Roundup From a Holiday Week

So I took a few days off over the 4^th, and came back to, well, more of the same. Let’s look at some of the high, or low, moments of the last few days, and see if there is anything interesting or unexpected:

The Task Force on White Collar Crime is going to discuss hedge funds at its next meeting, along with backdating of options, citing interest of late in the media over hedge fund potential for fraud, and other shenanigans.

Sounds very positive until you look and see who is on the task force. Then you see all the usual players – ex-Wall Street insiders, the Chairman of the SEC….

Best of luck if you expect anything meaningful out of that group. I fully expect more of the same. Note that even in their notice and summary, they failed to mention the Senate Judiciary that drove much of the interest in the media.

Oh. That.

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In other sort of news, the SEC is going to hold a hearing, almost 20 months after Reg SHO went into effect. They will consider whether the rule needs any amendments.

Ha ha ha.

Gee. I don’t know. Let’s ask the shareholders of OSTK, or NFI, or Delta. Let’s ask shareholders of Cal-Maine, or TASR, who lost 60% or more of their worth – how did SHO work for you? Let’s ask OSTK shareholders: Hey, given that the failed trades mushroomed from a few thousand to many millions while SHO was in effect, how do you feel that it worked?

Given that the SEC completely ignored all input about SHO, and the requirement that a borrow (versus a locate) was a requisite for the rule to have any merit, can we actually expect that they will listen this time around? Why would that be?

As to Grandfathering, please. Don’t insult our intelligence. Can the SEC even show where they got the authority to assist in fraudulently confiscating property, via the mechanism of allowing settlement failures to exist in perpetuity from Grandfathering? Can they show where they got the right to assist in perennial voting fraud caused by all the fails, trading in the system, but absent any of the rights of real shares?

Again. Please.

This is pretty simple. The DTCC was created in 1969, with the Constitutional mandate that they clear and settle trades promptly. Somewhere along the way, the SEC and the DTCC decided that they didn’t want to settle trades promptly. No doubt it is because the owners of the DTCC, the brokers, figured out that if they could sell without delivering, they would make a lot more money. So the mandate was ignored, culminating with the Stock Borrow Program, which began as a scheme to address short term (a day or two) delivery failures – again, because the system had decided that it was OK to have them, contrary to what Congress mandated – and which developed into a mechanism to have long term delivery failures run rampant in the system, as the DTCC decided that it was “powerless” to force buy ins of the failed trades. Convenient for its owners that it suddenly became powerless.

Fast forward to where there is an unknown, but presumably large, number of failed trades floating around in the system. The DTCC is powerless to force delivery. The SEC decides it too is powerless, and grandfathers all the fails in, abdicating their responsibility to effect prompt settlement.

What is there to discuss? Congress mandated prompt settlement, and the SEC responded by grandfathering, creating an open-ended hall pass for brokers to NEVER be forced to deliver.

I’m not confused.

Instead of listening to the comments from the NASD and securities scholars, who pointed out that there had to be a requirement for a borrow, NOT a locate, before a sale is made, the SEC decided to listen to the lobbying of Wall Street, who introduced the locate loophole – effectively destroying any value in the rule.

Again, not confusing. The SEC deferred to the wishes of those it polices, and who caused the issue in the first place, placing their interests above those of the public. Simple.

And now they are going to have a chitty chat about how successful the rule has been, because fewer companies are on the list. Wow. I suppose if Delta hadn’t gone into bankruptcy, there would still be a lot more fails on the list. Is that an example of how the rule was successful in curbing fails? Or does delisting companies also illustrate how successful the rule has been? Both result in a decrease in the number of fails, which is the metric the SEC is using to trumpet success.

You can bet they won’t be discussing OSTK going from 30K to millions under SHO. Tut tut, can’t have a real world example from the poster boy for manipulation and abuse be used as a test of Reg SHO’s success.

If the SEC wants to fix this, in one fell swoop, they need to eliminate the loophole for “locates” versus a hard borrow before selling. Period. And they need to implement meaningful financial penalties for violating that rule – something completely absent now.

Again, I expect nothing from this agency now, especially in light of the recent revelations by Gary Aguirre, that the SEC is a co-opted facilitator for powerful Wall Street interests.

So expect more of the status quo.

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Jim Cramer had a forgettable piece that did the obligatory “naked short selling only impacts bad companies” apologist shuffle for his hedge fund buddies.

Yeah. Bad companies like the NYSE.

Or NFI, which has been profitable for 4 years even as he bashed it incessantly for his buds.

Or Vonage, where the only way all the shorting could have taken place on the IPO was illegally. He apparently is OK with illegal trading if he thinks the company “deserves” it.

That he is a hypocrite doesn’t offend me. That the argument is specious doesn’t surprise me.

I just feel sorry for anyone that followed his stock picking advice – it is worse than if a retarded monkey sat on the darts instead of throwing them. Is that possible via random chance?

Oh, and this report from Citigroup shows NFI at a 22% borrow cost now. SHO sure is working well, huh? The borrow is through the roof, and they are still on the SHO list.

Any questions?

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The DTCC has modified its website area dealing with naked short selling yet again, and now the numbers are pure gibberish, from what I can tell.

Dave Patch sent me this in an email. The blue are his comments:

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Symphony of Greed is getting a lot of downloads, and the feedback on the first chapter has been strongly positive. If you haven't read it, and are looking for some more depth on the issues, that would be a good place to start.