TransGlobal Assets Inc (TMSH)

[HighPriestess]

Really, then why would they bother doing a report on TMSH? And why would the SEC make rules against shorting and Naked Shorting? Hmmm, I think Shorty needs to cover. That is what I think. I think TMSH has been manipulated by short sellers and naked short sellers and to me this unsolicited report proves it!

And why are there are the rules and regulations regarding shorting?

I think reading these links to understand the rules and regs on shorting and naked shorting will help explain why Buyins.net did this report.

http://www.sec.gov/spotlight/keyregshoissues.htm

A. What is a short sale?

A short sale is generally the sale of a stock you do not own (or that you will borrow for delivery). 1 Short sellers believe the price of the stock will fall, or are seeking to hedge against potential price volatility in securities that they own.

If the price of the stock drops, short sellers buy the stock at the lower price and make a profit. If the price of the stock rises, short sellers will incur a loss. Short selling is used for many purposes, including to profit from an expected downward price movement, to provide liquidity in response to unanticipated buyer demand, or to hedge the risk of a long position in the same security or a related security.

B. Example of a short sale.

For example, an investor believes that there will be a decline in the stock price of Company A. Company A is trading at $60 a share, so the investor borrows shares of Company A stock at $60 a share and immediately sells them in a short sale. Later, Company A's stock price declines to $40 a share, and the investor buys shares back on the open market to replace the borrowed shares. Since the price is lower, the investor profits on the difference -- in this case $20 a share (minus transaction costs such as commissions and fees). However, if the price goes up from the original price, the investor loses money. Unlike a traditional long position — when risk is limited to the amount invested — shorting a stock leaves an investor open to the possibility of unlimited losses, since a stock can theoretically keep rising indefinitely.

C. How does short selling work?

Typically, when you sell short, your brokerage firm loans you the stock. The stock you borrow comes from either the firm's own inventory, the margin account of other brokerage firm clients, or another lender. As with buying stock on margin,2 your brokerage firm will charge you interest on the loan, and you are subject to the margin rules. If the stock you borrow pays a dividend, you must pay the dividend to the person or firm making the loan.
D. Are short sales legal?

Although the vast majority of short sales are legal, abusive short sale practices are illegal. For example, it is prohibited for any person to engage in a series of transactions in order to create actual or apparent active trading in a security or to depress the price of a security for the purpose of inducing the purchase or sale of the security by others. Thus, short sales effected to manipulate the price of a stock are prohibited.

II. "Naked" Short Sales

In a "naked" short sale, the seller does not borrow or arrange to borrow the securities in time to make delivery to the buyer within the standard three-day settlement period. 3 As a result, the seller fails to deliver securities to the buyer when delivery is due (known as a "failure to deliver" or "fail").

Failures to deliver may result from either a short or a long sale. There may be legitimate reasons for a failure to deliver. For example, human or mechanical errors or processing delays can result from transferring securities in physical certificate rather than book-entry form, thus causing a failure to deliver on a long sale within the normal three-day settlement period. A fail may also result from naked short selling. For example, market makers who sell short thinly traded, illiquid stock in response to customer demand may encounter difficulty in obtaining securities when the time for delivery arrives.

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 security4 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 such as securities quoted on the OTC Bulletin Board,5 as there may be few shares available to purchase or borrow at a given time.

IV. Threshold Securities

A. The Basics

1. What is a Threshold Security?

Threshold securities are equity securities that have an aggregate fail to deliver position for:

* five consecutive settlement days at a registered clearing agency (e.g., National Securities Clearing Corporation (NSCC));15

* totaling 10,000 shares or more; and

* equal to at least 0.5% of the issuer's total shares outstanding.16

3. Where Can I Find Threshold Lists?

Each SRO is responsible for providing the threshold securities list for those securities for which the SRO is the primary market. You can obtain SRO threshold lists at the following websites:

Nasdaq: http://www.nasdaqtrader.com/aspx/regsho.aspx (includes Nasdaq issues, OTCBB, and other OTC issues)

NYSE: http://www.nyse.com/Frameset.html?displayPage=/threshold/

AMEX: http://www.amex.com/amextrader/tradingData/RegSHO/TrDa_RegSHO.jsp (Amex listed securities only)

CSE: http://www.chx.com/publications/reg_sho.htm

ArcaEx: http://www.tradearca.com/traders/regsho_th.asp

D. Reasons Why A Security With a Large Short Position May Not Appear on a Threshold List

There are various reasons why an equity security with a large short position may not appear on an SRO's threshold securities list, 25 for example:

* the aggregate delivery failures do not meet the definition of a threshold security in Regulation SHO;

* the security's issuer is not registered or required to file reports with the Commission. For instance, the majority of issuers quoted on the Pink Sheets do not file reports or register with the Commission, and so would not appear on threshold lists.



This document is under revision. Please see the following documents for updated information: 34-58775, 38-58774, 38-58773, and 34-56212.
Division of Market Regulation:
Key Points About Regulation SHO
Date: April 11, 2005
I. Short Sales
A. What is a short sale?

A short sale is generally the sale of a stock you do not own (or that you will borrow for delivery).1 Short sellers believe the price of the stock will fall, or are seeking to hedge against potential price volatility in securities that they own.

If the price of the stock drops, short sellers buy the stock at the lower price and make a profit. If the price of the stock rises, short sellers will incur a loss. Short selling is used for many purposes, including to profit from an expected downward price movement, to provide liquidity in response to unanticipated buyer demand, or to hedge the risk of a long position in the same security or a related security.
B. Example of a short sale.

For example, an investor believes that there will be a decline in the stock price of Company A. Company A is trading at $60 a share, so the investor borrows shares of Company A stock at $60 a share and immediately sells them in a short sale. Later, Company A's stock price declines to $40 a share, and the investor buys shares back on the open market to replace the borrowed shares. Since the price is lower, the investor profits on the difference -- in this case $20 a share (minus transaction costs such as commissions and fees). However, if the price goes up from the original price, the investor loses money. Unlike a traditional long position — when risk is limited to the amount invested — shorting a stock leaves an investor open to the possibility of unlimited losses, since a stock can theoretically keep rising indefinitely.
C. How does short selling work?

Typically, when you sell short, your brokerage firm loans you the stock. The stock you borrow comes from either the firm's own inventory, the margin account of other brokerage firm clients, or another lender. As with buying stock on margin,2 your brokerage firm will charge you interest on the loan, and you are subject to the margin rules. If the stock you borrow pays a dividend, you must pay the dividend to the person or firm making the loan.
D. Are short sales legal?

Although the vast majority of short sales are legal, abusive short sale practices are illegal. For example, it is prohibited for any person to engage in a series of transactions in order to create actual or apparent active trading in a security or to depress the price of a security for the purpose of inducing the purchase or sale of the security by others. Thus, short sales effected to manipulate the price of a stock are prohibited.
II. "Naked" Short Sales

In a "naked" short sale, the seller does not borrow or arrange to borrow the securities in time to make delivery to the buyer within the standard three-day settlement period. 3 As a result, the seller fails to deliver securities to the buyer when delivery is due (known as a "failure to deliver" or "fail").

Failures to deliver may result from either a short or a long sale. There may be legitimate reasons for a failure to deliver. For example, human or mechanical errors or processing delays can result from transferring securities in physical certificate rather than book-entry form, thus causing a failure to deliver on a long sale within the normal three-day settlement period. A fail may also result from naked short selling. For example, market makers who sell short thinly traded, illiquid stock in response to customer demand may encounter difficulty in obtaining securities when the time for delivery arrives.

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 security4 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 such as securities quoted on the OTC Bulletin Board,5 as there may be few shares available to purchase or borrow at a given time.
III. Regulation SHO

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. Some of the goals of Regulation SHO include:

* Establishing uniform "locate" and "close-out" requirements in order to address problems associated with failures to deliver, including potentially abusive "naked" short selling.

o Locate Requirement: Regulation SHO requires a broker-dealer to have reasonable grounds to believe that the security can be borrowed so that it can be delivered on the date delivery is due before effecting a short sale order in any equity security.6 This "locate" must be made and documented prior to effecting the short sale.

o "Close-out" Requirement: Regulation SHO imposes additional delivery requirements on broker-dealers for securities in which there are a relatively substantial number of extended delivery failures at a registered clearing agency7 ("threshold securities"). For instance, with limited exception, Regulation SHO requires brokers and dealers that are participants of a registered clearing agency8 to take action to "close-out" failure-to-deliver positions ("open fails") in threshold securities that have persisted for 13 consecutive settlement days.9 Closing out requires the broker or dealer to purchase securities of like kind and quantity. Until the position is closed out, the broker or dealer and any broker or dealer for which it clears transactions (for example, an introducing broker)10 may not effect further short sales in that threshold security without borrowing or entering into a bona fide agreement to borrow the security (known as the "pre-borrowing" requirement).

* Temporarily suspending Commission and SRO11 short sale price tests12 in a group of securities to evaluate the overall effectiveness and necessity of such restrictions. The Commission will study the impact of relaxing the price tests for a period of one year.13

* Creating uniform order marking requirements for sales of all equity securities. This means that orders you place with your broker-dealer must be marked "long," "short," or "short exempt."14

IV. Threshold Securities
A. The Basics

1. What is a Threshold Security?

Threshold securities are equity securities that have an aggregate fail to deliver position for:

* five consecutive settlement days at a registered clearing agency (e.g., National Securities Clearing Corporation (NSCC));15

* totaling 10,000 shares or more; and

* equal to at least 0.5% of the issuer's total shares outstanding.16

Threshold securities only include issuers registered or required to file reports with the Commission ("reporting companies").17 Therefore, securities of issuers that are not registered or required to file reports with the Commission, which includes the majority of issuers on the Pink Sheets,18 cannot be threshold securities. This is because the SROs need to look to the total outstanding shares of the issuer in order to calculate whether or not the securities meet the definition of a "threshold security." For non-reporting companies, reliable information on total outstanding shares is difficult to determine.

2. Who is Responsible for Identifying Threshold Securities?

Regulation SHO requires the SROs to disseminate a daily list of threshold securities where such SRO, or its market center,19 is the primary listing venue for any such security.

3. Where Can I Find Threshold Lists?

Each SRO is responsible for providing the threshold securities list for those securities for which the SRO is the primary market. You can obtain SRO threshold lists at the following websites:

Nasdaq: http://www.nasdaqtrader.com/aspx/regsho.aspx (includes Nasdaq issues, OTCBB, and other OTC issues)

NYSE: http://www.nyse.com/Frameset.html?displayPage=/threshold/

AMEX: http://www.amex.com/amextrader/tradingData/RegSHO/TrDa_RegSHO.jsp (Amex listed securities only)

CSE: http://www.chx.com/publications/reg_sho.htm

ArcaEx: http://www.tradearca.com/traders/regsho_th.asp

The Boston Stock Exchange, Philadelphia Stock Exchange and National Stock Exchange are not the primary listing exchange for any securities at this time and, therefore, are currently not publishing threshold securities lists.

4. Inclusion on, and Removal from, Threshold Lists.

At the conclusion of each settlement day, NSCC provides the SROs with data on securities that have aggregate fails to deliver at NSCC of 10,000 shares or more. For the securities for which an SRO is the primary market, that SRO calculates whether the level of fails for each security is equal to, or greater than, 0.5% of the issuer's total shares outstanding of the security. If, for five consecutive settlement days, such security satisfies these criteria, then such security is a threshold security. Each SRO includes such security on its daily threshold list until the aggregate fails level for the security falls below these levels for five consecutive days. (See below for a discussion as to why a security may appear or remain on a threshold list.)

5. Implementation Dates for Threshold Lists.

The SROs disseminated the first threshold lists on January 10, 2005. Regulation SHO does not require a broker or dealer to close-out the open fail position until a security appears on a threshold list for 13 consecutive settlement days and an open fail position for such security exists for each of those days.. Therefore, the first day on which a close-out action could have been required for a threshold security was January 28, 2005.

6. Mandatory Close-Outs of Threshold Securities.

Regulation SHO requires broker-dealers to close-out all failures to deliver that exist in threshold securities for thirteen consecutive settlement days by purchasing securities of like kind and quantity ("close-out").20

Until the position is closed out, the broker or dealer and any broker or dealer for which it clears transactions (for example, an introducing broker),21 may not effect further short sales in that threshold security without borrowing or entering into a bona fide agreement to borrow the security (known as a "pre-borrowing" requirement).

7. Key Points to Remember.

Any equity security of an issuer that is registered or required to file reports with the Commission could qualify as a threshold security. Therefore, threshold securities may include equity securities:

* listed on an exchange, 22

* quoted on Nasdaq,23 or

* quoted on the OTCBB.24

Whether or not a security is a threshold security does not affect the Commission's ability to prosecute manipulative or fraudulent activity that may have occurred before or after adoption of Regulation SHO.
B. Reasons Why A Security May Appear on a Threshold List

A security's appearance on a threshold list does not necessarily mean that any improper activity has occurred or is occurring. An equity security will appear on a threshold list if it meets the definition of a threshold security set forth in Regulation SHO, meaning that failures to deliver the stock (i.e. to the party on the other side of the trade) have reached an aggregate of 10,000 shares or greater at NSCC for five consecutive settlement days and are equal to 0.5% of total shares outstanding;
C. Reasons Why A Security May Stay on a Threshold List for Longer Than 13 Consecutive Settlement Days

Even when broker-dealers close-out delivery failures, a security may remain on an SRO's threshold securities list for longer than 13 days. Examples of why securities may remain on the threshold securities list:

* after broker-dealers close-out all delivery failures, the security stays on the threshold list for five consecutive days;

* new delivery failures resulting from long or short sales may have crossed the threshold, keeping the security on the SRO's threshold securities list; or

* the delivery failures at NSCC may have been established prior to a security's appearance on the SRO's threshold securities list, and are grandfathered from the close-out requirement of Regulation SHO.

For information about specific securities, contact the appropriate SRO or its market center listed above.
D. Reasons Why A Security With a Large Short Position May Not Appear on a Threshold List

There are various reasons why an equity security with a large short position may not appear on an SRO's threshold securities list, 25 for example:

* the aggregate delivery failures do not meet the definition of a threshold security in Regulation SHO;

* the security's issuer is not registered or required to file reports with the Commission. For instance, the majority of issuers quoted on the Pink Sheets do not file reports or register with the Commission, and so would not appear on threshold lists.26

E. Who Do I Contact For More Information About Securities On a Threshold List?

If you have a question regarding a security on a particular SRO's threshold security list, contact that SRO directly. The following SROs are publishing threshold securities lists:

* for a particular OTCBB or Pink Sheet security on the threshold list, you may call NASD Market Operations at [phone] or send an email to [e-mail];

* for a particular NYSE listed security, you may contact NYSE at [e-mail];

* for a particular Amex listed security, you may e-mail [e-mail];

* for a particular ArcaEx security, you may call ArcaEx Clearing Hotline at [phone] or send an e-mail to [e-mail];

* for a particular CHX security, you may e-mail [e-mail].

F. Grandfathering Under Regulation SHO

The requirement to close-out fail to deliver positions in threshold securities that remain for 13 consecutive settlement days does not apply to positions that were established prior to the security becoming a threshold security. This is known as "grandfathering." For example, open fail positions in securities that existed prior to the effective date of Regulation SHO on January 3, 2005 are not required to be closed out under Regulation SHO.

The grandfathering provisions of Regulation SHO were adopted because the Commission was concerned about creating volatility where there were large pre-existing open positions. The Commission will continue to monitor whether grandfathered open fail positions are being cleaned up under existing delivery and settlement guidelines or whether further action is warranted.

It is important to note that the "grandfathering" clause of the Regulation does not affect the Commission's ability to prosecute violations of law that may involve such securities or violations that may have occurred before the adoption of Regulation SHO or that occurred before the security became a threshold security.
V. Answers to Frequently-Asked Questions from Investors
1. Is all naked short selling abusive or illegal?

When considering naked short selling, it is important to know which activity is the focus of discussion.

* Selling stock short without having located stock for delivery at settlement. This activity would violate Regulation SHO, except for short sales by market makers engaged in bona fide market making. Market makers do not have to locate stock before selling short, because they need to be able to provide liquidity. However, market makers are not excepted from Regulation SHO's close-out and pre-borrow requirements.

* Selling stock short and failing to deliver shares at the time of settlement. This activity doesn't necessarily violate any rules. There are legitimate reasons why a seller may fail to deliver on the scheduled settlement date.

* Selling stock short and failing to deliver shares at the time of settlement with the purpose of driving down the security's price. This manipulative activity, in general, would violate various securities laws, including Rule 10b-5 under the Exchange Act. Regulation SHO does not address this issue.

2. Is naked short selling the reason my stock has lost value?

Investors should always use caution before investing in high-risk, speculative stocks, especially with regard to their retirement portfolios, because all stocks may decline in value. There are many reasons why a stock may decline in value. The value of a stock is determined by the basic relationship between supply and demand. If many people want a stock (demand is high), then the price will rise. If a few people want a stock (demand is low), then the price will fall. The main factor determining the demand for a stock is the quality of the company itself. If the company is fundamentally strong, that is, if it is generating positive income, its stock is less likely to lose value.

Speculative stocks, such as microcap stocks, often have a high probability of declining in value and a low probability of experiencing above average gains.27 For example, investors should take extra care to thoroughly research any company quoted exclusively in the Pink Sheets.28 With the exception of a few foreign issuers, the companies quoted in the Pink Sheets tend to be closely held, extremely small or thinly traded. Most do not meet the minimum listing requirements for trading on a national securities exchange, such as the New York Stock Exchange or the Nasdaq Stock Market. Many of these companies do not file periodic reports or audited financial statements with the SEC, making it very difficult for investors to find reliable, unbiased information about those companies.

There also may be instances where a company insider or paid promoter provides false and misleading excuses for why a company's stock price has recently decreased. For instance, these individuals may claim that the price decrease is a temporary condition resulting from the activities of naked short sellers. The insiders or promoters may hope to use this misinformation to move the price back up so they can dump their own stock at higher prices. Often, the price decrease is a result of the company's poor financial situation rather than the reasons provided by the insiders or promoters.

Naked short selling, however, can have negative effects on the market. Fraudsters may use naked short selling as a tool to manipulate the market. Market manipulation is illegal.29 The SEC has toughened its rules and is vigilant about taking actions against wrongdoers.30 Fails to deliver that persist for an extended period of time may result in a significantly large unfulfilled delivery obligation at the clearing agency where trades are settled. Regulation SHO is intended to address these effects by reducing the number of potential failures to deliver, and by limiting the time in which a broker can permit a fail to deliver to persist. For instance, as explained above, Regulation SHO requires brokers and dealers to close-out the open fail-to-deliver positions in "threshold securities" (i.e., securities that have experienced a substantial number of extended delivery failures) that have persisted for 13 consecutive settlement days.