From Sliders thread; good information;
To: smh who wrote (10395) 6/28/2008 3:46:07 AM
From: smh of 10415
More on the demise of Bear Stearns and the role played by "Naked Short Selling"
investigatethesec.com
Cannibalism on Wall Street - June 26, 2008
David Patch
There is no mercy on Wall Street when traders and savvy investors are provided opportunity to eat their own.
With subprime write-down’s becoming the new quarterly event it didn’t take a rocket scientist to figure out that the financial sector was going to take a hit. How big a hit however would be up to those who trade these markets with regularity.
Quarterly trade settlement data now available on the SEC website illustrates clearly the correlation between a trade settlement failure and a market collapse. Unlike prior data that revealed a more manageable problem when it came to the financial sector, since it was the financial sector responsible for trade settlement, this new data reveals how predatory the industry can become even to one of their own.
Consider, for example Bear Stearns. Bear Stearns was under a very public attack by short sellers and market pundits over subprime liabilities. Soon rumors circulated about their demise and the ensuing run on the bank made those rumors come to fruition.
Question is which came first, the run on the bank by legitimate investors holding stock in Bear Stearns or by Investors who sold down the stock on shares that could not be accounted for to settle. And if the latter was the initiation of a bear raid the financial services members who executed such trades would be responsible for the destruction of on of their own.
Taking into consideration the reporting structure of the CNS Fails data, fails are reported on Trade + 3 days as a fail if such trade does not close out on time. Thus, for a trade executed on Wednesday March 12, 2008 a fail would be reported on Monday March 17, 2008. Similarly a trade executed into a failure on Monday March 17, 2008 would show up as a failure on Friday March 20, 2008.
Date CNS Reported Fails Closing Price
Bear Stearns BSC 3/10/2008 36,297 $62.30
Bear Stearns BSC 3/11/2008 149,700 $62.97
Bear Stearns BSC 3/12/2008 135,647 $61.58 Trade Executed
Bear Stearns BSC 3/13/2008 19,424 $57.00 T+1
Bear Stearns BSC 3/14/2008 201,768 $30.00 T+2
Bear Stearns BSC 3/17/2008 1,247,876 $4.81 T+3 (CNS Fail) Trade Executed
Bear Stearns BSC 3/18/2008 749,837 $5.91 T+1
Bear Stearns BSC 3/19/2008 2,120,638 $5.33 T+2
Bear Stearns BSC 3/20/2008 13,789,126 $5.96 T+3 (CNS Fail)
Bear Stearns BSC 3/24/2008 12,588,395 $11.25
Bear Stearns BSC 3/25/2008 11,736,910 $10.94
Bear Stearns BSC 3/26/2008 7,673,413 $11.21
Bear Stearns BSC 3/27/2008 9,340,963 $11.23
Bear Stearns BSC 3/28/2008 12,396,655 $10.78
Clearly, evidence reveals a significant premonition that Bear Stearns was about to take a nose dive as more than $64 Million worth of Bear Stearns shares were sold into net settlement failure on March 12, 2008 as the failures increased 6-fold from 200K to 1.2 Million. The pattern continues during the markets decline leading into Monday March 17, 2008 where the fails again accumulated 7-fold from 2 Million to near 14 Million while the market collapsed from $30.00 to a closing price of $4.81.
Regulators will tell you that settlement failures are a necessity to the market place because each represents liquidity. But why a market experiencing a near death free fall would need sell side liquidity is unknown.
In fact, based on the guidelines of Regulation SHO, none of this is considered abusive. These are the lead in fails that take place prior to the critical threshold level required to meet SHO threshold guidelines. These fails are also exempt from SEC action based on many being fails attributed to Options Market trading whereby the short seller rents out the options market maker exemption to naked short (sell without delivery) the equity market.
Unfortunately the market participants are far superior in intelligence when compared to the Securities and Exchange Commission meaning that the manner in which these excessive fails were executed into the marketplace will never be truly understood.
The piling on of the sell side market in Bear Stearns was calculated and done to create profit at the expense of valued shareholders. These fails represent sellers who had otherwise not been in this market but wished to enter in at a time of fragility for existing shareholders. The fact that Wall Street and securities regulations allow for these temporary raids is a growing problem as member firms kowtow to influential hedge funds.
Just to show that Bear Stearns was not limited to such abuses, the CNS data for Lehman Brothers, another targeted company, Merrill Lynch, and Citigroup reveal similar patterns simply to lesser degree. In March, as Lehman watched 25% of their market drop the level of fails increased near 10-fold with the fails closed out only after the drop occurred.
On Wall Street the code has been, don’t tread on me and I won’t tread on you but clearly things have changed as the drive for hedge fund business has resorted to cannibalization amongst the participants. Today member firms freely take on settlement failures at the expense of all public companies including their brethren. They do so without fear of an agency who has stalled on reforms to address this issue for better than 2 years now.
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