Geoff, the original argument against the DTC went something like this:
- FTDs (failure to delivers) exist, witness the Reg SHO list
- Naked shorting produces FTDs
- Shorting normally depresses a stock price
- It's not fair to be able to short shares that, based on a failure to deliver, can be deemed not to exist
- Hedge funds naked shorting all day long can destroy a company's share price
- The DTC is to blame for a faulty share borrow program
The anti naked shorting movement has been asking everyone to take the above at face value. Whenever you ask for concrete evidence of manipulation they always give the convenient excuse that the DTC is hiding the evidence and we need a Congressional investigation to pry it loose.
Then the DTC and SEC began to fight back. They pointed out very clearly that FTDs are not just the result of shorted shares that can't be delivered, but of purchases as well. If there were a Richter scale in the market, that revelation would be a 10.
Here's a very logical question: are more short sales or long sales transacted every day? Obviously, long. Bob O'Brien himself clearly delineates such a scenario. Suddenly all those FTDs can no longer, by prior definition, represent naked shorts as the flock was led to believe. No, they are simply shares of unknown origin which, given mathematically probability, would appear to be mostly from undelivered purchases. Ergo, FTDs are more likely to inflate a share price not depress it.
Oh, yes, I admit this is all still theory. Without access to the DTC books one isn't going to know for sure one way or the other. If someone wants the make an argument that there's a cost-benefit advantage in having more transparency at the DTC, then, fine, go make that argument. But to try to make the argument based on what appears to be an unwarranted bias against the short side of the equation is disingenuous. Worse, any reform (i.e. a lessening of undelivered purchased shares) might have the opposite effect on share prices.
- Jeff |
