| | Register
Who is Bob O'Brien?
Sanity Check Archive
Click Here to see Bob's Old Sanity Check articles.
About our Blogs

Blogs found on this website represent the opinion of the author. For more information please visit our terms of use.
Funny Bunny
Looking for something a little lighter?
Catch Bob's more irreverent and amusing pieces in his Funny Bunny Blog.

New Alan Newman Crosscurrents, and NFI Drops Off The SHO List

Location: Blogs Bob O'Brien's Sanity Check Blog    
Posted by:   bobo 4/4/2006 2:00 PM

Alan Newman of Crosscurrents has penned a great new article that accurately summarizes the state of the union, IMO.

It can be found here.

Not much comment from me is required, as it speaks for itself.

------------------

NFI dropped off the NYSE Reg SHO list today, for the second time since the SHO list was created. Observers are scratching their heads, as there doesn't seem to be any correlating rise in price  to signal anyone buying anything in. Thus, there are several possible explanations that have been presented:

1) The "in-system" fails have been converted into legitimate shorted shares using legitimate borrowing.

2) They have been moved into ex-clearing, as the topic has gotten additional visibility and those failing don't want the heat. So they have slowly ledgered 100K here, 100K there, until it dropped below the threshold. That also reduces the appetite of any CA attorneys looking to hand the system its head.

3) Some unknown mechanism is in play, perhaps options related. Various scenarios have been floated, but none really sound convincing.

4) Stock has been loaned from one or two large entities/brokers to temporarily cover the fails, and NFI will pop right back up onto the list in a few weeks, as it did the last time.

5) All those shares have been delivered, and the fails have been cured organically and legally.

I don't know which one I favor, although I do know that number 5 is the least plausible, given the revelations of the recent FOIA data - FTDs have been massive, sustained for long periods, and unrelenting for at least the last solid 9 months. Why that would suddenly stop, with no correlating moves in the stock price, is suspect, to say the least. I'm all ears, though, if anyone has any explanations.

I would observe with wry cynicism that even after Byrne presented the huge disconnect in the stock at the DTCC, as articulated in this article, OSTK has been batted around by sellers relentlessly, so catching the system being bad doesn't seem to have any effect.

Thus, the mysterious case of the highly shorted company whose FTDs magically clear with no impact on the stock price remains a conundrum...
Copyright ©2006 Bob O'Brien
Permalink  |  Trackback
Comments (17)
Re: New Alan Newman Crosscurrents, and NFI Drops Off The SHO List By n-tres-ted on 4/4/2006 10:05 AM
Hmmmm... Just happens to coincide with the SEC release of FTD data on NFI. Perhaps the SEC heat caused the shares to be moved to "ex-clearing." Just my guess.
Re: New Alan Newman Crosscurrents, and NFI Drops Off The SHO List By n-tres-ted on 4/4/2006 10:19 AM
That is an excellent piece by Alan Newman. The cat appears to have at least one foot out of the bag, maybe two.
Re: New Alan Newman Crosscurrents, and NFI Drops Off The SHO List By roger_fleetwin on 4/4/2006 10:39 AM
I don't like to using the unhip word 'splendid', but that's exactly what Newman's analsis is, and exactly his writing style is. Thanks for bringing this article to this blog site...
Re: New Alan Newman Crosscurrents, and NFI Drops Off The SHO List By tommytoyz on 4/4/2006 11:35 AM
Moving the FTDs off the SROs books just made it worse for the FTDers. We will follow those FTDs as we reconstruct where they went in discovery and we will find where they roost.

There is no way that 1.5 million covered from Feb 03 with no price movement. NFI trade volume has been way to low for that king of buying demand to not reflect in the price. Besides moving to ex-clearing, the FTDs can be hidden by passing around the FTDs amongst brokers every 3 days. I think it's called kiting.

1 day after the complete FTD data is in and NFI is gone from REG SHO - what a coincidence!

The good news for investors and the market is that we'll find out what really happened for all to see.
Re: New Alan Newman Crosscurrents, and NFI Drops Off The SHO List By jpc on 4/4/2006 11:37 AM
Good reference again Bobo. It seems that any replenishing (cess)pool of lendable/borrowable shares pretty much invalidates stock ownership rights. What difference does it make if you have shares in a cash account or an IRA or even certificates? As long as the replenishing pool is nonempty, i.e., contains at least one share, your “safe” shares will go down in value along with all the others as the supply is increased and you’re screwed.

The bankerBROKER creates shares just like the BANKERbroker creates cash.
Re: New Alan Newman Crosscurrents, and NFI Drops Off The SHO List By n-tres-ted on 4/4/2006 12:00 PM
Allow me to raise a line of inquiry on this subject. Our discussions often lead us to implications that almost the entire investment world is in on this scam. But isn't it likely the case that the great majority of investors, including the great majority of institutional investors (yes, even including hedge funds) are straight-up participants in the market and, thus, are being scammed like the rest of us? If that is the case, then we have a great amount of power/leverage over the SEC, the NASD, DTCC and all the wrong-doers, do we not? Our challenge is to bring that leverage to bear by educating the investment community, specifically the institutional investors. Thoughts?
Re: New Alan Newman Crosscurrents, and NFI Drops Off The SHO List By dave on 4/4/2006 12:25 PM
I know hedge fund managers and many of them are nice guys, straight up, long players, etc. I think n-tres-ted is right - many of them are also being screwed.

There aren't too many people who understand how the clearing system works, even in the back offices of brokerages. Similarly, there aren't too many institutional players that understand how the system is gamed.
Re: New Alan Newman Crosscurrents, and NFI Drops Off The SHO List By dave on 4/4/2006 12:55 PM
I think Alan nailed it with this comment:

"IT MAY NOW EVEN BE A MATTER OF SURVIVAL FOR THE DTCC"

If we continue to attack the DTCC's right to exist (what purpose does the DTC serve that isn't duplicative of the services of the company transfer agent?), then the DTCC may decide to fix the problem on their own.
Re: New Alan Newman Crosscurrents, and NFI Drops Off The SHO List By Dan on 4/4/2006 1:09 PM
Bob,

I was confused by something Alan said right at the beginning of his article. He said that Customer A owns nothing but a wager on the price of the shares. That doesn't sound right, I thought if your shares were borrowed by your broker and sold you were also entitled to benefits such as dividends. Did Alan forget that or am I missing something? Thank you Bob.
Re: New Alan Newman Crosscurrents, and NFI Drops Off The SHO List By bobo on 4/4/2006 1:56 PM
Dan: You are entitled to the equivalent distribution as a dividend, but not the dividend with its preferential tax treatment - because again, you don't own the share. You own air, an IOU, the share long gone.
Re: New Alan Newman Crosscurrents, and NFI Drops Off The SHO List By bobo on 4/4/2006 2:07 PM
Here is an excellent analysis of the fails in NFI for 2005 and 2006. The conclusion is that this is not bona-fide market making activity, and that further it appears that the market makers are not the ones doing the lion's share of the failing.

http://www.cxoadvisory.com/blog/
Re: New Alan Newman Crosscurrents, and NFI Drops Off The SHO List By Dan on 4/4/2006 3:06 PM
Thank you Bob, so I am clear Alan wasn't correct when he said that just have a wager on the price of the shares? I get the part about not owning the shares but I'm used to that concept with an IRA where I'm just a beneficiary.

If there are dividends you get something equivalent but without the tax treatment of dividends. How do brokers handle the complaints they must get if they give you something that isn't tax preferenced. Do they gross it up and if they gross it up who is paying the gross up the shorts or the broker?
Re: New Alan Newman Crosscurrents, and NFI Drops Off The SHO List By Cranky on 4/4/2006 4:06 PM
Bud, blahblahblah.

Cranky - this isn't Bud's blog. It isn't about Eagletech. The clues were the name of the blog, and the blog heading. Stop clogging the thread, or you will be auto deleted from here on out.
Re: New Alan Newman Crosscurrents, and NFI Drops Off The SHO List By Wonder Boy on 4/4/2006 5:58 PM
In this weeks Business Week there are 2 articles in the Finance section--'The Secret Lives of Short Sellers' and 'Hedge Funds--Biotech Bane or Boon?' Nice to see the news getting spread to more and more outlets to the general public! Still, I feel that it is going to take a LOT of public opinion to stop the 'self regulatiing' of the brokers, banks, etc. and get the SEC to make any meaningful move from their position. Look at Refco as an example. The SEC fines them, but they admit no guilt and are back doing the same thing almost the next day.
Re: New Alan Newman Crosscurrents, and NFI Drops Off The SHO List By jcline on 4/4/2006 7:14 PM
time to pull a license or two.... or three . Let's see what they do with SELF regulation then!
Re: New Alan Newman Crosscurrents, and NFI Drops Off The SHO List By captspell on 4/5/2006 8:12 PM
The good news for investors and the market is that we'll find out what really happened for all to see.
------------
Perhaps the SEC heat caused the shares to be moved to "ex-clearing." Besides moving to ex-clearing, the FTDs can be hidden by passing around the FTDs amongst brokers every 3 days. I think it's called kiting.

------------
n-tres-ted-Tommy - Very nice. Thank you. What is the mechanism to find out what really happened ? Please explain how they could be moved into broker to broker and thereby get off the list. How are they moved into X-clearing ?
------------
Re: New Alan Newman Crosscurrents, and NFI Drops Off The SHO List By Waterfallsparkles on 4/7/2006 1:48 PM
The Shorts could have purchased the stock directly from the Company. I found this on their web site:

Direct Stock Purchases

The plan allows existing and new shareholders to make new investments in NovaStar’s common stock. Shares may be newly issued or may be purchased in the open market, at the discretion of NovaStar’s management. Direct stock purchases will be made on the 21st of each month or as soon as practical thereafter. The investment date will depend on whether new shares are issued or shares are purchased in the open market. Payment due dates will depend on the investment date. Expected dates for investment and the related due date are provided on this web site (see Investment and Due Dates). The minimum purchase under the plan for direct purchases is $100. Purchases exceeding $10,000 require NovaStar approval (see Request for Waiver Form). You may elect to have an automatic withdrawal directly from your bank account for purchases

As you can see the shares can be Newly Issued by the Company. This would explain why the price of the stock did not move. Although, it would mean dilution to existing shareholders.

Nfi could use the money for loan originations. Would be interesting to see if there were any large amounts of stock issued to new purchasers.

Your name:
Title:
Comment:
Please limit your comments to 500 characters. For longer comments, use our forums.
Subscribe via Email
Get This Blog via Email:


Powered by Squeet.com
Sanity Check Archive
Resources
Copyright © 2006 The Sanity Check   |  Privacy Statement  |  Terms Of Use