Great article - thanks for posting it, urge all to read it carefully.
Many of us have been trying to detail and discuss these issues from the very beginning of this particular board. Many times we have been subjected to attacks emanating from self-styled "cyber sleupps" claiming there is "no such thing," no real problem or that any problem is not worthy or that our discussion somehow takes resources away from penny ante stock fraud. Were/are these "sleupps" tools of hedge funds and big money financial fraudsters? I suspect more answers to these questions will come out in the near future.
This excerpt is very informative:
The DTCC claims delivery and receipt failures are a rolling $6 billion per day.
The disconnect in the numbers is CNS netting, wherein all fails are netted against all shares held long by the brokers, effectively concealing 90+% of the problem once netting is through.
The $63 billion number doesn’t include any of the massive international clearing firms. And that number is after pre-CNS netting, where the day’s buys are used to offset the day’s sells (even naked sells) at the broker and clearing house level, before reporting to the SIA, and before going into the CNS netting system.
Of the $130 to $160 billion per day that trades in stock, per the DTCC, 96% is handled by CNS netting. This is consistent with the disconnect in the $6 billion and the $63+ billion numbers. 96% is handled by netting, which means 4% isn’t. 4% of $130 billion is $5.2 billion not handled by CNS netting. Of that $5.2 billion, $2.1 billion fails. $1.1 billion of the fails are accommodated by the stock borrow program. $1 billion isn’t, and goes onto the $6 billion post netting failure pile.
$5.2 billion per day aren’t handled by CNS netting. $2.1 billion fail. That is 40% of the trades, fail. $130 billion to $160 billion stock trades daily. $63 billion fails just in NYSE firms. That is around 40%.
The SEC insists that the failure issue isn’t a big problem. So does the DTCC. So does Wall Street. None of these entities have commented on the SIA spreadsheet, nor has the NY financial press. Not one comment. None.
$63 billion is a big problem. That is a mark-to-market number, where yesterday’s $20 stock is today $1, thus yesterday’s $20 billion problem is now valued as a $1 billion problem. That means the actual true value of the problem is likely 10-20 times larger.
$630 billion to $1.2 trillion is a very big problem. Even by NY standards.
The SEC “grandfathered” all failed to deliver trades prior to January, 2005, effectively pardoning all those trades (for which money was paid but no stock ever delivered), from ever being required to deliver. This amounts to allowing those that violated delivery rules to keep the money from their illegal conduct.
The SEC keeps the number of shares grandfathered, as well as the dollar amount, secret, for fear of creating market disrupting “volatility”.
The above numbers do not take into account the large number of undelivered trades that are handled “Ex-Clearing” – a way of handling delivery outside the system. Nor do they take into account pre-CNS netting, nor international clearing house fails.
Many securities scholars believe the “Ex-Clearing” failure problem is 10 times larger than the in-system problem the above numbers represent.
Many investors that think they have “shares” in their brokerage accounts, don’t. They have “markers” that have no underlying share to validate them. Some call these “counterfeit shares”, with good reason. The technical term is “Securities Entitlement.”
UCC8 mandates that all Securities Entitlements have a genuine share on deposit at the DTC, or in the broker’s possession, for each Securities Entitlement. That rule is ignored by the SEC and Wall Street. |
