KAT Exploration Inc (KATX)

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The methods to short KATX - issue MM IOU's used in 2010 - 2011 have changed/ modified as the rules have changed.

If an MM's issue lets say one million IOU shares and another MM issues one million shares they can trade them to each other - so each would owe the other one million shares. The two MM's settle between each other without ever going to the open market to borrow shares. Yes settle between each other I owe you one million you owe me one million - its a wash we cancel both between us.

2 million IOU's traded at what ever price MM's want the shares to move to, never borrowed - never settled in the open market - a short thats never covered just canceled at the end of the month. Because they (IOU short vapor shares) get cancelled it never shows on the current RegSho.

This method is within the current rules - but it is an abuse of what should happen because of the current levels of use. KATX MM's call this a proprietary trading method. MM's only need to collateralize these IOU shares while in use with the DTCC at 130% the current end of day share price. That is why MM's try to push the price as low as possible - a daily direct saving.

This gap within the rules was almost ended with the last rule changes but Market Makers lobbied to retain this clause because without it they're costs would seriously increase. Maybe the next round of rule changes will end this abusive loop hole.

So far in Oct around 4,200,000 of these IOU vapor shares have been traded/exchanged between MM's for KATX. See the daily FINRA data it supports this number.

A simple way to eliminate this abuse would be if the DTCC raised the collateral cost to 1300% of the daily end of day value from the current 130%. Make it where its too expensive to issue IOU's!!!
Letters to the Authorities will also help in ending abusive trading.