Replies to post #7658 on Ole Fart Reality Room

[BigBake1]

I have found 5 resumption of DTC services none of them are CBAI, the claim by the company is of course "chill" has been lifted, but no notice of a chill exists.

http://search2.dtcc.com/?q=DTC+services+resumed&x=0&y=0&sp_k=imp_notices

In fact the only thing that currently exists is a reorganization notice, which possibly may remove the other notices since they would no longer apply. But there is no way to confirm historical data being removed on name changes.

http://www.dtcc.com/downloads/legal/imp_notices/2011/nscc/otc/OTC-088.PDF

It is a claim by another sleazy OTC Pink called BCAP who claims to be setting up clearing and settlement services for non DTCC eligible companies. Their CEO stated that a name/symbol change allows a company to avoid a chill or get one removed. But I cannot find any evidence of that,

As far as spiking volume in these illiquid stock, someone is paying a nasty fee when the volume exceeds 25% of the 20 day average volume. The NSCC implemented a rule for illiquid stock and these "surges" in volume. I will dig it up, but someone has to come out of pocket big to bring shares to the market. Essentially every angle is getting more restricted by the day, you pay more to bring more shares to the market, you will pay huge margin for volume exceeding average volume and as you said Penson the second largest clearing firm with 470+ Particpiants says screw all of that.

Here is the Notice for increased "haircut":

http://www.dtcc.com/downloads/legal/imp_notices/2011/nscc/a7281.pdf

[BigBake1]

I cannot find the notice for this but here is good synopsis explaining the deposits required by settling firms to trade illiquid stock.

The NSCC imposes that deposit requirement to clearing firms when a trade size exceeds 25% of 20-day ADV, "as a way to limit settlement risks" (whaaaat?), however the NSCC itself doesn't limit tradeable order sizes.
The deposit is then wired by clearing firms to the NSCC and the money is returned back to the clearing firm when the trade settles at T+3.

The amount of the requirement on subbies pretty much gets out of whack: here are a couple examples:

120,000 share trade @ $0.008 => NSCC deposit requirement of (($0.01x120,000)-($0.008x120_000)) => $1200-$960 = $240. Not much at all, right? Here comes the funny stuff...

10,000,000 share trade @ $0.0001 => NSCC deposit requirement of (($0.01x10,000,000)-($0.0001*10,000,000)) => $100,000-$1,000 = $99,000. The pain!!!

That is, $99,000 has to be wired by the clearing firm to be able to settle a trade worth $1,000! Since those funds are tied for 3 days (T+3) the chunk the brokerage misses on interest revenue of the funds they wire can be considerable. In the above example, at a 10% interest rate, they'd miss (3/365)*0.1*$99,000 = $81.

However Penson, rather than skipping those costs (like eTrade, Scotty and Fidelity do) or charging 'em as an extra fee to customers, they opted by limiting trade size to 10%-20 day ADV and rejecting online orders whose size is greater than that. They also imposed also a buy-in rule where if the NSCC deposit requirement exceeded $50,000, the shares would be bought in at T+1 in the customer account at the current market price of the stock (wouldn't that be unauthorized trading??!!, SEC where are you??!!)

The author misses the point at the end, there is nothing illegal about Penson's risk department adding to the NSCC requirements, they just cannot take away the risk. Each clearing firm has to do their own risk assessment and determine if they add additional measures to protect against riskier investments.