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New Section For the Site - Experts Speak Out

Location: Blogs Bob O'Brien's Sanity Check Blog    
Posted by:   bobo 3/13/2006 12:00 AM

I’m going to create a new section this week for the site, called “Experts Speak Out.”

The premise will be to interview acknowledged authorities on securities law, the clearing and settling system, short selling, naked short selling, stock manipulation, etc. – and to get their views, on the record, and memorialized for posterity.

My first expert will be Dr. Susanne Trimbath, formerly with the DTC, and recognized authority on the clearing and settlement system (she was on the panel at NASAA), who has graciously agreed to take some time and provide us with her wisdom and perspective.

I am preparing a list of what I believe are good questions, and while I’m working on it, I thought it might be interesting to open it up a little and get some feedback from the audience.

So here's the request – what question or questions would you most like to get the answer to from Dr. Trimbath? Is there a fuzzy area where you feel more explanation is required on the way stocks clear and settle? This is your big chance – your 15 minutes with someone that knows and understands the entire system.

Think up some good questions, folks. I can’t promise that they will all be used, but I’ll try to get as many as possible answered.
Copyright ©2006 Bob O'Brien
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Comments (54)
Re: New Section For the Site - Experts Speak Out By SHE is the BEST on 3/12/2006 7:41 PM
and a GREAT person,, and what a great IDEA, someone from the DTC to tell us how they all know
Re: New Section For the Site - Experts Speak Out By jbw53190 on 3/12/2006 7:55 PM
It will be great just to be able to talk with the experts.
Maybe they know why the DTCC is stone walling every effort to level the playing fields
Re: New Section For the Site - Experts Speak Out By mhelburn on 3/12/2006 9:39 PM
How long has this system been in place? ie: the stock borrow program, the ability to move fails outside the clearing system.

Who was the architect for this? Was it one person? Did it start as just a few players abusing the system and then become system-wide?
Re: New Section For the Site - Experts Speak Out By dave on 3/12/2006 9:42 PM
This is how they lie without lying. In this example, they say that the number of shares is fixed and counterfeit shares don't trade. That is factually correct. But it isn't true in the way it reads.

What trades are entitlements on shares which exceed the number of real shares in many cases.

"Some believe that naked short sale transactions cause the number of shares trading to exceed the number of shares outstanding, which in turn allows broker-dealers to trade shares that don't exist."

"Naked short selling has no effect on an issuer's total shares outstanding."
Re: New Section For the Site - Experts Speak Out By bobo on 3/12/2006 9:48 PM
I had noted that about the ex-US trades.

The level of crookery is truly mindboggling.
Re: New Section For the Site - Experts Speak Out By QUITAM on 3/12/2006 11:06 PM
Is it possible with her knowledge to specifically identity a way the government is being defauded in order to create a QUI TAM suit? For example, if stock in the borrow program is coming from retirement accounts and DIVs are being paid instead of PILs, then the wrong taxes are being paid and the govt is being defrauded of tax revs.
Re: New Section For the Site - Experts Speak Out By happyswed on 3/12/2006 11:35 PM
Dr. Trimbath,

Why can't they just settle all SHO FTD trades and provide transparancy as a fix?

Regards,

Tom
Re: New Section For the Site - Experts Speak Out By whosyouruncle on 3/13/2006 12:51 AM
What are the series of comments and questions Dr. Trimbath would ask, when confronted with the claims by spokespersons for the DTCC, and related entities, that they have no power to enforce their own rules, etc?

If she were in our position, who would she approach, and what line of questioning does she think would be most fruitful? What does she think would be their likely "non-response", and how would she counter that to pin down matters?
Re: New Section For the Site - Experts Speak Out By Y on 3/13/2006 2:54 AM
OT/ Study Shows Americans Finding News in More Places, but Stories Contain Less Depth

"NEW YORK (AP) -- Consumers can find news in many more places these days, but paradoxically are seeing fewer stories covered with less depth, a study issued on Sunday has concluded.

The Project for Excellence in Journalism found the trend on television, in newspapers and on online. Cable news outlets, for example, repeatedly tell a limited number of stories. On one day, Google News offered computer users a menu of 14,000 stories -- covering only 24 separate subjects."

see full article
http://biz.yahoo.com/ap/060313/news_study.html?.v=2
Re: New Section For the Site - Experts Speak Out By mfairview on 3/13/2006 3:05 AM
Byrne on TMF. Big news in a day!

-----

Trash,

Do you and your ilk really not understand yet that your simpering "Oh my god people are laughing at you don't you know what are you going to do they're laughing oh my god people are laughing" could never affect a man like me? Has that really not sunk in on you guys yet? Have you been paying attention at all? Have I shown any evidence of caring what a poodle like you laughs at?

As far as the multiple-lending argument: the DTCC swears they do not let it happen. They will not describe the mechanism that they would need in place for it not to happen, and no one believes them when they say it anyway, but just for the record, your whole multiple-lending argument falls flat because it misses that point.

In fact, I should point out that it is my argument, not your argument: though it is against the law and their stated rules, the whole NSS movement takes one of its main points to be precisely that such multiple-lending does occur, and hence, the number of share entitlements can grow far in excess of actual shares. The actual number, incidentally, is not really, "infinite": according to some, however, it is 15-20.

"Bed & breakfasting" shares: are you familiar with that term, ET?

Oh, by the way: you keep using the 19 million outstanding shares in your arguments, which is one of the things I consider them so dumb I do not respond normally (someone emailed me this tonight, with a message that "ET sure seems to hate you"). In any case, returning to the real world for the moment, the DTCC only has 8.7 million OSTK shares in its vault. We now have a reported short interest of 8.9 million: short interest is thus 103% of float. As far as the stated rules of the DTCC are concerned, we have accelerated through the speed of light. They have said that this situation is impossible. Now it has happened.


Now think up some more simpering statements about my math, Trash. If any observer thinks there is one that is not bonehead enough that it deserves a response from me, just let me know.

Patrick

PS Incidentally, I don't believe the 8.9 million either: I think that the failed short sales plus the failed long sales + ex-clearing and overseas fails bring our true short interest up to 22 million: some smart observers say I am nuts, and that it really is 60-80 million. We'll see if I can ever get the DTCC to get in the ring with me.

PPS Big story breaking next 24 hours. Stay tuned.
Re: New Section For the Site - Experts Speak Out By z3peru on 3/13/2006 5:25 AM
Dr. Trimbath, what is your advice to the CEO's of OSTK, NFI, and other Reg SHO stocks who have fiduciary duty to their stockholders and whose stock prices have been decimated by illegal trading?
Re: New Section For the Site - Experts Speak Out By bryedge on 3/13/2006 5:25 AM
1. Why does the system not require/verify that a short seller actually has shares available, either owned or borrowed, at the INITIATION of the transaction, and prevent the transaction from proceeding if no shares are available?

2. Does the SEC assist the DTCC in preventing the public from acquiring their own company trading information?

3. What politicians in Congress do you feel are most responsible for holding back NSS reform?

4. How involved do you feel the White House is in solving the NSS issue?

5. Do you believe Dr. Byrne/Overstock is moving in the best possible direction to resolve his problems with NSS? If not, what would you be doing?

6. Do you think hedge funds are properly regulated? If not, what needs to change?

7. What person or persons, have the most control over the DTCC ABOVE the DTCC BoD?

8. Do you own stock in ANY company? If so, do you hold the certificates?

9. A broker friend describes the NSS debacle as the "scadal of civilization". How bad do you think the situation is, and what is the worst case scenario if we continue down the track we are on presently?

10. As a simple "commoner", what are the top THREE things I can do to fight the NSS problem, BESIDES write my Congressperson and physically hold share certs?

OT: Bob, my acess problem has now become sporadic. Better than nothing at all. Probably something to do with the "country tax" I so willingly pay, -lo.
Re: New Section For the Site - Experts Speak Out By x. trapnell on 3/13/2006 6:36 AM
If the stock borrow program of the DTCC is designed to cover temporary difficulties in obtaining the stock, why is the duration of the borrow not limited to, say, 10 days?
Re: New Section For the Site - Experts Speak Out By a1dj on 3/13/2006 7:00 AM
What advice would you give to a company CEO which is heavily shorted and very likely subject to naked shorting and price manipulation?
New DTC Annual Report By dtc on 3/13/2006 8:43 AM
https://login.dtcc.com/dtcorg/binary/27551DTC2005Financials.pdf
Re: New Section For the Site - Experts Speak Out By Some info on 3/13/2006 8:49 AM
Dr. Patrick Byrne, Dr. Susanne Trimbath, Brent Baker working together

http://www.dealflowmedia.com/webinars/aggressivetrading.html

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Investors use many trading techniques to boost returns and lower their market exposure. This Webinar archive focuses on identifying and combating manipulative stock trading. Learn what public company executives can do to identify abusive trading practices and defend their company's value.

Purchase this Webinar archive for only $295. You can view this session at your convenience, all you need is a telephone and access to the Internet. To purchase, please click here or call our office at (516) 876-8006.
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Dr. Patrick Byrne, CEO, Overstock.com (OSTK)
"Combating Aggressive Trading Tactics"
Public companies subjected to abusive trading can protect themselves through various strategies. As the CEO of Overstock.com, Dr. Byrne became familiar with the techniques of abusive short sellers. He has taken a public stance on this issue, and believes it represents a threat to entrepreneurship in America. Join Dr. Byrne as he discusses his experiences and insights.

Defending your company's value
Understanding phantom share floats and stock kiting
Conducting stock trading analysis
How to approach the government
Private actions to correct abusive trading tactics
Managing the transfer of share certificates


Dr. Susanne TRIMBATH, CEO and Chief Economist, STP Advisory Services
"Self Defense Tips for Issuers and Investors"
The centralized clearing and settlement organizations (CSO) mandated for both developed and developing capital markets have flaws that accommodate rather than prevent stock price manipulation and abusive trading practices. Dr. TRIMBATH is a former operations manager with DTC in New York and the now-defunct Pacific CSO; she was also an advisor during the creation of the CSOs in Russia and Eastern Europe. Dr. TRIMBATH will discuss how companies and investors can work the system from the inside to their best protection.

Which industry organizations are "on your side"
Using direct registration to enhance the investor/company relationship
Preparing against threats to voting rights and proxy battles
Why the regulators remain in denial


Avi Shachar, CEO, Nexight
"Recognizing Aggressive Trading Tactics"
From the use of intelligence-based methodologies to international and inter-disciplinary cooperation between regulatory agencies, law enforcement, issuers, and the private sector, this segment discusses ways to detect and prevent abusive trading practices. Learn how to reduce practices such as pump and dumps, abusive short selling, securities fraud and money laundering.

Detecting abusive trading practices
International and
inter-disciplinary cooperation
Using intelligence methodologies
Solutions for improving market integrity
ABC Corporation — an example of early detection
Using intelligence support software



Brent Baker, Partner, Woodbury & Kesler
Program Moderator
Mr. Baker served for more than 14 years as Special Counsel to the Securities and Exchange Commission and served as a Special Assistant United States Attorney for over five years in the District of Utah. He will discuss insider trading, market manipulation, regulation and investment newsletter issues.

How to spot unusual trading
Regulation opinions
Pricing spikes
How to find an IR firm



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Re: New Section For the Site - Experts Speak Out By bbhindyou on 3/13/2006 8:54 AM
Could all transactions of the D.T.C.C.'s stock borrow program be evaluated by a supreme court ordered investigative team or have all those transaction records been lost?The stock borrow program must have some records of where the short positions originate how long they take to settle and [if the company is delisted ] if the short ever settles at all.If no such records exist then the stock borrow program is nothing short of a printing press and all involved should be charged with at least criminal negligence dont you think?
Re: New Section For the Site - Experts Speak Out By bobo on 3/13/2006 9:09 AM
Some Info: That was a conference with some of the recognized authorities speaking. Brent has 14 years with the SEC as one of their NSS experts. Dr. Trimbath is an acknowledged authority. Byrne is very high profile in this battle.

Saying they "work together" is disingenuous in the extreme, although it is interesting that the move to discredit the Dr.'s statements in advance of her making any is already in high gear...
Re: New Section For the Site - Experts Speak Out By bobo on 3/13/2006 9:36 AM
I have sent off the questions - let's see how Dr. Trimbath responds.
Re: New Section For the Site - Experts Speak Out By frogman29 on 3/13/2006 10:04 AM
Would the good Dr. be incllined to provide anti NSS advocates and grass roots groups such as ours with guideance and insight as to what is happening behind the scenes on some regular interval? What are her objectives and motives? How can we (NCANSS) help her achieve her objectives?
Re: New Section For the Site - Experts Speak Out By Some info on 3/13/2006 10:19 AM
Ffrom Star Ledger article:

"Susanne Trimbath, a former official at the DTCC who is scheduled to testify at Abelow's confirmation hearing, said the depository board has been "lax" in not preventing stock manipulation."
Re: New Section For the Site - Experts Speak Out By bbhindyou on 3/13/2006 10:33 AM
I would ask her if the D.T.C.C. was ordered to turn over all records of the stock borrow program to a independent court appointed investigators how much of this information would be available?I would also ask if there were any detailed records kept as to origination of shorts ,time to delivery ,and if [in the case of deregestration] there is a delivery of the cover on the position at all?If these records do not exist then the D.T.C.C. is nothing more than a printing press is anyone in her opnion liable for negligence if nothing else?
Re: New Section For the Site - Experts Speak Out By bob powers on 3/13/2006 11:12 AM
Could you also start a book section? I like the last book you recommended:
'once in golconda'
Re: New Section For the Site - Experts Speak Out By ckza on 3/13/2006 11:28 AM
What course of action, inclusivel of known and unknown consequences, does she believe would be most appropriate for the U.S. Financial markets, its investors, and the parties-past and present- who have led us to this stage?
Re: New Section For the Site - Experts Speak Out By dawgman... on 3/13/2006 3:25 PM
Bobo,

IMHO, one of the must-ask-questions which you should put to an expert is this:

1. How might these hedge funds be using stock options and option specialists (OS) to facilitate these short attacks?

It is apparent to me that Rocker et. al. initially use long PUT positions along with naked short sales of the common stock, to facilitate their attacks on companies like NFI and OSTK. As of last quarter, according to the latest EDGAR filing, Rocker held over $30 M worth of NFI PUTs. In addition the size of the daily option trades and open interest in stocks like NFI and OSTK is truly enormous for such small companies. The daily trade volume for opions is also often enormous. For example, 12000 Put contracts (600,000 individial options) were traded in NFI stock today. To put this in perspective, the open interest in the option contracts for NFI is nearly ten times that of other similar companies such as NEW and LEND.

What I suspect is happening is this. I suspect that Mr. BigShort is actually working hand in hand with an option specialist. I think that mr. BS buys a pot full of PUTs which the Option Specialist (OS) holds short in his own account. This occures over a dozen trades or so which results in regular shorting of the common stock. This serves to walk the stock down. because, to offset the risk of these PUTs the OS, shorts the common stock at each step. It is my understanding that reg SHO rules allow this to happen because the OS is a market maker. I also suspect at least one of these OS may be located in Germany or Canada. The Short pressure applied as a result of the OS shorting of the common actually knocks the stock price down. In addition, as a result of the plummeting stock pric, the volatility of the stock increases, which in turn increases the time cost imbedded in future option sales. I believe that Mr. BS and the OS then either let the initial option contracts expire or close them out against another option trade such as a long call buy or short PUT sale. which allows the OS to cancel out his naked short sales of the common stock. I think the final game play then happens when Mr. BS sells a bunch of PUTs which, because of the recent price volatility of the stock, are at that moment in time unusually expensive. This newly initiated short position in the PUTs serves to captures any predictable dividend payouts which are to occure during the life of the PUT. IN addition, the increased volatility gets priced into the PUT options. Therefore, selling PUT options will actually increase mr. BS's take from this play,even if the stock is PUT to him at the strike price. (This increases his take from this play vs his simply buying stock to close out any shorts he has in the common stock.) Using short PUTs to close out any short positions in the common also allows Mr. BS to avoid a short squeeze in the stock price since the PUTs guarantee that the stock is sold to him at the strike price of the PUT.

I am just speculating that this might be how this happens.

I don't think that anyone here has a good handle on how Mr. BS might be using options to manage these attacks. If any of the experts you are talking to could shed some light on this, I think we would all benefit!

dawgman... d:?D
Re: New Section For the Site - Experts Speak Out By Waterfallsparkles on 3/13/2006 3:34 PM
If long and short trades are matched to clear then why is any Company on the Reg Sho list? I do understand that Market Makers or Specialists have 13 days in their effort to provide liquidity in the market, but even with that rule it would appear that the naked short sales to provide liquity would clear within 13 days, and then trade normally off the Sho list. Why are so many companies on the Sho list for months and some goning on over 1 year if the trades were cleared or matched?

Why is it more important to provide more liquity for the Buyers vs. the Sellers. It appears that with the stocks on the Sho list the only liquidity that is provided by the Specialist or the Market Maker to the Seller is a lower and lower price.

It almost appears that when the Specialist or Market Maker is in a Naked Short position to control the stock (provide liquity) that they do not provide any liquity or bids to buy to the Sellers. Which is almost a breach of their fiduciary duty to the market as a Specialist by putting their financial interest infront of their function to the market which is to provide liquidity to Buyers and Sellers.

I would ask the Dr. if the Specialists or the Market Makers are in effect putting their interest ahead of the public for their personal profit with the Companies on the Sho List.
Some questions By other_opinions on 3/13/2006 5:32 PM
Here's some questions I would like to see asked. In no particular order:

We've heard words like "endemic" and "common" to describe FTD issues. Given that, what does that mean? Are there lots of FTD's but concentrated in a few stocks or is it a few FTD's spread all around?


When these issues have been raised within the DTCC, what has been the reaction?


As an SRO, how can they not act?


What effect will NYSE being publically held and having a duty to their shareholders have on DTCC oversight?


Lawsuits against DTCC by shareholders have generally been turned back on technical issues or questions of standing? Is there any way that a common shareholder of a company can take action against the DTCC or can that only be done in a Civil Court by the broker/dealers?


We only get to see the short interest numbers on a monthly basis. Is that number representative of daily fails, or are there trades that take place around monthly reporting time that distorts those monthly numbers?


You set up clearing and settling for Russia. If you had carte blanche to reform the US system, what changes would you implement?


Many on Wall Street pay lip service to the idea that transparency makes for a more efficient market, though they don't seem to practice that. Would transparency in FTD's make for more efficient markets? I'd like to see that answer address markets in the short term and after a fews years of FTD transparency?


We've been portrayed as a bunch of nutcases. Are we?



What effect to non-US markets have on the FTD issue, and is there any aggregated data anywhere to determine that? Are foreign exchanges a red herring or a component with impact? If the latter, what reforms can be enacted to decrease that?



I'll try to add more as I think of them.
Re: New Section For the Site - Experts Speak Out By DTCC Clarifies Work Experience of Former DTC Emplo on 3/15/2006 12:05 PM
DTCC Clarifies Work Experience of Former DTC Employee

NEW YORK--(BUSINESS WIRE)--March 14, 2006--The Depository Trust & Clearing Corporation (DTCC) issued a statement to correct inaccurate information that has appeared in the press and has been represented on Web sites and in public forums regarding the purported work experience of a former employee at one of DTCC's subsidiaries.


Susanne Trimbath has never been an official of DTCC or any DTCC subsidiary or predecessor company. She has never been an officer of the company or any of its subsidiaries.

Our records indicate that Susanne Trimbath was hired by The Depository Trust Company (DTC) in 1987 as a manager of transfer agent services, a corporate middle-management position below officer level. Ms. Trimbath resigned from her DTC employment in 1993 holding the same position.

There have been claims that Ms. Trimbath is an expert on clearance and settlement and the Stock Borrow Program. The Stock Borrow Program is now, and was at the time of Ms. Trimbath's employment at DTC, operated by the National Securities Clearing Corporation (NSCC), a separate company from DTC. In fact, Trimbath's employment at DTC pre-dates any corporate affiliation between DTC and NSCC, and predates the formation of DTCC.

At DTC, Ms. Trimbath was responsible for representing DTC's interests with transfer agents for DTC-eligible securities regarding DTC's business interactions with these agents. She never held a position in any operations area that dealt directly with electronic clearance and settlement or the Stock Borrow Program.

Contacts
The Depository Trust & Clearing Corporation
Stuart Z. Goldstein, 212-855-5470
sgoldstein@dtcc.comAt A Glance
Depository Trust & Clearing Corp.
Source: via Business Wire
Updated 02/15/2006 by company
Headquarters: New York, New York
Website: http://www.dtcc.com
CEO: Jill Considine
Employees: 2,500
Organization: Private
Revenues: $1.279 billion (2005)
Net Income: $16.9 million (2005)
Re: New Section For the Site - Experts Speak Out By AWS on 3/16/2006 5:45 PM
Dr. Trimbath - Thanks for joining the discussion.

1) You probably saw slide 24 of Pat Byrne's presentation at the JPM conference. Column 1 had the DTC position listed for a broker in OSTK shares, and Column 2 lists the beneficial ownership at each dealer. Wouldn't the most likely explanation for this be dealer or client seg. account shares lent ex-clearing and not via the DTCC? If not can you outline what you think the numbers represent?

2) Mr. Thompson from the DTCC made some comments that get some press here about whether shares can be "counterfeited" or lent in such a way that multiple owners could claim the same shares. He said that this can't happen, and I concur.

But is it not the case that a block of shares can, in fact, be lent multiple times. A owns 500 shares. B borrows them and short-sells them to C. C lends to B, who shorts them to D. D lends to B who shorts to E. So now E holds 500 "real" shares (which still can be lent) and the players A,C,D hold (in effect) IOUs and still report long positions in their accounts while B is short 1500 shares. All trades clear just fine. Players earlier in the chain do not know what has happened to the shares down the line. Is this a mischaracterization of the process? If so, what stops an owner of shares (not the IOUs) from lending if so desired? If the process can happen, short interest in a security at the DTCC could reach numbers in excess of float. Is that correct?

Thanks in advance
Re: New Section For the Site - Experts Speak Out By AWS on 3/18/2006 5:20 AM
Slight revision to previous question:

Re Slide #24-

If the complete universe of dealer positions were tallied in the way described by the slide, and a column simply for each dealer's short position in OSTK inserted, would you expect the numbers to net out?
Re: New Section For the Site - Experts Speak Out By bobo on 3/12/2006 8:00 PM
I agree that it will be interesting. Now give me some good questions ot mix with mine...
Re: New Section For the Site - Experts Speak Out By browntrout on 3/12/2006 8:06 PM
I think it is important for Dr. Trimbath to claim or disclaim any potential reward for being a whistle blower. She has made many statements that are contrary to the current spin being put out from the DTCC. I believe and respect her statements but I think it is important to point out any potential financial gains from the "experts" posting here that may jade the interpretations of the facts.
Re: New Section For the Site - Experts Speak Out By robelita on 3/12/2006 8:07 PM
Sure bobo-simple and direct:

What's the point of having the Regulation SHO list when no one ENFORCES compliance? Some of the stocks have been on it over 9 months!
Re: New Section For the Site - Experts Speak Out By x. trapnell on 3/12/2006 8:12 PM
Great idea and excellent that you're beginning with Dr. Trimbath.

Here's a question that may or may not be relevant. What can we in the U.S. learn from either securities regulation or safeguarding the settlement process from other securities markets in Europe or Asia? Are there routine procedures taken for granted elsewhere (such as providing daily information on short positions) that are somehow ignored or avoided here?

Thanks.
Re: New Section For the Site - Experts Speak Out By bovine_poor on 3/12/2006 8:22 PM
I'm awestruck by the rapid decline in share price and eventual delisting of Enron common stock. I surmise that Enron common was very heavily naked shorted as it went down to oblivion. Because of the fact that it may have been, and the fact that it's now a mute point, could both make it a good candidate for forensic examination. Likewise, WorldCom and Delta Airlines might be other candidates. All had hundreds of millions of shares outstanding--and if naked selling is as rampant in such situations as many think, then there may have been billions of share 'rights' outstanding when they were delisted.

My question: Given that the above might be true, does the good Dr. 1) feel these issues would be good targets for; 2) does she consider there is any possibility of success with; 3) and if so how would she proceed with, an in depth forensic examination the goal of which would be to lay proof before investors that lost collectively billions possibly due to naked selling.

I know; I know -- convoluted question. But you are the writer, not I.
Re: New Section For the Site - Experts Speak Out By rtway1 on 3/12/2006 8:23 PM
Can they develop a transparent system by using supercomputers that would report to a disinterested third party like the DOJ or another gov,t agency. This agency would clear up all Reg Sho ,s or other hot stocks. The trading community would not know any results to influence markets long or short.If there is a huge imbalance that can not be explained, then they would be reported to the authorities.
Re: New Section For the Site - Experts Speak Out By blackbart on 3/12/2006 8:24 PM
1. Please ask her to elaborate on the companies that are almost completely destroyed by the shorting especially on the Pinks or OTCBB stocks. I hear rumors of some of these stocks having 2-3 times the outstanding shares being short. Is this rumor true. 2. I beleive TASER had 3-4 the outstanding shares short prior to being on the SHO list. Is that true? 3. Posters on the boards keep posting that private transactions are exempt from shorting rules. True? 4. Are off-shore and ECN's exempt from following our security laws?
Re: New Section For the Site - Experts Speak Out By dave on 3/12/2006 8:28 PM
This is great.

My questions:

1. What is the corporate structure of Cede & Co.? Is it a trust? If it is a trust, where can we find the trust documents? What is the jurisdiction (it doesn't show up on a search for NY companies)? Who owns it? Who are the directors / management. Are securities registered to Cede pledge as security in any way? Why does Cede and its assets not show up in the DTCC annual report?

2. If a US participant buys from the Canadian Depository for Securities, does the trade always fail? The CDS position size will stay identical on position reports over time (once you net incoming / outgoing certs. into CDS). That seems impossible. Shouldn't some trades go into Canada or out of Canada? The only solution I can see is that shares deposited in Canada stay in Canada, even if the Canadians sell to Americans. Otherwise the security position report should show this account fluctuating wildly.

It seems that that is where the shorting comes from. The US participant goes ("where are my shares?" and they say, "don't worry about it, they're in Canada".)

3. Why does the NSCC require so little collateral and why isn't it cash? It seems insane to me that they would allow the collateral required to be marked to market when everyone knows that puts the system at risk if there is ever a squeeze.

4. Am I correct that the NSCC obligation to deliver shares to the net long participants is independent from the net short participant's obligation to the NSCC? In other words, if the seller flees with their marked to market gains, wouldn't the NSCC be on the hook for a short squeeze?

5. 90% of US brokerages are "introducing brokerages" who do their trades through "clearing brokerages".

Are there ANY rules for margin requirements at the clearing brokerages? Who regulates them? How often are their records audited? It seems to me it would be trivial to catch and Adler Coleman, MJK or Refco if their records were audited regularly.

6. I tried posting this in the other thread, but the comment button wasn't working. I had drinks with a person who is expert in clearing on Friday. He said Patrick should do a rollback (he could always do a forwards split later) and change his CUSIP number. Is my friend right that this would force the system to reconcile all the claims into real shares?
Re: New Section For the Site - Experts Speak Out By dave on 3/12/2006 8:31 PM
7. Why are there so few OTC and Pink Sheet stocks on the SRO list? I would have expected every penny stock to be on the list as it is common for pennies to go bankrupt. Why would the shorts give up a chance at 100% profit?
Re: New Section For the Site - Experts Speak Out By Just Curious on 3/12/2006 8:31 PM
Are you still associated with the Milken Institute?
How closely is Michael Milken involved with this since he created it?
Re: New Section For the Site - Experts Speak Out By dave on 3/12/2006 8:35 PM
My question 2 is confusing the way I wrote it, but my belief is that much of the counterfeiting comes from the way the DTCC interfaces with the CDS.

My belief is that once a share is deposited in Canada, it stays in Canada. The reason I say this is that if you net out the role of certs. deposited into or withdrawn from the CDS, the balance does not change over time. It's like the shares get stuck in Canada.

My belief is that the US trades claims on shares in Canada rather than directly accessing the CDS position at the DTC.

There aren't that many Canadian participants and many Canadian participants already have accounts at the DTC. Why don't they require all Canadian brokerages / clearing houses to have direct accounts at the DTC?

What does it mean when a brokerage has one asterisk next to their name on a security position report? What about two asterisks?

What does it mean if a participant has a negative position on a security position report?
Re: New Section For the Site - Experts Speak Out By bobo on 3/12/2006 8:42 PM
browntrout: can you frame that as a question?
Re: New Section For the Site - Experts Speak Out By Mississipibluffs on 3/12/2006 8:47 PM
Same two questions I've been asking on the mb --

How can any stock holder be sure he's holding genuine shares, as opposed to counterfeit? (Certificate holders excepted, of course.)

How can any one who borrows stock know that his borrow is not counterfeit?
Re: New Section For the Site - Experts Speak Out By snoozern on 3/12/2006 8:52 PM
Dear Dr. Trimbath,

In your opinion, what is the best way to bring transparency to the operations of the stock market?

As an investor in a stock that is on the Reg SHO Threshold list, what information would be most useful to me, that is not currently available?

TIA,
Rick
Re: New Section For the Site - Experts Speak Out By browntrout on 3/12/2006 8:59 PM
Dr. Trimbath do you have anything to gain financially from your statements that are contrary to the DTCC explanations or operations including compensation from such things as whistle blower compensation or payments from anyone who opposes the DTCC? In simpler words is anyone paying you or do you expect to gain from your statements concerning FTD's, naked shorting, or settlements?
Re: New Section For the Site - Experts Speak Out By n-tres-ted on 3/12/2006 9:01 PM
A. Do you think the DTCC has any valid reason(s) for declining to disclose data and information on the extent of FTDs either as to the market in general, or as to specific companies affected by the FTDs? If so, what is the reason(s)?

B. Do you view the DTCC's Stock Borrow Program as a tool designed to serve the purpose and motive of naked short selling?

C. In your opinion, what would be the effects (on shareholders, broker-dealers, hedge funds and others) of an SEC ruling that all FTDs be bought in upon expiration of 10 days after the trade?

D. Why do you think SEC chairman Donaldson chose to answer Senator Bennett's inquiries regarding naked short selling in closed session rather than in public?
Re: New Section For the Site - Experts Speak Out By dave on 3/12/2006 9:02 PM
When I read through the bankruptcy filings of the various failed clearing houses, it kept coming up that they had established case law that says they don't have to regulate rogue brokerages and they aren't liable if shares don't settle. With no liability, they have a huge financial incentive to do what they can to increase trading volume.

Can you ask her if there is anything to protect the DTCC directors from criminal liability? It seems to me that if they are facilitating fraud on such a massive scale, they could be personally liable.

Also, what are her thoughts on how this is being kept quiet? How are the big clearing houses and the DTCC able to keep the media, including the international media from talking about this?

Note customer in the quote below is the introducing brokerage, not the investor.

"These firms are paid to clear trades, not to watch customers. Clearing firms will charge more or consider leaving the business if they are asked to police sales practices and that will end up hurting the average customer," says Sidley Austin Brown & Wood lawyer Henry Minnerop, who has represented most of Wall Street's clearing firms over the years.

http://www.sidley.com/lawyers/bio.asp?ID=M497722507

“Even if one accepts that the complaint sufficiently alleges that Bear Stearns did this with knowledge that these brokers were manipulating the securities at issue, the complaint does not establish Bear Stearns primary liability under § 10(b).”
Re: New Section For the Site - Experts Speak Out By bobo on 3/12/2006 9:03 PM
I can answer that one for you without bothering the doctor. Susanne has a company that does consulting work in naked short selling, thus her business model is to get paid by telling the truth about the system. That is no secret. Perhaps a better question is, why do you believe that her statements will be contrary to the DTCC explanations and operations? Given that she hasn't said anything yet, and most of the operations side is easily verified from the DTCC website?
Re: New Section For the Site - Experts Speak Out By browntrout on 3/12/2006 9:10 PM
But she has said plenty elsewhere and testified (carefully I might add) recently in New Jersey. Is she blowing the whistle on the DTCC?
Re: New Section For the Site - Experts Speak Out By dave on 3/12/2006 9:15 PM
In case there are any SEC employees reading this.

http://www.sec.gov/eeoinfo/whistleblowers.htm
Re: New Section For the Site - Experts Speak Out By InTheKnow on 3/12/2006 9:17 PM
What is your opinion on the effect that entitlements have had on the voting of proxies or where shareholders never get to vote their shares because the number of votes far exceed the outstanding shares?
Re: New Section For the Site - Experts Speak Out By bobo on 3/12/2006 9:27 PM
Browntrout: I'll ask her. But I doubt it. If telling the truth is whistleblowing, then why have that euphemism - why not just ask if the DTCC is lying, or spinning a very narrow technical truth?
Re: New Section For the Site - Experts Speak Out By browntrout on 3/12/2006 9:34 PM
Well- the DTCC is NOT telling the truth and someone who worked there in a high position that has now become very vocal about naked shorting and testifying when the DTCC won't show up is indicating an awareness of a huge problem that resides at the DTCC. If she has not blown the whistle- why not? Because it seems she has a bullseye on members and former members of the DTCC.
Re: New Section For the Site - Experts Speak Out By dave on 3/12/2006 9:35 PM
Bobo, I noticed that the DTCC never lies and the information on their site is accurate. What they do instead is lie with "narrow technical truths".

They will switch from one entity to the next (DTCC vs DTC vs NSCC) when talking about rights and obligations. For example, they might say that every share at the DTC is real which is 100% factual. But that doesn't imply that the claims on shares at the NSCC are all backed by real shares.

By the way, did you notice on the DTCC site that regulation SHO only applies to trades "agreed to in the United States"?

Seems like a big loophole for them.

"Whether a short sale is executed or agreed to in the United States will depend on the particular facts and circumstances of the transaction."

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