What legislation have the Europeans enacted to avoid the problems related to short selling; since you're not required to borrow a stock before shorting it on Euronext or LSE... why aren't they having horrendous naked short problems?
A couple of points. Think of it this way. Take away the fact you're a trader. "Investors" buy stocks, and when they are never delivered, where does the money go? Do the investors get compensated? After all, there money was confiscated, and they never really bought anything but an "IOU". That should yield some compensation. Second, as a point of conjecture, the SEC put plenty of loopholes in the O5 action. They've done it again. They say they are going to stop grandfathering, but they've said things like this before. they didn't enforce the law before, so what makes you think they would enforce any new action? Lastly, you see these blogs, "show me a stock that is profitable, and was naked shorted,..... blah blah blah..." If you're trying to learn to swim, and your dad holds your head underwater until you drown, ... Well, you get the point. Not all companies are profitable at first. Capital markets are there to foster those companies and give them a chance. If they screw up, so be it. But to identify a victim that is easy to kill, to bribe and conjole, and then to manipulate and profit, is abhorent. Of course, with the Prime Brokers charging so much in neg rebates, naked short "locates" etc., the hf have to have to make the stocks go down in a hurry. For some, that temptation is too much to ignore.
Spyro calls out Jim Chanos! A while back on another board I wrote about Jim Chanos and his less than stellar long term return. Fairfax has just amended their lawsuit to include Jim Chanos and Kynikos Associates. It seems Sypro Contogouris is talking and has implicated Jimmy in the circle of greed. My opinion is that Jim knew how bad his numbers were and needed a way to justify his 1 and 20 fee. Now we know why Jim said he would drop out of the Value Investors Conference if the extended an invitation to Patrick Byrne. The bricks are crumbling one by one. It's fun to watch. <IV http://us.ft.com/ftgateway/superpage.ft?news_id=fto062620070256511754&referrer_id=yahoofinance Fairfax adds fund manager Chanos to suit By Ben White in New York Tuesday Jun 26 2007 02:40 Fairfax Financial (NYSE:FFH) , the Canadian insurance group, has added James Chanos, the US hedge fund manager, to the list of defendants in its private lawsuit against short-sellers. In an amended complaint filed late last week, Fairfax alleged that Mr Chanos's hedge fund, Kynikos Assoc, was part of a group of funds that used underhanded tactics to drive down its share price. The Securities and Exchange Commission has been looking into Fairfax's allegations. The amended complaint includes statements from Spyro Contogouris, the operative allegedly at the heart of the campaign against the Canadian insurer, saying Mr Chanos employed him as a consultant.
Get Shorty Liz Moyer, 06.26.07, 6:42 PM ET One of Europe's biggest hedge funds has been tripped up by accusations of illegal short selling in shares of U.S. companies. GLG Partners, the $12 billion U.K. fund that is planning to list on the New York Stock Exchange, will pay $3.2 million to the Securities and Exchange Commission to settle accusations it illegally shorted stocks in connection with 14 secondary stock offerings, including shares of Petco Animal Supplies, Chicago Mercantile Exchange, Estée Lauder and other companies listed on NYSE and Nasdaq. Regulators have been going after traders for manipulative trading, particularly where the activity involves trading of shares in advance of a public offering. Several cases involving illegal trading of restricted shares have been brought in the last few years, notably last year's $3.7 million settlement with Virginia investment bank Friedman Billings Ramsey. GLG is among the biggest hedge funds to be targeted for violating rule 105 of the SEC's regulation M, which is designed to prevent manipulation by setting up a restricted period and rules for trading within that period. The SEC says GLG violated the rule 16 times between June 2003 and May 2005 and lacked adequate compliance policies. GLG sold short securities in the five days leading up to a public offering, covering the position with stock bought in the offerings, making over $2 million in profits in the process. GLG made the settlement without admitting or denying the accusations. "Foreign-based hedge funds that trade on the U.S. markets cannot turn a blind eye to compliance with U.S. federal securities laws," said Antonia Chion, associate director in the SEC's division of enforcement. The case comes amid heightened scrutiny of hedge funds and other private investment pools for the rich, particularly given the booming deal market and accusations of insider trading. SEC Commissioners testified to the House of Representatives Finance committee that the agency has created special working groups within its enforcement division to monitor hedge fund insider trading, stock options backdating and microcap stock fraud. Earlier this year, the Commissioners pointed out, the agency unveiled its largest insider trading case since the late 1980s, starring an array of bankers and hedge fund traders. Politicians seem eager to look proactive, especially given the perception that hedge funds and private equity firms are getting away with stuff off-limits to ordinary investors. Some lawmakers tried to block Blackstone Group's much anticipated initial public offering last week, citing investor protection and, in one case, homeland security. Last week, the SEC tightened Regulation M to make it even harder to short shares in advance of an offering and cover with the offering--it basically said traders who short cannot participate in the offering. Commissioner Roel Campos said during the meeting to approve the rule change, "Time and again we have seen activity engineered to camouflage violations of the rule. I believe this regulatory fix is narrowly constructed to target the most egregious activity."
http://online.wsj.com/article/SB118...S=naked+short+selling&COLLECTION=wsjie/6month Author Eshmueller was a confindant of Tony Elgindy. He knows much more than he wrote. This makes Gary Weiss an immediate liar; he always was, this proves it. And it shos (sic) you we have a systemic problem where no one wants to play fair. This doesn' t end well. It will for me, but not for the pensions and funds. Let me ask you this. If I, nobody, know what I know, and I'm always bitching, where are the pension funds and mutual funds defending their shareholders? Anyone??? You might now understand why Patrick Byrne fights as he does. If they pick your number for whatever reason, you don't stand a chance. Thank you Mr. Bush.
STOCKGATE TODAY An online newspaper reporting the issues of Securities Fraud A 6.8% Problem With SHO - July 5, 2007 David Patch On June 13, 2007 the Securities and Exchange Commission staff unanimously approved reforms to the 2004/5 version of Regulation SHO thus eliminating the much controversial and ill-advised grandfather clause. The SEC staff called this the next step in the elimination of abusive naked short selling. In reality, it was merely a baby step in the land of giants. A smokescreen. While it may be the first weeks of July, the public has yet to see how the final rule will read nearly a month later due to the significant delays by the SEC in filing this rule into the Federal Register. Such delays do not restrict the public from understanding the gist of the new rule change however and the flaws that will become apparent over the next year(s) until additional reforms are again voted upon. Consider that although Section 17A of the Exchange Act of 1934 requires the prompt and accurate settlement of all trades, Regulation SHO only addresses long standing settlement failures that occur after a company has reached failures at potentially abusive levels instead of focusing on the letter and the spirit of the law that applies to all trades. The new Regulation SHO continues to have a "kick-in" phase that excludes potential abuses from being acted upon. In eliminating the grandfather clause of SHO the SEC now mandates that failures to deliver that exceed 13 trade days on companies listed, as SHO threshold companies must be immediately closed out. In the past, only those fails that occurred post SHO threshold listing were required immediate closeout while the originating fails that brought the market to threshold levels, minimum 0.5% of issued and outstanding, was exempt. The SEC has not yet defined how the mandatory close outs will commence and what time restrictions are placed on such close outs but if the past is any indicator there will be much flexibility afforded the members. Guaranteed buy-ins will not be part of the language imposed despite calls by the NASD in a March 2005 comment memo that such language be used in defining a mandatory close out. More importantly, market makers who generate a large accumulation of fails in the system as part of their natural business operation will have no market making restrictions placed upon them during a mandatory close out phase. It will quickly become a game of survival and manipulation. Under the new law, market makers will continue to be allowed to make a bona fide market, representing the best offer in a market without the actual inventory to represent that offer, at the same time when the law requires the firm to be a purchaser of shares in this same market. By representing the best offer, sellers of real inventory will be forced to come down to the represented offer made by the market maker if a sale is to be made. By working the offer downward, dragging real sellers down with them, the market maker can manipulate the market in order to protect the cost liability of that mandatory close out eventually closing out into a purchase from a distressed seller. All of this of course involves only those companies with the unfortunate occurrence that the accumulation of fails exceeds the 0.5% necessary to become an SHO threshold security company. What of those that are manipulated and subjected to smaller intervals of abuse? To become a threshold listed security the level of fails not only has to reach critical mass but must then persist above that level for a minimum of 5 trade days. If you date back to the originating trade date, and the T+3 settlement cycle, this is a period of a minimum of 8 trade days. Market Makers and other stock manipulators will use this delay to create market volatility and drive failures in and around the SHO levels without actually getting to the full qualification conditions. For example, simply dipping below 0.5% in fails for one day will restart the clock on threshold qualifications. This market volatility will become mini bear raids that will take place over a short interval of time and will wipe out 10, 15, 25% or more in market cap in a process of covering fails. I illustrated just such an event in an earlier Stockgate Today article last month. The members are well aware that spikes in settlement failures go undetected by the SEC and that the SEC only reviews settlement issues once a company has been listed on the threshold list. The SEC allows you to go in and rob a bank of $5,000 a day; they only want the call when you steal $100,000 in single swipe. In fact, Rules 15c3-3 and 15c6-1 were put in place at a time where the industry was reviewing the impact of settlement failures to the safety and efficiency of the markets. The rules required brokers to enter into a contract for trade where trade settlement was conducted within 3-days. These rules did not state, as long as the market was above threshold levels, these rules apply to all trades. The rules for bona-fide market making likewise allows for the "temporary" sale of shares not held in inventory in order to stabilize a market. There is nothing temporary about a trade failing beyond 13 trade days and certainly no excuses for natural trades to exceed 13-day settlement with greater than 95% of the market trading electronically. From a 2004 SEC concept release on improving Securities Settlement, "The U.S. clearance and settlement system settles more trades today with a lower failure rate than before Rule 15c6-1's adoption. "In May 1995, before T+3, and with an average daily volume running at 726 million shares in NYSE, Amex and NASDAQ securities, NSCC `failures to deliver' were an average of 8.43% of all deliveries. In November 1995, after the T+3 conversion, with average daily volume running at 830 million shares in the same securities, NSCC `failures to deliver' declined to 7.67%." "Speeding up Settlement: The Next Frontier," Arthur Levitt, Chairman, Commission, remarks at the Symposium on Risk Reduction in Payments, Clearance and Settlement Systems (January 26, 1996). According to NSCC, for the first seven months of 2003, the average daily failure rate has been 6.80%." Red Flag! The SEC and DTCC have been misleading the public by identifying that 1.5% of trades fail settlement, in dollar value. Dollar value in a market such as this is less important to the total levels of failed trades. According to the SEC documents, in 2003 6.8% of the trades that fail represent 1.5% of the dollar value of a single days trading. The numbers simply imply that the smaller value companies are most abused with settlement failures. In 1995 and before rule15c6-1 became effective trade settlements were averaging 8.43%, in November 1995, post 15c6-1, settlement failures were reduced to 7.67%, and in the first 7 months of 2003, near a decade later the NSCC, a subsidiary of the DTCC, claimed that failures had been reduced to 6.8% of all trades, a mere 1.6% improvement in a decades worth of technology and regulatory improvements. By the numbers. According to teh NSCC, for every fifteen trades executed by Wall Street member firms and cleared through the DTCC CNS system one will fail to settle. For every fifteen trades in which an investor is stripped of their investment capital and a commission is paid to that member firm that firm will have failed to enforce timely receipt of the security sold as defined in rule 15c6-1. With this being post Continuous Net Settling (CNS), the intra-day failures due to bona-fide market making would be far greater netting out with purchases by close of business on that same day. What a boon for Wall Street. Literally hundreds of millions of dollars are being paid in trade commissions where the firm did not meet their obligations for prompt settlement under securities law. As an example of how much is made in trade commissions, Goldman Sach's latest quarterly filing reported trade commissions of $2 Billion for the six months ending in May 2007. If one in fifteen were on failed trades, and all things being equal, that's a mere $133 Million in commissions paid by clients for failed or delinquent services. Under even the latest Regulation SHO guidelines only a fraction of the 6.8% in daily failures, or whatever that figure is today, will be addressed in a timely fashion. Only that percentage of fails which has accumulated to levels exceeding 0.5% in a localized market will require immediate close out. The remainder of the failed trades will be remain lost in a system until such time as it becomes economically viable for the selling member to come back and settle up. Commissions paid, accounts reduced of capital and credited with IOU's, and the investor is none the wiser that they paid for services never received. I wish I could say I was making this up but I am not. This is all well documented on the SEC website. Mark my words here today, the changes in SHO will only increase the downside volatility and mini raids in our markets as members caught on the wrong side of a trade will manipulate our markets to insure coverage can be made profitably. The last thing members will allow is for securities laws and new regulations to cut into their ability to turn a profit at the expense of the general public. Just watch for the sell side manipulation in the markets during the close-out activities of market makers For more on this issue please visit the Host site at www.investigatethesec.com Copyright 2007
"This makes Gary Weiss an immediate liar; he always was, this proves it." I'm reading his new book, guess I shouldn't quote him regading the baloney blitzkreig.