Alan Newman got his wish today.
Or at least one of his wishes. He asked the SEC for a count of the FTDs in OSTK for August 1, 2005, and was turned down...well, just because. He appealed it, and ultimately received the data.
(NOTE: I went back and looked, and that is not what he asked for - he asked for: "..actual number of shares comprising failed deliveries of shorted stock of Overstock.com (OSTK-Nasdaq) as of August 1, 2005." Now, one reason why there may be quite a bit of confusion and disagreement over what the numbers mean is because I wasn't looking at the actual source document when I wrote the original blog entry - the SEC likely agreed to provide PRECISELY what he asked for, nothing more, or less - the FTDs for SHORTED stock. But what about all the long shares that FTD but weren't marked short? Both domestic as well as international? Are those also in the number? Why would they be? I mean, other than because we would like them to be for a complete answer - why, precisely, would an agency that is very detail oriented and which tends to supply as limited a subset of data as it can, up and volunteer something that wasn't asked for? My hunch is they didn't - they supplied exactly what the request was for.)
Here is the letter that indicated that his request had been granted by the SEC, and here is the FOIA.
The FOIA data reflects a one day snapshot, which aggregates all clearing firm positions, for settlement date 8/1.
550K shares of OSTK, a Reg SHO list company, were failed to deliver as of August 1, 2005.
It appears that this is the cumulative total as of that date, not counting the ex-clearing fails, which experts indicate can be 10X or larger than the "in-system" fails. We are awaiting a definitive confirmation from the SEC on the interpretation of this as a cumulative total.
This should serve as a wake up call to investors, as well as to the apologists for naked short selling, who insist that there is no problem. I'm not sure how large the float is for OSTK, but my hunch is it is maybe 3 million or so...you can do the math on the FTDs from there.
This is the smoking gun. Over 10% of the float are failing - that we know of - the DTCC doesn't tell anyone how large the ex-clearing issue is.
We do not have a final confirmation from the SEC yet, but a prelimimary verbal was that the person spoken to "thought" that it represented the cumulative - he/she is checking to clarify.
As to how we interpret the data, I believe that shows an alarming issue nonetheless - this is a SHO list stock that was just off the list a few months prior to 8/1, so the notion that these could be legal FTDs is an unlikely one, to put it charitably. What we have here is an indication of fraud, IMO - the only question now is how massive a fraud.
I wonder what the FTD information for NFI looks like for April 12-26 2004? Or for the first 2 months of 2005? Want to bet that a lot of the trading in that issue was bogus, designed to act as a bear raid on the stock to force investors to sell, due to margin calls, or panic?
This is it, my friends. The SEC and the DTCC are allowing fraud on a massive scale - the only question now is how massive.
Sure would be nice if the rules mandating prompt clearing and settlement of trades were enforced. And would be even nicer if simple information about the nation's clearing and settlement system wasn't a closely guarded secret.
Any questions?