Press Release
Source: Investor Communications International, Inc.
Investor Communications Urges Public Companies to Make Comment to SEC Regarding Proposed Rule Change Issued by the DTC to Prevent Companies From Exiting DTC's Electronic Clearing and Book Entry System
Monday March 3, 9:07 am ET
BLAINE, Wash., March 3 /PRNewswire/ -- Investor Communications International, Inc. ("ICI") -- ICI announces that the Depository Trust Corporation ("DTC") has on February 13, 2003, applied for a rule change with the SEC to prevent issuers from exiting the DTC's electronic clearing and book entry system that facilitates naked short selling. Information on the proposal can be found in SEC website under SEC Release No. 34-47365, file No. SR-DTC-2003-12, or at the Federal Register/Vol. 68, No. 35/Friday February 21, 2003/Notices, or at the www.icihome.com website. The 35-day comment period will end on or about March 20, 2003 and the SEC has invited comments during this interval. Companies that do not comment to prevent the rule change may be prevented from any opportunity to exit the DTC's electronic clearing and book entry system in the future. Companies are urged to act now and contact the SEC with their comment and disagreement of any rule that would limit their current rights.
The growing group of OTC Bulletin Board companies that began exiting the DTC's electronic clearing and book entry system in 2002 in favor of Certificate Only holdings include GeneMax Corp. (OTC Bulletin Board: GMXX - News), Ten Stix Inc. (OTC Bulletin Board: TNTI - News), Midas Trade (OTC Bulletin Board: MIDS - News), Hadro Resources (OTC Bulletin Board: HDRS - News), and Vega Atlantic Corporation (OTC Bulletin Board: VATL - News), among others. Other companies, including Intergold Corporation (OTC Bulletin Board: IGCO - News) have applied for or expressed their intent to withdraw from the DTC's electronic clearing and book entry system. These companies are opting out of the DTC system to combat the Naked Short Selling abuses made possible by the electronic transfer system, which is flawed and allows US $ billions in trading abuses to occur. In the absence of regulations preventing stock manipulation through naked short selling, companies must forge their own solutions that include exiting the DTC's electronic clearing and book entry system.
ICI Strongly Recommends Interested Issuers Provide Comment to the SEC Before Deadline: The SEC has invited interested persons to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. However, time is running out to make submissions on a proposed rule change that attempts to limit the form of, and rights to own property in certificated form according to standard bylaws of most companies in the nation. Persons making written submissions may do so electronically at the following e-mail address: rule-comments@sec.gov. The SEC file number should be included on the subject line if e-mail is used. In the alternative those interested may file six copies with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. All comment letters should refer to File No. SR-DTC-2003-03. ICI strongly recommends that companies affected provide comment on this important issue to the SEC.
The NSCC No Longer Guarantees its 3-Day Settlement System: The 3-day settlement system run by the NSCC does not ensure that shares that are sold in a transaction are ever delivered. In March of 2002, this fact was brought to the NSCC's attention. The NSCC website contained what the NSCC termed a "Trade Guarantee" in their website section entitled "FOLLOWING A TRADE: A Broker-To-Broker Trade Through NSCC". The NSCC "Trade Guarantee" was pulled from their website when it was pointed out to them that they were misleading the American public. The reprinted text from the now defunct NSCC "Trade Guarantee" is quoted as follows:
"TRADE GUARANTEE: Second, NSCC guarantees that a trade will be completed once it enters the system as compared, which means all trade details from the buyer and seller match up. This guarantee of settlement eliminates risk in the unusual event that a firm becomes insolvent."
What is particularly telling about the failure of the alleged 3-day settlement system is the fact that the NSCC no longer provides any such guarantee. Source: March 2002, dtcc.com
Litigation Against the DTC is Trying to Protect the Rights of Companies to Exit the DTC: Denver-based Transfer Agency, X-Clearing Corporation, DBA Global Stock Transfer, Inc. (GST), announced ten days ago that it has filed suit against DTC, seeking preliminary injunction regarding its recently publicized position refusing to allow companies to exit its electronic clearing and book entry system. DTC, in a letter dated February 10, 2003, to X-Clearing Corporation, claimed they have no procedures for responding to an Issuer request to exit the electronic clearing and book entry system, despite having exited several companies so far for X-Clearing Corporation. Robert Stevens of X-Clearing Corporation commented, "We have filed suit against DTC to protect our rights as well as the rights of our issuer clients in demanding physical exit of their securities". In what was thought to be a stalling maneuver by the DTC, the hearing in Colorado State Court to obtain temporary restraining order against the DTC that was scheduled for February 28, 2003, was delayed by the DTC who have demanded the matter be heard in Federal Court.
X-Clearing Corporation is a Denver based Transfer Agent and co-originator of a comprehensive and successful approach to the problem of naked short selling, that has spurred numerous media articles, dubbing the move the "OTC rebellion." X-Clearing Corporation, DBA Global Stock Transfer, Inc., has successfully exited several companies from the DTC electronic clearing and book entry system including Genemax Corp., Petrogen Corp. (OTC Bulletin Board: PTCG - News), Vega-Atlantic Corporation.
Naked Short Selling: Under a naked short sale of stock, short positions are not declared, shares are not borrowed to cover the short sale, and shares are sold without delivering the stock to the purchaser. Naked short selling results in the undermining of real shareholder ownership by naked short sales of stock and resulting failed deliveries of real certificates that artificially inflate share ownership and devalue the trading prices of shares in the marketplace. Unscrupulous brokers and market makers may conspire to manipulate and devalue the price of securities in this way. ICI has started the National Association Against Naked Short Selling. For information regarding naked short selling, and further updates on the activities of the organization, please register to receive news releases at www.nakedshortselling.com
Why Exit the DTC?: The basis for moving to a certificate only share transfer system has nothing to do with short selling but instead with "naked short selling" where shares sold are never borrowed, never delivered by the seller, but where the seller collects money for the stock they never delivered in three days. The 3-day settlement system run by the National Securities Clearing Corporation ("NSCC") does not ensure that shares that are sold in a transaction are ever delivered. This takes place routinely in the U.S. Securities industry.
Advantages of Certificated Share Transfers to Curb Naked Short Selling: In a "certificated" or "custody only" issue, the purchasing broker demands the certificate representing the customer purchase on settlement day. When the short seller refuses, the buy-in process commences. This process is more difficult and expensive for the naked short seller, since one short position is typically owed to many different firms. The exit from the electronic clearing and book entry system of DTC alone will not prevent naked short selling, but is one of many elements required to help combat naked short selling.
In a "certificated" or "custody only" issue, the burden of completing the transaction (assuring that the public customer actually receives the shares purchased) rests squarely on the shoulders of the clearing firms where compliant attempts must be made to get the shares that the customer bought in the first place. Failure to get delivery of purchased shares after 31 days is an NASD violation. Parking or kiting a buy-in is "market manipulation" as a "wash sale" under Section 9(a) of the Securities Exchange Act of 1934. The clearing broker has many options under the NASD UPC 3360 regarding where they go to obtain the shares that are due to their customer, creating flexibility for the broker if market makers decline the order for "guaranteed delivery." These consequences can be tracked and those responsible for not keeping within regulations and laws held accountable for their actions via litigation or regulatory investigation.
SAFE HARBOR STATEMENT
THIS NEWS RELEASE MAY INCLUDE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE UNITED STATES SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED, WITH RESPECT TO ACHIEVING CORPORATE OBJECTIVES, DEVELOPING ADDITIONAL PROJECT INTERESTS, THE COMPANY'S ANALYSIS OF OPPORTUNITIES IN THE ACQUISITION AND DEVELOPMENT OF VARIOUS PROJECT INTERESTS AND CERTAIN OTHER MATTERS. THESE STATEMENTS ARE MADE UNDER THE "SAFE HARBOR" PROVISIONS OF THE UNITED STATES PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND INVOLVE RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN."
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Source: Investor Communications International, Inc.
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