World Surveillance Group Inc (fka WSGI)

[lowtrade]

'Transat 5'

To answer your naked shorting question the SEC has started Reg. SHO Jan 3 2005. Which is suppose to force Market Makers, brokers and stock trade clearing houses to balance the books.

Many think the implementation of this rule has not been without shady deals and looking the other way, just as before, but in many cases it seems to be slowly working.

Many, including market makers, brokers and clearing houses have questions on the regulation which have not been clarified yet. So I'm sure the regulation is not being followed to the letter, because the Sec can't seem to be able to explain all the letters it self.

Following is an explanation of how the regulation is suppose to work. (As I understand it.) I may be wrong!
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By: lowtrade RB message board
08 Jan 2005, 06:27 PM EST

Ramifications of SHO Grandfather clause on MMs, brokers/dealers.

The grandfather clause in REG. SHO says that shares that are naked before the regulation, do not have to be covered but, all shares traded after must have each share recorded within several days or the stock will be displayed on the SHO list at the exchange listed on.

Here is my opinion of the info I've been able to read so far.

As I read it there will be NO naked shorting any longer because SHO will force the MMs & broker/dealers to Buyin and cover naked shares within 13 days or the buyin will be done for them on day 14. On all trades after Jan 3 2005.

The Grandfather clause will allow the existing naked short prior to Jan 3 2005 to NOT be covered all at once, but if an MM trades a shorted stock, the stocks total % of short on jan 3 2005, will be considered short on the new buy/sell transaction.

Meaning if it is determined that a stock is naked shorted 5% Jan 3; then all shares sold after Jan 3 will be considered 5% shore. If an MM sell 100k the gov will have to trace back and demand them to cover that 100k plus 5% if they hold a naked short position Jan 3.

That would mean the MM only needs to cover 5% of the volume they trade each time they continue to trade a stock, not their complete naked position at one time.

This was so there would not be a major run on thousands of stocks, for billions of shares all at once. But as long as a MM want's to continue to trade that stock, they will continue to be forced to cover their short at the over all short percentage Jan 3, until they no longer have a short position.

If this is how it works, I would expect to see MMs want to keep a steady above average daily volume with a steady or walk down PPs, while the regulation is put in action.That way they could trickle their cover a little at a time and not have to pay larger prices, to cover on major short cover runs.

Also if a MM or broker/dealer has a grandfathered naked short position and does not continue to trade that stock, all naked short positions are null, until or if they start trading the stock again. At which time the short precentage figure Jan 3 will start being applyed, until all naked shares are covered.