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How Big is the Failing To Deliver Problem, And Why Should I Believe You?

Location: Blogs Bob O'Brien's Sanity Check Blog    
Posted by:   bobo 10/17/2006 12:27 PM

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I inevitably get emails from folks who have tried to explain the scope of the fail to deliver problem, and get shut down by their audience. In this latest one, the skeptic, reasonably, said something like, "I don't trust that bunny character - he's anonymous, and could be lying through his teeth. Show me some evidence that this isn't just a tiny issue he's blowing out of proportion, and show me some credible comments from real people that aren't nutcases, and maybe I'll believe we have a crisis."

Now, I don't have a problem with honest skepticism. I think it is healthy. Rather than write private emails in perpetuity, I thought I would present my response here, so that everyone with a doubting friend or relative can read my words, research my sources, and decide for themselves. So here's how I responded to the latest query:

"It's actually all available now in the public forums - it isn't like it was a few years ago, before we had FOIA data and a better understanding of all the pieces. You ask how big is the problem, and how can I believe your numbers, or that this isn't all the rantings of a lunatic fringe. Fair enough. I'll walk through the evidence for you on how big the problem is, and how we know what we know, and can extrapolate with reasonable certainty the rest.

From the DTCC's website:

"@dtcc: Just how big is the fail to delivers, and how much of those fails does the Stock Borrow program address?

Thompson: Currently, fails to deliver are running about 24,000 transactions daily, and that includes both new and aged fails, out of an average of 23 million new transactions processed daily by NSCC, or about one-tenth of one percent. In dollar terms, fails to deliver and receive amount to about $6 billion daily, again including both new fails and aged fails, out of just under $400 billion in trades processed daily by NSCC, or about 1.5% of the dollar volume. The Stock Borrow program is able to resolve about $1.1 billion of the "fails to receive," or about 20% of the total fail obligation."

$6 billion per day of fails to deliver and receive.

But wait. There's more.

CNS netting nets buys and sells against each other. 96% of all trades are netted this way. If a broker has a client that fails to deliver, say, 100,000 shares of NFI, but that broker has 500,000 shares it is holding long on behalf of all its clients, CNS netting "nets" that 100,000 failed trades against the 500K, and presto, no fails are reported - the broker just now shows 400K long. 96% of all trades are handled via netting. The $6 billion per day of fails to deliver, and to receive, are what happens OVER AND ABOVE all the trades that NET!!!

(I haven't been able to find definitive info on how shares held long are differentiated in CNS netting - is there some mechanism to differentiate margin shares, and only allow those on margin to be used to offset the fails? Theoretically that would make a kind of sense, however with netting we aren't talking about borrowing or lending or any of the other 15c3-3 issues - we are just talking pluses and minuses, netted against each other. If a fail (minus) is offset by a plus (share held long) nothing has been lent or borrowed. A simple book-keeping entry has taken place. So until otherwise clarified, I assume most or all shares held long can be used to offset the fails. Oh, and it is unclear who polices compliance in CNS, or whether anyone does.)

Are you starting to get it? But wait. There's still much, much more. Before trades go into CNS netting, most independent brokers go through clearing houses, that "pre-net." That works like this. Today, customer A sells and fails to deliver 1,000 shares. You, customer B, place a buy order for 500 shares. Pre-netting nets your buy against his failed sell, and produces 500 fails. Which then go into CNS netting, and are likely netted against other accounts at the broker, again, out the end, producing no fail.

For a fail to be reported as a fail at the NSCC, the problem has to have gotten so bad that all the shares held long are used up and netted, and no more available to cancel out the fails. Then, and only then, does a fail hit. Now, once that fail enters the system at the NSCC, we know that $1 billion or so are satisfied by the Stock Borrow Program - leaving the remaining $6 billion.

So after pre-netting and CNS netting and the SBP, those fails amount to $6 billion a day. But what does that number mean? Well, first of all, the $6 billion isn't the sale price the fails happened at. It is today's price for the stock that is failed. Thus, if a $20 stock is failed, and then gets crushed down to $1, instead of $20 of fail, now we see $1. 

Then how big is the problem, really? $6 billion per day of FTDs and FTRs. Which represents about 4% of all trades that DON'T NET - and after the SBP gets done handling around $1 billion per day.

Of the $400 billion per day that are processed, all but $16 billion net via CNS. The DTCC also says that only about $1 billion of new fails happen every day - over and above what the Stock Borrow Program satisfies, netting conceals, and covering reduces. Let's take them at their word. $1 billion sounds small, per day, with $400 billion being processed, right? Let's ignore that if a bank processed $400 billion per day of cash deposits, and $1 billion per day went missing, that the bank would be shut down, and everyone involved put behind bars. For the sake of this argument, we'll just say that $1 billion per day is not that big a deal.

Not so fast. Netting handles 96%. So that is $1 billion out of $16 billion that netting doesn't take care of. Hmmm. But what about the stock borrow program? It handles another $1 billion post-netting, so isn't the daily number actually more like $2 billion? Or around 12% of the $16 billion? That would make sense, because netting handles the other approximately 96%. So far so good. But let's do the math right. If 12% of what doesn't net out fails, isn't it reasonable to assume that around 12% of those netting also fail?

Now the number gets way bigger. 12% of $400 billion per day is about $48 billion per day failing, with 96% being concealed by netting effects, and $1 billion being satisfied by the SBP. The DTCC chooses to use the $400 billion number, not me. If you don't like that math (the percentage), what's wrong with it? Got some feeling that less than 12% of the netted trades also fail? Fine. Based on what data? Nobody has successfully made that claim. They can't. Which is why they don't.

But it gets even worse. How, you ask?

The number the DTCC throws around to make the problem seem small - $400 billion? That isn't only stock. That is commercial bonds and such too. The actual number for stock is around $150 billion per day - a little more than a third of that number. So, if we apply the DTCC's own math, it gets really ugly. Follow along. The DTCC doesn't say much in terms of this, for good reason.

If only 38% of $400 billion is stock trades, and we know that netting covers 96% of stock trades, then realistically what the DTCC could very probably be saying is that $48 billion per day of the $150 or so billion of stock trading pre-netting is failing, or as much as 33% of all stock trades per day - that's why they use the funny math and blend bonds with stocks when talking about percentages, and then move to transactions rather than shares. They don't use the $150 billion number, they choose to use the $400 billion number, so we don't know which one to use to calculate the final numbers - which is strange in and of itself. Dr. Trimbath speaks to that in the SEC comment letter below. The point is that we don't know whether to use $400 billion to calculate the netting and thus the fails, or $150 billion.

Take your pick - $48 billion, or $18 billion, depending upon which number you favor for the big number. I tend to think that the DTCC is trying to be technically accurate, which is why they use the $400 billion number. But since the DTCC won't answer direct questions about this, including queries to clarify the $6 billion number from a year and a half ago, we have to guess as to their motives and veracity.

Now, some could say I am overstating things using $400 billion rather than $150 billion of equity trades, but here's my point: WE DON'T KNOW WHICH IS RIGHT.

And the reason we don't know is because the DTCC doesn't tell us. Which makes me deeply suspicious and cynical. Just as their switching from dollars to "transactions" mid-stream makes me suspicious. "Only" 24,000 "transactions" fail per day. But how many shares are there per transaction? 100? 1000? It isn't said.

We now know from FOIA data that the total fails on the NASDAQ and NYSE are in the 500 MILLION to 1.2 BILLION shares per day. We can probably take the changes per day, and average that change per day, divide by 24,000, and come up with a number - say, 150 shares per transaction. Suddenly we are talking tens of millions of shares per day.

But that is POST NETTING.

Bluntly, it could be 20-30 times worse due to what netting masks. Likely is. Again, if anyone has a reason it wouldn't be, bring it on. I have yet to hear it.

And here's a cheery thought: None of this includes ex-clearing fails, nor international clearing house netting.

So, we have confirmation from the DTCC of the dollar size of the problem. We have confirmation from FOIA requests of the share size of the problem. We know, from the DTCC, that CNS netting handles 96% of the trades, leaving what we see from the FOIA requests as the 4% netting doesn't handle, and minus the SBP $1 billion. Or maybe we can be really generous, and say that the SBP handles $1 billion of the $6 billion every day - which would then mean "only" $5 billion of fail to deliver and receives per day. No matter how you parse the math, it gets confusing pretty quickly, I believe, by design.

What percentage of netted trades are fails to deliver? We don't know. What percentage of fails pre-net before they ever get to CNS? Again, nobody seems to know. What percentage of all trades are failed, and then pushed off into ex-clearing? Dunno. Nobody does. So what is the actual size of the problem: How many bogus trades are being processed every day, where you pay your money, but nothing is delivered?

The truth is that nobody actually knows.

And that is beyond frightening.

We can parse my math all you want - change the assumptions, move some decimals, whatever. But reality is that so many loopholes and exceptions are in the mix that it is impossible to quantify the figure, beyond saying it is somewhere between big, and catastrophic.

Speaking of obfuscation and twisting of figures and logic, if you really want to understand how conniving the DTCC (which is owned by the brokers and has every reason to distort the numbers to try to make this all seem small) actually is, read Dr. Susanne Trimbath's comment letter to the SEC - she worked at the DTC for years, and is an internationally acknowledged expert on the problem - she was hired to set up the Russian stock market a few years ago. Or read Robert Shapiro's letter to the SEC - he was the Undersecretary of Commerce for Clinton.  Or Wayne Kleine, the Securities Regulator for Utah. Or one of the most comprehensive and ugly indictments of the system, from NASAA - the North American Securities Administrators Association.

In closing, it isn't that the information isn't available from reputable sources to understand the problem. Most just don't want to believe the conclusions that are inevitable from studying the data. And an entire industry is devoted to keeping the problem under wraps. If the average Joe got it, there would be rioting on Wall Street. Fortunately for those robbing the country, the average Joe knows what he knows, and isn't about to put any energy into knowing anything more, or anything different.

As to credibility, don't believe the Bunny. These are powerful people and organizations putting their names on these letters. They aren't doing it for fun. Guys like former SEC Chairman Harvey Pitt aren't writing expose commentaries in Forbes as a gag. This is the next big meltdown crisis. Honest. If someone can read my message and those letters and not go, "Holy Sh#t" they either can't read, didn't read them, or are deliberately ignoring the info.

Don't take my word for it. Go educate yourself. Instead of blindly parroting the, "It could never happen in this country" panacea that you are being spoon fed, take some time to run the numbers, read the FOIA data, read the comment letters, and figure this out. Your financial future and the future of the country as a viable entity are at stake, and that isn't hyperbole. Most people don't want to understand anything that challenges their comfortable worldview. Most people are followers, not leaders. Most people don't get it, or are too lazy or stupid to do the work to get it.

So now my question:

Are you most people?
Copyright ©2006 Bob O'Brien
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Comments (58)
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By bobo on 10/18/2006 4:07 PM
Carmello:

Carmello has posted 4 increasingly off-point and venemous posts, none of which addresses the topic of this blog. We will all have to live without his posts here, as I won't devote bandwidth to that sort of Yahoo-basher tactic. So Carmello? Your posts will be automatically deleted.

Every three weeks or so we get one of these - usually on the blogs that are the most disturbing to the industry.

Coincidence?
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By bburrell on 10/18/2006 11:27 AM
Fails to deliver threaten to potentially meltdown the market. Now SEC Commissioner Annette Nazareth was quoted in a statement three years ago that shorts exceeded the FLOAT of the market. That was a bald faced lie then, worse now. Fails from NSS already exceeded the outstanding shares in the market in 2003.

The SEC has had meetings with other agencies on this matter, and the prospect according to them is a meltdown, followed by a Fed Reserve bailout, a la Long Term Capital Management.

Read this and weep.

Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By davidn on 10/19/2006 8:20 AM
Because of the netting and because they include debt, the average trade is for almost $20,000.

Also, the netting masks fails at the level of the NSCC, too.

Let's say the brokerage owes the NSCC $1,000,000 worth of stock and the NSCC owes that brokerage a different $1,000,000 worth of stock.

This $20 million in fails would net to zero and would not show up in their disclosure.

As far as I can tell (see my footnoted post above):

After netting, there are $50 billion in trades marked to market and including the stock borrow program, $6 billion fail to settle. That would imply that after netting 12% of the trades fail each day.

The real failure number could be much higher. It wouldn't surprise me to find out that Bud is right and that there are way more entitlements floating around than we can imagine.
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By davidn on 10/19/2006 8:27 AM
What I am saying is that if I owe Bob $50 and he owes Mary $50 and she owes Bud $50 and Bud owes me $50, that it all nets to no one owes anyone anything.

The brokerages make the logical mistake of thinking that is equivalent to:

that if I owe Bob $50 of a penny stock and he owes Mary $50 IBM and she owes Bud $50 Intel and Bud owes me $50 of HP, that it all nets to no one owes anyone anything. This is an error in logic as this is not the same. Shares of different classes are not fungible.

They assign a value to the stock owed based on the current market price, then they treat the various stocks as if they are equivalent. The different stocks may take a different risk premium, but at the end, the brokerages seem themselves owing each other value.

If short squeezes are allowed, then the brokerages will suddenly find themselves way under collateralized as the various shares have various characteristics, volatilities, floats, etc. and are not equivalent.
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By bobo on 10/19/2006 8:35 AM
Selene: The DTCC says that the number is $6 billion per day. I understand it is cumulative - that is why I backed out from that number the $1 billion per day that are NEW fails, after another $1 billion per day is satisfied by the SBP.

Here's a simpler way of phrasing it: About $2 billion per day of new fails happen every day, after netting. $1 billion of those are satisfied by the SBP, leaving about $1 billion being added to the rolling total of aged fails, daily. That total rolling average is about $6 billion, per the DTCC. But that $2 billion number, and that $6 billion number, is post netting.

Per the DTCC, netting resolves 96% of all trades. So, the $2 billion represents fails that aren't resolved by netting. If daily stock transactions are around $100 billion (your number, now), that represents 2% of the daily transactions failing. But again, that is post netting. 96% of those trades are resolved vai netting, leaving $4 billion that aren't. Of that $4 billion, $2 billion fail. Daily. What percentage of the $96 billion that fails is unknown, as fails are offset by buys and shares held long. But we have no information that wouldn't lead us to believe that the numbers are similar. If so, 50% or so of all trades fail to be delivered, with most failures offset by buys or shares held long in the netting process. If that is the case, the markets are a huge and ongoing fraud, where the large houses and the DTCC are nothing more than counterfeiting houses. If this is the case, the SEC is guilty of treason.

That sounds wild. I have a hard time believing that half the stock sold daily is pure bogus hogwash, created by the brokers. That would be a ponzi scheme of unparalleled proportions.

Anyone got any data at all that would lead anyone to believe that the above numbers are in error, or high? Not sentiment or feelings, but numbers?
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By rotten odor on 10/19/2006 8:41 AM
WASHINGTON (MarketWatch) -- A congressional investigation into claims the Securities and Exchange Commission gave favorable treatment to Wall Street investment banking executive John Mack in an insider-trading probe of Pequot Capital Management has taken a new turn.
SEC lawyers have been told to search their email for messages about a former SEC enforcement attorney who was hired by Debevoise & Plimpton LLP, the law firm that conducted its own investigation of Mack before he was named as chairman and chief executive of Morgan Stanley (MS) in June 2005. At the time, SEC lawyers contemplated questioning Mack in connection with the insider-trading probe.
Paul Berger, formerly an associate director in the SEC's enforcement division, left the SEC this summer to become a partner in Debevoise's Washington, D.C., office. Debevoise partner Mary Jo White, formerly the U.S. Attorney in Manhattan, represented Morgan Stanley's board as it was conducting due diligence on Mack.

http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B178EFC34%2D315A%2D49CD%2DAB18%2DCF8B2451C85F%7D&dist=rss&sit
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By bobo on 10/19/2006 8:41 AM
Davidn: That is a great explanation of netting, and the problem therein.

I want to use that as the basis of a blog on the topic, with your permission.
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By davidn on 10/19/2006 8:50 AM
Of course, Bob - please use anything I post. Also please consider referencing the footnoted numbers in the post above.
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By davidn on 10/19/2006 9:10 AM
My best guess on the post netting daily trades that need to be settled through CNS is $50 billion, including debt (the word "trade" includes equity and debt).

That would mean $6 billion out of $50 billion or 12% as the minimum fail. ($5 billion failures + $1 billion SBP).

The $50 billion number comes from:

7. DTCC annual report, pg. 64
"... NSCC has an obligation to complete pending transactions totaling $49.9 billion."
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By daily netting on 10/19/2006 10:55 AM
Browntrout also brings up a good point about daily netting.

If a stock isn't liquid, a market maker or hedge fund can whack the bid hard in the morning, scaring the retailers into selling at lower levels. All day long, they buy the position back at the lower levels.

Example:

The stock is bid $.50 - .55

Counterfeit selll 100,000 shares at $.50 pre-market, leaving 50,000 on the offer

The stock is bid $.45 - .50

Buy 20 5,000 share blocks through out the day at $.45.

The trade nets a $5,000 profit at the end of the day, with no capital at risk overnight.

Do that to 1,000 illiquid stocks each day and you can make some real money without putting your own capital on the line overnight.

This would be less lucrative if they had to pre borrow those 150,000 shares.
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By its me on 10/19/2006 11:03 AM

here's an email exchange betweeen a shareholder and wall street "journalist" knocking a stock (one of cramer's buddies )

http://messages.finance.yahoo.com/Healthcare/Major_Drugs/threadview?m=tm&bn=27718&tid=32830&mid=32830&tof=3&frt=2


btw this stock was naked shorted and SHOed just after a Cramer Buy rec which resulted in its tanking big time and growing a huge SI thereafter, last week Cramer issues a sell, typical Cramer buy high sell low

does anyone think he may have friends making a profit off his act ?
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By StockBear on 10/19/2006 11:09 AM
Bobo-What is your take on the new heads of Banking and Judiciary if the Dems take control of the Senate. Would they be more responsive to the market reform movement? Thanks
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By virakiller on 10/19/2006 12:32 PM
word out of LA ?
it went good and Bud put on a hell of a show as did Rod and Susanne and Patrick

GO TEAM AMERICA

these financial terrorists DONT know the power of our "union"

y'all best run for the hills
OR
SETTLE THE DAMN MARKETS

you will soon hear the "footsteps"
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By netting on 10/19/2006 1:09 PM
By netting, they've compartmentalized the problem. Brokerages only desk a percentage of the trades, clearing houses are only short a portion of what they should have, CNS masks the actual levels of fails. At each level, they will say the problem is tiny, but the levels add up.

Does the SEC even KNOW how big the problem is?
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By honestly shocking, NOT. on 10/19/2006 1:52 PM
"This court also finds this affirmative defense of neglect to be shocking," Ramos wrote. "That a fiduciary of any institution, profit or not-for-profit, could honestly admit that he was unaware of a liability of over $100 million, or even over $36 million, is a clear violation of the duty of care. The fact that it was a liability to an insider (chairman and CEO) is even more shocking."

http://www.chron.com/disp/story.mpl/ap/fn/4273880.html
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By narco on 10/19/2006 2:00 PM
Scroll down to:

"NYSE Chairman Richard Grasso with a FARC Commmander"

http://www.narconews.com/narcodollars1.html
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By narco on 10/19/2006 2:03 PM
http://www.narconews.com/narcodollars1.html

"When you think about it, this analysis make sense. The folks with the BIG PERCENT --- big cash margin ---- would end up rich and in power and the guys working their you-know-what off for SLIM PERCENT --- a low cash margin --- would end up working for them."

"Lest you think that my comment about the New York Stock Exchange is too strong, let's look at one event that occurred before our "war on drugs" went into high gear through Plan Colombia, banging heads over narco dollar market share in Latin America.

In late June 1999, numerous news services, including Associated Press, reported that Richard Grasso, Chairman of the New York Stock Exchange flew to Colombia to meet with a spokesperson for Raul Reyes of the Revolutionary Armed Forces of Columbia (FARC), the supposed "narco terrorists" with whom we are now at war.
The purpose of the trip was "to bring a message of cooperation from U.S. financial services" and to discuss foreign investment and the future role of U.S. businesses in Colombia."
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By narco on 10/19/2006 2:07 PM
"Some reading in between the lines said to me that Grasso's mission related to the continued circulation of cocaine capital through the US financial system. FARC, the Colombian rebels, were circulating their profits back into local development without the assistance of the American banking and investment system. Worse yet for the outlook for the US stock market's strength from $500 billion - $1 trillion in annual money laundering - FARC was calling for the decriminalization of cocaine.
To understand the threat of decriminalization of the drug trade, just go back to your Sam and Dave estimate and recalculate the numbers given what decriminalization does to drive BIG PERCENT back to SLIM PERCENT and what that means to Wall Street and Washington's cash flows. No narco dollars, no reinvestment into the stock markets, no campaign contributions.
It was only a few days after Grasso's trip that BBC News reported a General Accounting Office (GAO) report to Congress as saying: "Colombia's cocaine and heroin production is set to rise by as much as 50 percent as the U.S. backed drug war flounders, due largely to the growing strength of Marxist rebels"
I deduced from this incident that the liquidity of the NY Stock Exchange was sufficiently dependent on high margin cocaine profits (BIG PERCENT) that the Chairman of the New York Stock Exchange was willing for Associated Press to acknowledge he is making "cold calls" in rebel controlled peace zones in Colombian villages. "Cold calls" is what we used to call new business visits we would pay to people we had not yet done business with when I was on Wall Street."
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By narco on 10/19/2006 2:22 PM
In "Black Money" a government investigator investigating S&L fraud starts to look into the revenues and expenses of a fast food chain, which is experiencing far more deposits from sales than it is selling pizzas. As Thomas walks you through a handful of the near infinite number of possible money laundering schemes known to mankind, you start to get a sense for some of the economics of fast food franchises that have nothing to do with feeding people.
After I finished "Black Money" I started to pay attention to "how the money works" at the fast food and motel franchises at every interstate exit between Tennessee and Philadelphia. What I noticed about them was that no matter when I drove by - day or night, weekday or weekend - some of them were suprisingly empty. Indeed, one or two name brands were defined by their perpetual emptiness. Conversations every time I stopped filled in a lot here and there about how much cash was coming in and going out on the food and retail business.
Some quick estimation on what was being spent per interstate exit to start up and operate all the retail establishments versus what was coming in the door in terms of legitimate business said that some businesses had to be an excuse - an excuse to generate stock market capital gains by combining laundered money or phony profits with retail franchises - or both.
The problems this presents to people trying to run an honest business are numerous. The problems it creates for our work ethic and culture are numerous too. It increasingly puts the low performance people in charge, and everyone starts to behave like and follow them.
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By Stay Tuned on 10/19/2006 3:30 PM
Grasso Must Return $36 Million to NYSE, Judge Says (Update6)
By Patricia Hurtado

Oct. 19 (Bloomberg) -- Richard Grasso, the former chairman of the New York Stock Exchange, was ordered to return at least $36.5 million to the Big Board, the biggest setback yet in his battle to keep $190 million in disputed pay.

In a victory for New York Attorney General Eliot Spitzer, State Supreme Court Justice Charles Ramos said today that Grasso must surrender loans of $6.6 million and $29.9 million he took against his retirement benefits in 1995 and 1999, plus interest, and part of an additional $58 million in payments he received in 2003. Spitzer sued Grasso in 2004 to recover pay he claims was ``not approved or reviewed'' under laws governing non-for-profit organizations.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aBh0gJjBWPK0&refer=home
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By Fuggedaboudit on 10/19/2006 3:33 PM
That's like the government telling John Gotti that he has to give the money back to the mob.
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By Wallstreet Press on 10/19/2006 3:41 PM
http://beyond-the-illusion.com/files/Orvotron/Spirit-BBS-Files/text/robocit.txt

"Shortly after the publication of "The Wall Street Jungle" in 1970,
it occurred to me that the organization of public opinion by the
media is the secret of the Stock Exchange's power. Two factors
supported this proposition: (1) The climate of opinion created by
the financial press disposed investors to accept highly unprofitable
theoretical constructions with no basis in fact to explain the
market's fluctuations. (2) I had supplied financial editors and
writers with the materials that had proved their predictive value
and which should have enabled them to give investors a clearer
structural approach to the market.

I had shown that the system created for investors was unwieldy
and almost inevitably ruinous; that it enabled the Exchange
establishment to compete with the public by employing deception
and an array of secret practices. Yet almost every important
financial newspaper appeared determined to see existing theory
preserved and kept separate from the facts."
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By piddly_sum on 10/19/2006 3:47 PM
bobo -

We know that the "official" short interest is not even close to being an accurate count.

Is it safe to say that for abused issues, this number that is reported is a reflection of the number of shares on deposit at DTC?
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By Get Ready to VOTE on 10/19/2006 3:50 PM
Even if you, your family or friends have not ever voted.
Your VOTE is needed now more than ever.

The political republican and democrat THUGS should be
cleaning horse shit and cow shit out of barns for income.
For the rest of their life.
Then maybe they will know how it feels to live in shit, as well as smell like it.

Educate everyone that you know and pass along this link

http://www.petitiononline.com/mrktrfrm/petition.html

they can decide if they want to join the battle.
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By ginger on 10/19/2006 5:12 PM
Re: NAKED, SHORT AND GREEDY...

Was an MP3 or video recording made of the panel discussion in LA this morning?
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By dreaming_of_a_fair_casino on 10/19/2006 6:19 PM
The people that gather and publish the fake short lists will be held personally and criminally responsible.

We're not going to take it.

How do they look at themselves in the mirror in the morning without seeing horns?

People like Orlando Cortes who knowingly puts out provably false information. It's like a cop saying I caught this guy with a bag of money and a gun, but he says he didn't rob the bank. Let him go.

That's a dirty regulator.

Contact Orlando Cortes to let him know what you think. According to him, most shorts on the PINKS and OTC could be covered in a day or two of trading. Think of the scammiest penny deals with the worst prospects. According to him, no one has shorted the typical deal more than a day or two of average trading.

Ask Orlando if he would guarantee that claim with his own money. Would he be willing to personally reimburse us if we lost money based on investment decisions based on his claims that turned out to be bullshit?

How does Orlando sleep at night? How big of a check did it take for him to screw us?

Did it ever occur to him that his NASD members might be lying to him or did he personally benefit in some way to keep his mouth shut?

"Questions regarding OTC equity short interest data may be directed to Orlando Cortes at (212) 858-5143; e-mail: orlando.cortes@nasd.com. Questions concerning the short interest reporting requirements may be directed to the Legal Section, Market Regulation at (240) 386-5126, or Office of General Counsel at (202) 728-8071."
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By dreaming_of_a_fair_casino on 10/19/2006 6:40 PM
The problem seems insurmountable when you talk about fighting government institutions, but most people in institutions are good people.

Usually, it is a few criminal pricks at the top that are the problem. The staff underneath usually hate these pricks and would love a chance to anonymously turn them in. This site needs a really anonymous way for staff at the DTCC, SEC and exchanges to post incriminating tales and documents on what REALLY goes on.

Forget the courts. A good scan and post could from a DTCC insider could move us way ahead in the trek to justice.

The pricks mistake is they don't keep a low profile. The corrupt can be identified by their pay check:

http://mutualfunds.about.com/cs/investmentfraud/l/blgrasso.htm

Identify the people on the take and get them replaced by honest civil servants and the system will correct itself.

Sure, the thieves currently control the media and currently elected politicians, but that can change in an instant.

Viral emails have reached every American in less than a week. We have the tools to get our message out.

We just need the will.

If you have time after talking to Orlando Cortes, be sure to say high to the SEC's boss to tell him what you think:

Senator Shelby's phone number in Washington is (202) 224-5744, and his email address is senator@shelby.senate.gov Give him a call, and tell him what you think. I'm sure he'll be glad to hear from you.

http://www.rgm.com/articles/faulkingtruth2.html
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By InTheKnow on 10/19/2006 6:53 PM
Ginger. Yes!

You will definitly hear more about the forum.
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By InTheKnow on 10/19/2006 6:56 PM
Oh and a reporter from the Wall Street Journal was there!
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By bobo on 10/19/2006 7:21 PM
Intheknow: Was he driving a red Neon, and was he trespassing?
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By neon on 10/19/2006 7:30 PM
There are way more of us than them. They are the thieves and we are the victims.

As the masses come pounding at the gates of their community, they need to ask if their haul is worth living in fear.

It is a dim witted reporter that would want to put their face up front to personify the criminals that ripped off the masses, knowing we can google their address.

As easy as it was for them to annoy people they believed were close to Bobo, it isn't that hard for them to be annoyed.
Two former Treasury secretaries join hedge funds By PhantomCertificates on 10/20/2006 7:50 AM
I'm not sure if you've seen this one yet or not, but I figured I'd post it here if you didn't.

http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B10102E00%2D2B69%2D4A46%2D83EA%2D6A2F9B6963D3%7D&source=blq%2Fyhoo&dist=yhoo&siteid=yhoo

Two former Treasury secretaries join hedge funds
Cerberus taps Snow as chairman; D.E. Shaw hires Summers
By Alistair Barr, MarketWatch
Last Update: 7:17 PM ET Oct 19, 2006


SAN FRANCISCO (MarketWatch) -- Former Treasury secretaries John Snow and Larry Summers joined hedge funds on Thursday, the latest sign of the industry's growing influence.

Cerberus Capital Management LP said Snow joined the $16.5 billion hedge fund firm as chairman.

Cerberus, which also specializes in buyouts and corporate restructuring, will benefit from Snow's political and business contacts. Before heading the Treasury, he was chief executive officer of CSX Corp. (CSX : CSX Corporation, CSX35.89, +0.31, +0.9%) and was a director at Johnson & Johnson (JNJ : Johnson & Johnson, JNJ68.77, +0.73, +1.1%) , USX and Verizon (VZ : verizon communications, VZ37.50, +0.29, +0.8%) , Cerberus noted.

"It's an honor to have a person of Secretary Snow's stature join the Cerberus team," Stephen Feinberg, chief executive of Cerberus, said in a statement. "We will benefit enormously from his vast experience in business operations as well as his keen insights to economic trends and forces."

D.E. Shaw said it hired Summers as a managing director. Summers will work part time advising the $25 billion hedge fund firm on strategy, portfolio management and operations, D.E. Shaw added.

Before joining D.E. Shaw, Summers was president of Harvard University. He served as Treasury secretary in the Clinton administration.

Alistair Barr is a reporter for MarketWatch in San Francisco.
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By eager to hear on 10/20/2006 8:04 AM
...any news on the LA Conference on short selling.
anything good come out of it?
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By msucog on 10/23/2006 3:56 PM
what sort of turnaround does it usually take from request to receipt of foia data?
*** Tomorrow the Forum in LA *** By InTheKnow on 10/18/2006 11:46 AM
Hear it yourself, you can, go to the upcoming "Naked, Short, and Greedy" forum in Los Angeles, hosted by Dr. Susanne Trimbath. Dr. Patrick Byrne, and Arne Alsin will join Dr. Trimbath in a discussion of naked short selling and the mounting crisis in the U.S. equities markets.

It's not too late to register. They will make room for you!

www.stpadvisors.com/events.html

Naked, Short & Greedy: IS WALL STREET ABUSING THE PRACTICE OF SHORT-SELLING STOCKS?
Presented by: STP Advisory Services, LLC

October 19, 2006
Registration and buffet breakfast begin at 7:30; speakers start at 8:15; event concludes at 11:00
$45 in advance, $60 at the door

Park Hyatt Los Angeles
2151 Avenue of the Stars
Los Angeles, CA 90067

Do you know that you may be holding electronic-entry “entitlements” in your brokerage account that are not backed by any real shares of stock? This problem affects your ability to cast votes in corporate decisions. Did your last 1099 show “non-qualified” dividends, which were taxed as ordinary income? The IRS now requires brokers to separate the reports when you get paid “cash in lieu” on entitlements instead of dividends on real shares.

Votes cast in excess of outstanding shares on corporate ballot issues are becoming commonplace. Public companies and investors complain of share prices depressed and diluted by heavy selling of phantom shares created by DTCC settlement procedures.


On October 19, STP Advisory Services, LLC, will present a rare look into the damage done to investors and companies by short selling and settlement failures. The event will include remarks by three speakers with special insights.

Dr. Patrick Byrne, CEO of NASDAQ-traded Overstock.com, will discuss the trading of “phantom shares” that appear to far outnumber those officially issued and outstanding in OSTK. Portfolio manager and financial writer Arne Alsin will reveal insights gained as an investor in large-lot trades in markets systemically flawed by FTDs. Dr. Susanne Trimbath, an economist with operations management experience at DTCC and the Pacific Clearing Corporation, will illuminate how trading practices take advantage of loopholes in the settlement system to the detriment of both public companies and investors.


Registration fee includes buffet breakfast, event materials and post-discussion coffee. (Valet parking not include.) Click here for more details and to go to secure, on-line registration; or visit us at www.stpadvisors.com/events.html
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By virakiller on 10/18/2006 12:22 PM
carmelo DONOT sell all your shares just ask for the "paper"
this will only "meltdown" if we allow it to happen

ALL AMERICAS MONEY IS HIDING OUT in the "off-shore"

asking for PAPER CERTIFICATES can help us bring this STOLEN money home
to America

I hope you see this carmelo
AND
I hope we KICK AZZ tomorrow in LA
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By bbhindyou on 10/18/2006 1:20 PM
ORDER CERTS .
THE CERT WELL WILL RUN DRY IF WE ALL DO.
Be a biter, bug the dtcc ,drain it cert by cert ,drop by drop.
We as individuals may only take a small bite but the large number of small individuals ordering certs WILL KILL the dtcc.
Drip drop.
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By Bobo on 10/18/2006 1:43 PM
I really believe that if my numbers are reasonable - and I can't really find a flaw in them, or I'll happily correct them - the problem is so out of control that it could represent many hundreds of bllions of dollars worth of original sale price FTDs, now marked to market far lower.

But what would that cost to cover? How many trillions?

This is the dirty secret that I believe the SEC is so terrified of, as is the DTCC, as is Congress and the administration, as is the Federal Reserve.

The article the other day about reducing margin requirements for insitutional investors (and hedge funds) to 15% is the last straw. Now we are just about back to where we were pre-crash of 1929. Margin allows grotesque and foolhardy leveraging, anonymous pools of cash are run by celebrity-billionaire operators, the uptick rule is all but a thing of the past, and the SEC is more a facilitator of larceny than a police force.

Maybe the only way they can wring out the huge mess is to collapse the system, destroying the prosperity of a nation, and of several generations just as they enter retirement age. Then, another S&L-style bailout will take place, as I predicted a year and a half ago - for the "good of the country" and all. Wall Street will make fortunes on the way down as it did on the way up, and taxpayers will mortgage their childrens' futures to have a substinence-level existence in a wrecked economy. Or maybe they will only let it get so far as a few obvious failures, and then just change the rules, forgiving the raping of the last decade and the creation of orders of magnitudes of counterfeit stock, and again, bailing out via the government.

Note that all possible scenarios other than forcing Wall Street to disgorge the money it stole involves taxpayers picking up the chit.
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By prime on 10/18/2006 2:20 PM
http://en.wikipedia.org/wiki/Prime_brokerage
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By InTheKnow on 10/18/2006 2:53 PM
Bobo:
That is exactly why a special prosecutor will never be called and all these characters are paying lip service to everyone. The only way is to educate the masses and then let the government deal with the people.
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By msucog on 10/18/2006 3:10 PM
if the issue was truely a "non-issue" then they'd have no problem opening up their books and providing total transparency. they can't do that because the numbers would prove the so called conspiracy theory. i don't see how they aren't required to be completely transparent in the first place...this is a matter of national security because this invokes critical instability and thievery in the system that most americans are a part of. if the system continues to fail and dig itself in deeper, the eventual panic could send the market and economy into freefall. this could be the next 9/11 except on a global scale. there are a lot of our "friends" in enemy states that would be out if our market crashes...who thinks iran and korea aren't looking for such an opportunity to advance their agenda? this is more than simply a few pennies missing...
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By rtway1 on 10/18/2006 3:10 PM
" Most people are to lazy or to stupid to do the work to get it" That hits the nail on the head. Most people can give you every football statistic that can be printed, but when it comes to their financial well being they are brain dead and don't want to come back to life. It is too much work.
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By How big??? Try $1.3 Trillion a year!!! on 10/18/2006 3:32 PM
$6 billion per day of fails to deliver and receive times 220 trading days = $1,300,000,000,000 A YEAR!!! Man, that's a lot of dough!!!
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By davidn on 10/18/2006 3:33 PM
Bob, you should have a section of indisputable facts on the front page, each with a hyperlink to a page with the footnote. This way we can fight the spin with facts.

Here's a start. Note how the word "trade" includes debt, so dollar values are skewed.

Indisputable Facts from 2005:

Dollar volume of debt and equity trades cleared through the NSCC each day: $500 billion (1)
Number of debt and equity trades cleared through the NSCC each day: 25.4 million (2)
Average dollar volume of a debt or equity trade: $19,700 (3)

Net marked to market value fails to receive equity trades outstanding: $3.4 billion (4)
Net marked to market value fails to deliver equity trades outstanding: $2.4 billion (5)
Net marked to market value of stock borrow program equity trades outstanding: $1 billion (6)

Net dollar volume of trades needing to settle on a typical day: $50 billion (7)
Net dollar value of trades that fail to settle on a typical day: $5 billion (8)
Value of Insurance Fund: $1.3 billion (9)

Number of brokerages protected by SIPC: 5,959 (10)
Percent of SIPC brokerages participants at the DTC: <10% (11)
Number of foreign and other non SIPC brokerages: Unknown

Percentages of brokerages who pre-net before CNS and not included in DTCC figures: >90%

Securities owned by Cede & Co. $31.2 trillion (12)



Footnotes:

1. DTCC annual report, pg. 3 http://dtcc.com/AboutUs/2005annual/dtcc2005_annual.pdf
$130.7 trillion / 260 weekdays = $500 billion per day

2. DTCC annual report, pg. 3
6.6 billion trades / 260 weekdays = $25.38 million per day

3. $500 billion / 25.4 million

3. DTCC annual report, pg. 64
"open positions due to NSCC approximated $3,423,028,000"

4. DTCC annual report, pg. 64
"open positions due by NSCC to participants approximated $2,445,326,000"

5. DTCC annual report, pg. 64
"...and $977,702,000 ...for securities borrowed through NSCC’s Stock Borrow Program."

6. DTCC annual report, pg. 64
Assumption that this represents a typical trading day's volume

7. DTCC annual report, pg. 64
"... NSCC has an obligation to complete pending transactions totaling $49.9 billion."

8. According to NSCC filings with the SEC
SEC proposed rules, pg. 3
http://www.sec.gov/rules/proposed/2006/34-54154.pdf
"According to the National Securities Clearing Corporation (NSCC), on an average day, approximately 1% (by dollar value) of all trades, including equity, debt, and municipal securities, fail to settle."
$130.7 trillion x .01 / 260 = $5 billion

9. Securities Investor Protection Corporation pg. 3
http://www.sipc.org/pdf/2005AnnualReport.pdf
"At year end, the SIPC Fund stood at just over $1,286,000,000."

10. Securities Investor Protection Corporation pg. 40
"Currently, SIPC has 5,959 members."

11. DTC Participant List
https://login.dtcc.com/dtcorg/binary/19003Part_Alpha.pdf
There are 1006 participants representing less than five hundred unique entities.

12. DTCC annual report, pg. 24
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By mhelburn on 10/18/2006 3:43 PM
I can't help but think of Nazareth's comment when Reg SHO was put in place and nothing happened. "They just wanted their stocks to go up...! Reg SHO was put in place to stop short squeezes and keep the criminals from having to cover. If the problem wasn't immense, Reg SHO would never have been put forward. The whole idea was to give some transparency and give the criminals a chance to cover gracefully, "without volatility". There is no grace on Wall Street. They slipped in the language about locating rather than pre-borrowing which just facilitated more criminal behavior. The SEC was had. We don't need more rules, we just need the old laws enforced.

Straight through processing has been touted as the answer. It would be the answer to hiding all the previous fails. If the pre-netting, netting, SBP, ex-clearing and desking trades leave enough loopholes to create counterfeit shares in the current system, why would anyone believe that straight through processing would be any better. Clean up what we have by dismantling the loopholes..the same way they got created... only faster. It has been two years.. and there is no improvement...

Promises to deliver shares as hedges for options are not shares. They are not delivery. Make them deliver the shares.. not share entitlements. Demand a Pre-borrow and let the options MM bear the entire cost of running options trading. If someone wants to sell an option, let the MM find a buyer.. If there are no buyers... tough! They should deal in options... strictly options.. if they can't make a market without an exemption that allows them to naked short... 86 the whole bunch.
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By davidn on 10/18/2006 3:45 PM
How big, the $6 billion figure is a snapshot in time - it doesn't get bigger from day to day. It is the typical average outstanding.

That said, it massively underestimates the problem because it is marked to market at the depressed prices and ignores pre-netting and x-clearing.

This problem will NEVER bankrupt the economy as the money will never leave the US on a net basis. If anything, money will come into the US. As the thieves are forced to write us checks as the fails are covered, the money never leaves the system.

$a zillion for us investors - $a zillion the brokerages can't pay = a net change of zero.

Don't you love netting? The US economy has a net $0 change and they transfer their wealth to us when they are forced to honor their IOU's. We may even be able to buy a brokerage or clearing house or two on a firesale as they go bankrupt.
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By davidn on 10/18/2006 3:53 PM
Options are called derivatives because they DERIVE their value from the underlying stock. When options force hedging transactions with a whole different set of of rules than the rest of us equity players follow, then they begin to AFFECT the price of the underlying equity.

They should either call them AFFECTIVES because their intense leverage and ability to manipulate and AFFECT the share price or else, more reasonably, they should follow Mary, Bob and Tommy Toyz' suggestions.
Re: How Big is the Failing To Deliver Problem, And Why Should I Believe You? By davidn on 10/18/2006 3:56 PM
"Average dollar volume of a debt or equity trade: $19,700 (3)"

This drives home that the NSCC trades are pre-netted and don't reflect a typical $1000 retail trade.
Re: How Big is the Failing To Deliver Problem, And Why Should I B