to zero.
So there will be pressure to cover on both the buy side and the sell side of these "Threshold" security listed companies.
Both of these actions will force the price of that company's stock upward.
As the stock begins to climb upward, new investors begin to buy this stock, which pushes the price up even more.
If the escalation in price is rapid, (ex: very good news released by the company) then the MMs may accelerate the covering on their grandfathered naked short position, even though they are not required.
They are not required to immediately cover their grandfathered in naked short positions, but because they will have to eventually cover this grandfathered "naked short" positions they may begin to cover these positions also. They don't want to cover these grandfathered naked short shares at a price any higher than they have to. If they feel the price may take off, in the example of CMKX, then there could possibly be a rapid covering by the MMs.
All in all if the SEC enforces Regulation SHO as stated above, then I think that January could be a very good month for many OTC/Pink Sheet issues that have been held down/manipulated for many years by naked shorting tied many times into convertible debenture financing.
Obviously, there are some dog companies out there that should not be there in the first place. They will not and should not ever make it in any marketplace and they won't survive.
But we all know that there are many good start up companies in the OTC marketplace with outstanding management, products, new technology, mineral rights etc. that have had a less than 1% chance for survival. They have been driven into the ground due to very little fault of their own, but due mainly to the manipulative naked short selling system that has been allowed to exist in this marketplace for way too long.
I believe the times are a changing for many reporting OTC/Pink Sheet companies and their investors come January.
JMO
kash
