Anthony @ Equity Investigations, Dear Anthony, Message Board

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Strategies & Market Trends : Anthony @ Equity Investigations, Dear Anthony,

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From: Patchie	4/17/2007 10:13:51 AM
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Floyd, I looked at that Canadian report and it was pretty benign. The agency that put it out claims to be a self regulatory organization but when you look at the enforvcement proceedings listed they don't really appear to take on much enforcement activities. As for their findings, again "emperical data" is identified but there was none published. The funny thing about this Canadian report, it seems to contradict everything we know to date. 1. In the Elgindy trial Elgindy was accused and convicted of Securities Fraud. He was, and confirmed in trial, naked shorting through a firm in Canada. 2. Canada was the first regulatory agency that brought an enforcement case against a BD for naked shorting in violation of Regulation SHO when they settled with Union Securities in 2006. 3. In 2000 the NASD proposed a change to then Rule 3370 to address the naked shorting coming through Canada. They cited the lack of borrow/settlement requirements in Canada as a loophole in which US investors were circumventing US laws by naked shorting into US markets via Canada. The rule was passed by the SEC in 4Q03. The new rule required US firms to conduct Affirmative Determination for non-member firms. 4. In the IDA/OSC trial against Pacific International the authorities challenged that the 5 US organized crime families were using Pacific International as a conduit to launder money. In that trial, the prosecuting attorney laid out the various schemes used to launder money and manipulate stocks and naked shorting was specifically brought up in the trial. 5. Finally, if the SEC and DTCC data (FOIA Data) confirms that nothing of substance has changed since SHO became law, and all this prior evidence and awareness of Canada as a conduit existed, where are the new fails being originated to offset this reports apparant summary that Canadian fails have reduced themselves. The funny thing is the SEC, in their public analysis of SHO, claimed that a significant improval in fails had taken place as well. • The average daily aggregate fails to deliver declined by 34.0% after the effective date of Regulation SHO. • The average daily number of securities with aggregate fails of at least 10,000 shares declined by 6.5% after the effective date of Regulation SHO. • The average daily number of fails to deliver positions declined by 15.3%. • The average age of a fail position declined by 13.4% after the effective date of Regulation SHO. • The average daily number of threshold securities declined by 38.2% from the pre- to post-rule periods. • The average daily fails of threshold securities declined by 52.4 %. But by dissecting the data the SEC results were proven to be totally inaccurate. 1. The average FTD's in March of 2006 were greater than they were in any other month since SHO had been in place. This is not a 34% improvement in FTD's under SHO. 2. The total number of companies with fails greater than 10,000 shares was higher in May 2006 than in January 2005. 3. The average age of a fail declined by 13.4% except that the NYSE took enforcement action (summer 2006) against 4 firms for improperly closing out the most aged fails first instead of the recent fails. These firms were swapping aged fails for new fails attaching the grandfather clause on the new fail instead. For example, the firm would take a 100 day old fail and close that out under mandatory close out provisions (even though it was grandfathered) and leave in it's place a 13 day old fail. The SEC analysis never factored this in.

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