"Today, on the OSTK CC, Dr. Byrne revealed that out of 150 trades he executed in August for his purchases of the 50K that went undelivered for months, 144 turned out to be incorrectly marked long, subsequently failing. That's around 97% incorrectly coded as long. But still, FTD."
More Information and Intrigue on FOIA Data
Location: Blogs Bob O'Brien's Sanity Check Blog
Posted by: bobo 2/7/2006 11:22 AM
According to the latest FOIA request, 550K shares of OSTK were FTD as of August 1, 2005.
Or were they? Don't get me wrong - that is an appalling number, and clear evidence of massive failures in Reg SHO's ability to correct anything. But what does it mean?
My hunch is developing the more I think about it - Alan got precisely what he requested - the FTDs for SHORT sales of OSTK shares as of 8/1/2005 - we will assume until proved otherwise that is cumulative.
But what about long sales which subsequently failed? Are those included? My guess is no. Why? Because the SEC is very specific about the data it provides, and what was asked for had limiting language in it - specifically, the limiter, "short."
Today, on the OSTK CC, Dr. Byrne revealed that out of 150 trades he executed in August for his purchases of the 50K that went undelivered for months, 144 turned out to be incorrectly marked long, subsequently failing. That's around 97% incorrectly coded as long. But still, FTD.
So, what does this mean? Well, it means that 97% of all trades Dr. Byrne made were FTD long shares. Put another way, 3% were failed "short" sales. Kind of fun to position it that way, isn't it: "Only 3% of Byrne's FTD problem is as a result of "short" sales! There is no naked "short" problem!!!" And so on. One can practically hear Remond and Weiss and Mathews sharpening their pencils.
So what does the 550,000 shares of FTD "short" shares mean? Nobody knows, but the math looks pretty ugly if you use Byrne's actual experience and extrapolate - again, those are actual trades in the real world, not theoretical "possibilities" of what "might" happen.
So how big is the FTD problem inclusive of failed short AND long sales (incorrectly coded)? Nobody knows. We know one piece. Will we ever know the second piece? I'm trying to get some color on it, but don't hold your breath.
Just the 550K number is shocking. But entertaining the idea that it could be 3% of the total actual is even more shocking. And then take into account the number of ex-clearing FTDs, which are estimated anywhere from 4X to 15X the total "in-system" FTDs, and it gets really, really ugly.
And OSTK is just one company.
Welcome to the brave new world of fair and equitable markets.
Now, the SEC could easily clear all this up, by doing three things: 1) Give us a total cumulative total of all FTDs, regardless of how they are marked, as of today. 2) Enforce buy-ins for FTDs older than T+13 days. 3) Obtain from the NSCC the total number of ex-clearing trades in OSTK as of today - cumulative.
They are doing none of the above.
Comments?.
Copyright ©2006 Bob O'Brien
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Re: More Information and Intrigue on FOIA Data By tbs_theman on 2/7/2006 12:13 PM
This has been my thinking for awhile. The "bad guys" don't bother to mark the sale short, they sell IOUs from a bogus account. They are not marked "short" so Reg SHO does not have any effect on them. That's why stocks are on the list forever. Reg SHO is very specific that it attempts to block "short" sales. Not a word in it about long sales.
One of the easiest loopholes I've ever seen.
Re: More Information and Intrigue on FOIA Data By wade harris on 2/7/2006 12:18 PM
Good job, Robert! That is the essence of the controvercy. The problem is Trasnactions In Failure from an investor point of view. The B/D's blame the controvercy on the other side, thus the argument FTD VS. Fail to force cover. The mechanics of who is to blame is how the situation evolved . The more who learn how to exploit the system...the more the manipulations grow. We are at critical mass right now! Mr. Young & anyone with the guts to do some DD & show up with the evidence has an opportunity to resolve this systemic global (see Japan & India)problem before it implodes. Thank you for highlighting the nucleus...
Re: More Information and Intrigue on FOIA Data By AWS on 2/8/2006 9:37 AM
And Bobo - Sorry for all the words. If you want to simplify things for the troops, I give you permission to edit away all you want. Who needs all that Wall Street mumbojumbo anyhow, right?
I get the IOU analogy, but you still have to account for what to do with fails not produced by strategic NSS. Such fails should not be considered criminal. The problem is, one can't separate them from the "criminal" variety over time in the system. So you're stuck...unless your investigative pressures hit the specific dealer who knowingly aided-abetted some Austrian-Russian-Israeli-former Drexel/Dr. Evil who tried to flood the system with permafails. Right now, looking at 8/1/05 FTDs, you're basically trying to figure out, by looking at the color in the shallow end, which of the 14 kids peed in the pool...on 8/1.
But it is a start. I know.
AWS
Re: More Information and Intrigue on FOIA Data By rtway on 2/8/2006 9:38 AM
I really appreciate when you step up and break things down into a language that the average person can understand, and most important, lead all of confusing abbreviations and chic phrases that those that own the decoder ring can figure out,down to a conclusion. Most of this (professional advice,thoe well intended, leads a novice like myself in a state of confusion and takes our eye off the ball. The bottom line is that what is going on is f$%^&ing illegal,period, end of message. The most important thing is that energy spent, should be spent trying to fix the problem, not paint it a different color.I sure that all SINCERE people using this site would aggree that there are laws that are being broke. How do we get the attention of those who can rectify the situation. Don,t have to make it any harder than that.AWS I really appreciate your vast knowledge of your profession and your trading expertise. I would really wish you would use that experience to come to a solution that a novice such as myself could understand.I mean that in a good spirit, not to be a smart ass.
Re: More Information and Intrigue on FOIA Data By AWS on 2/8/2006 10:15 AM
///AWS- My point in case you missed it was that almost all of Dr. Byrne's purchases were filled from sellers who were shorting stock illegally.///
You don't know this. Unfortunately, you think you do. You have no real knowledge of how trades can fail otherwise, so you've jumped prematurely to believing that all of them were illegal shorts (when shorted.)
I'll be repetitive again, so bear with me. Let me construct a model:
1-
10mm share company goes public at $10 a share. All get sold, and no shares remain short at the underwriter...or in the system. $100,000,000 dollars of equity, 10mm shares, no shorts...a perfect world.
2- time passes...company looks dodgy. Shorts enter the game. Now 15,000,000 long positions out there, 5,000,000 shorts (all borrowed legally) ...all trades clear jsut fine...Bobo & Patrick not alarmed.
3-time passes. Something sparks share lenders not to lend (a la Byrne). Fresh buyers want 1,000,000 physical certificates. These get pulled from the lending pool. No legal shorts cover. Finding shares becomes more difficult. The 10,000 shares borrowed from Morgan Stanley are requested back, prompting a search elsewhere. Musical Chairs. Borrowing desks arrange for several blocks of 1000 shares to replace the 10,000. That is done, all deliveries made, no fails, but the borrow is getting tight.
4 - More non-lending buyers purchase shares. Some lending owners panic and sell out - leading to their back offices requesting their lent shares returned. The borrow pool is squeezed to the point that small deliveries are failed upon - not borrowed in time. The blocks that are borrowable become smaller and smaller (more likely to fail) and FTDs pile up. Bobo and Patrick alarmed.
5 - More pressure on the system. More non-lending buyers purchasing from lending owners. More fails, more screams from the new buyers for delivery. Bobo very alarmed, Patrick has a slide entitled "Jihad" at CC.
Now you can overlay a scheme of NSS over this one if you want (and BOY, do you want) but, NSS does not explain all the fails. And claiming illegal activity by the guy you happened to buy from, ain't the answer. In my model there is no illegal NSS, but a lot of screaming guys asking "Where are my shares!!!???"
I'll try to answer more questions for Bobo or Patchie or others to the extent I can [repeat: not an equity settlements expert] but someone needs to get the troops up to speed with the legal limits of trading shares where legal shorts exist. Legal shorts can become naked ones, and they can scramble for shares to borrow after the fact. Dealers could have a bed & breakfast scheme on the side to avoid reporting long-standing fails. I get that. Wall Street is full of slime - I agree. I saw slimy stuff going on around me, but t was more of the internal backstabbing variety rather than the illegal kind. I didn't work at Solly during the 2yr auction debacle. I didn't buy securities from one friend, sell them to another, kiting the difference with the dealer book eating the difference. Most Wall Street types are honest. Some let ambition cloud their jusgement and deserve to be lynched. I'm all for that.
AWS
Bobo- If you think I'm coopting too much space, being repetitive and generally too much of a PITA, let me know. I'll slink away. This is your batchelor pad not mine.
Re: More Information and Intrigue on FOIA Data By AWS on 2/8/2006 10:17 AM
rtway - What language needs further clarification? (seriously) I'm trying to help.
Re: More Information and Intrigue on FOIA Data By bobo on 2/8/2006 10:14 AM
AWS: I don't think you are clogging or that it is all mumbo jumbo - your point is taken, however there is no solution afforded in those points as to how to deal with the illegally generated fails. Neither do either of us know the number of illegally generated fails versus innocent.
I keep going back to settle the trades at T+3 as mandated, and reveal the data. All the blah blah blah doesn't change that as the obvious and preferred solution. I allows reasonable time to do a locate, and if none is forthcoming, the buy in has to occur.
So here's how you solve the problem: 1) Mandate borrow before sale, no exception. 2) Mandate buy-in at T+3, no exception. And do not release any of the cash from the short sale until delivery is effected. Simple. Easy. No long paragraphs of "but it's soooo hard" required. Don't sell what you don't have to sell, expect to be bought in if you violate the rules or can't find your cert, and eliminate the financial windfall for manipulators, who currently get access to the cash on a marked to market basis every day.
Nothing you have said changes the essential wisdom and viability of those solutions, IMO.
Re: More Information and Intrigue on FOIA Data By AWS on 2/8/2006 10:18 AM
rtway-
Oh, the bond stuff. You're right. That was a long-winded way of saying that bonds "can" trade t+15 minutes but that is not market convention. T+1 is, in treasuries. Equities "can" settle same day, but for most of us - we trade T+3.
Sorry,
AWS
Re: More Information and Intrigue on FOIA Data By bobo on 2/8/2006 10:26 AM
AWS - I think we get it - there are plausible legal ways to explain some of the NSS we are seeing. We need them to be plausible, versus certain, as we lack the data to collapse the wave form. I don't disagree, in any of the dozen back and forth, that there is plausible failing going on - I'm not sure that another two dozen posts will do anything but belabor that asked and answered point. My point is that it is equally plausible that a large percentage of the fails are illegal market manipulation - your explanation does not predict coordinated media assaults, false and misleading statements from clearing firms, 2.5 million shares trading when there is zero availability of legal shares, etc.
There is no way to collapse the waveform, and we have exhaustively covered the various characteristics of the waveform, so perhaps we can agree that some NSS is innocent, and some is fraud, and neither one of us has the faintest idea of how much is what. I know that I don't know, and am arguing for transparency and enforcement.
I don't want to turn this into 50 responses of "but it could be innocent" - agreed that some could be. Could. Probably is. How much is unknown. That do it for you? And that more transparency is required - then I can fold up the website and go home. OK?
Re: More Information and Intrigue on FOIA Data By AWS on 2/8/2006 10:32 AM
Bobo said:
///AWS: I don't think you are clogging or that it is all mumbo jumbo - your point is taken, however there is no solution afforded in those points as to how to deal with the illegally generated fails. Neither do either of us know the number of illegally generated fails versus innocent.///
Agreed. (Phew.)
//
So here's how you solve the problem: 1) Mandate borrow before sale, no exception. 2) Mandate buy-in at T+3, no exception. ///
So paired fails have to buy in one leg? The BD may be flat OSTK shares, and his back office has 20k shares owed to GS and has 20k shares due in from Merrill failing. He needs to" buy" more? He's positionally flat and has a pair-off on security delivery. And how does one guarantee delivery of that buy-in? We're not talking about a positional buy in, but a borrow, right? How does one guarantee delivery there?
And the dealer with that options position I keep mentioning...[short OSTK common/long OTC calls/short OTC puts] he needs to buy in one leg? The common may have been borrowable when the trade was initiated, and there may be in a bed & breakfast now, but he needs to cover the short in the common? As long as the counterparty and dealer keep rolling the options expiration/strike...well, Houston, we have a problem. If the options were allowed to expire, presumably the dealer would be delivered common (fake or real - doesn't matter) and some of that NSS mess would clean up. Less pressure on the borrow pool.
Sorry for more questions than answers. This is a hard puzzle.
AWS
Re: More Information and Intrigue on FOIA Data By AWS on 2/8/2006 10:39 AM
//
I don't want to turn this into 50 responses of "but it could be innocent" - agreed that some could be. Could. Probably is. How much is unknown. That do it for you? And that more transparency is required - then I can fold up the website and go home. OK?//
I'm done.
Good Luck -
AWS
Re: More Information and Intrigue on FOIA Data By bobo on 2/8/2006 10:38 AM
AWS, let's not clog the thread with hundreds of scenarios and questions - my statement stands - require buy-ins at T+3, and do not allow sales without a borrow in place. Simple. Yes, it will curtail more advanced exploitation of loopholes and cause some more elegant synthetic plays to be more difficult, but it will also stop fraud on an unknown, but presumably significant level.
I always lean towards protecting investors from being defrauded over enabling participants to create ever more evolved plays - I don't think it has to be black or white, but I also don't think that it will be solved on this thread, thus positing more and more esoteric permutations every other post serves no useful purpose. Perhaps you can start a thread in the forums to discuss it, and I will be happy to join you there as time allows? That would seem to be the most appropriate way of achieving both our objectives - discussion without clogging the blog.
That is my suggestion.
Re: More Information and Intrigue on FOIA Data By blackbartpo8 on 2/8/2006 11:13 AM
AWS-///AWS- My point in case you missed it was that almost all of Dr. Byrne's purchases were filled from sellers who were shorting stock illegally.///
You don't know this. Unfortunately, you think you do. You have no real knowledge of how trades can fail otherwise, so you've jumped prematurely to believing that all of them were illegal shorts (when shorted.)>>>>>>>>>>>>>>>>>
I simply quoted what DR. Byrne has found out. All of his transactions(144 of them) have been found to be illegal shorts. They were not identified as short sales and were not marked as such. Do YOU believe that he is jumping to the wrong conclusion when 144 separate sales transactions to him were all not marked as short sales as required. Do you think all of the 144 sellers just forgot to mark each separate trade? I have some bridges for sale to you if you think all of those sales were just innocent mistakes. If you did 144 separate bonds sales one day and forgot to locate and identify each one as to whether they were long or short sales do you think you would have a job the next day?
Re: More Information and Intrigue on FOIA Data By rtway on 2/8/2006 11:13 AM
thank you robert, well said.
Re: More Information and Intrigue on FOIA Data By bobo on 2/8/2006 11:18 AM
BlackBart: I think what he is trying to say is that if every sale that was made was a FTD held in another account, which the seller believed was an actual share, then it could all be innocent. I can see that as possible, but highly unlikely, unless there are basically no genuine shares trading, but only FTDs - which is actually more akin to a system completely out of control then my take on strategic fails being sold in an ongoing basis. But nobody knows. Nobody.
On another note, a new Forums section has been created for the Doggerel that thus far is the exclusive province of CupandSaucer. So anyone that wishes to view his important work can wade into the ooze there and engage to your hearts' content. My thinking is that life is too short to rub feces all over myself, but some do so in the name of performance art, and I suppose there is an appetite for that - so you know where to go to find it.
Re: More Information and Intrigue on FOIA Data By blackbartpo8 on 2/8/2006 12:36 PM
Bobo- I know what AWS was attempting to do but 144 separate transactions that were short sales not marked as a short sale at the time of the transaction is proof enough that this was not an innocent mistake. One or two maybe but 144? Those sellers knew at the time they were doing a short sale. Let's not cloud this with magical ways it could have happened when Alice went down the rabbit hole. Byrne is very clear as identifying the trades as short sales that were not marked. Did the sellers even try to locate stock prior to sale? I doubt it because if they had I am sure they would have marked their trades as short as required. Saying they were long sellers that got caught up in FTD's is not what Byrne said.
Re: More Information and Intrigue on FOIA Data By bobo on 2/8/2006 12:54 PM
I think his point is that it is not impossible, and that there could be a number of those 144 which are the result of a daisy chain effect. That's how I read it. But either way, it is as damaging as you could wish for:
Choice A, they are FTDs sitting unsettled in unsuspecting longs' accounts, who decided to sell when Byrne decided to buy. Statistically speaking, if most of the shares he bought fit this description, it would imply that the vast, vast majority of "shares" trading in the system are bogus, as 144 random trades turned out to be bogus. How scary is that?
Choice B, they were deliberately failed, and done so as part of an ongoing manipulation strategy.
Either choice says that we have a critical problem in the markets with OSTK, and likely with all the rest of the SHO list stocks -either by accident or by design, the lion's share of trading is bogus FTDs, which I would argue perpetuate a fraud against all new investors buying those shams, thinking they are getting legitimate shares.
Re: More Information and Intrigue on FOIA Data By AWS on 2/8/2006 1:39 PM
I'm overstaying my welcome. I'll strive to be brief.
//Bobo- I know what AWS was attempting to do but 144 separate transactions that were short sales not marked as a short sale at the time of the transaction is proof enough that this was not an innocent mistake. One or two maybe but 144?//
I'm trying to get up to speed with the lingo used here. I'm assuming what you call an FTD is a long in someone's brokerage account for which there was no delivery...ever. You make a diffence between that and a settled trade with delivery of securities made in a margin a/c. But in the case of the latter, your broker can/will lend out your once-settled shares to the tight borrow market.
When you turn around and sell out of your "settled long" to Patrick, your settled shares will act just like the unsettled FTD seller's trade...no shares delivered to Patrick. Your shares are lost in the tight borrow musical chairs black hole. So do you think your settled trade - long should be labeled a "short" because after settment it was loaned out? I believe Patrick is confused by what was presented to him on those 144 trades. I've heard him speak about them (now settled) but never in a completely clear way. Got a link so we can be on the same page?
Bobo: If you want to set up a special room for all this fascinating (yawn) FTD/clearing/repo/stock loan/mechanics stuff...please be my guest. I want to participate, but don't want to pollute.
ASW
Re: More Information and Intrigue on FOIA Data By bobo on 2/8/2006 1:57 PM
ASW - done. It is now up in the forums section. I encourage everyone interested in this topic to go there and check out the new section entitled Mechanics of Clearing and Settling.I'll pop in from time to time as well...
Re: More Information and Intrigue on FOIA Data By gih on 2/8/2006 5:22 PM
At the risk of going way off topic.
In response to the post above above "what if the banks could lend out money they don't have".
I hate to say it, "In the Know", but that's exactly what they do. The banks lend out "bank money" (checks, bank drafts, wires, etc.) As long as the banks all agree to honor each others' "bank money", then they don't need government money to back it.
Most bank money cancels out - bank A owes bank B ten million dollars, bank B owes bank A nine millon dollars. It cancels out so that A owes B one million and 18 million in mortgages are canceled out. It works like continuous net settlement - 98% of the time, everything cancels out.
If you get a bank draft from the banking system for a mortgage, you give it to the seller who deposits it right back into the banking system. The act of borrowing effectively prints money out of thin air.
The banking system prints money, the government borrows it and you pay the interest through your taxes.
Why doesn't the government print money directly rather than let the banking system do it? Good question!!!
Re: More Information and Intrigue on FOIA Data By mfairview on 2/8/2006 5:23 PM
Anyone else have problems with layout viewing this site with Firefox? Am running 1.5.0.1. The Doggerel section pushed everything to the right. Kinda funky to read. Maybe doggerel can be moved elsewhere? IE centers the text better.i
Re: More Information and Intrigue on FOIA Data By tbs_theman on 2/8/2006 5:23 PM
The problem AWS brings up is one created by the broker / dealers - How to make sure the FTDs with a "real" problem get a chance to settle. The answer: they don't. Enforce everything If you have 3000 shares in your sock drawer, but you don't know which one - find them first. If you don't deliver your shares promptly, the trade is canceled. NO EXCUSES!
The broker dealers don't want to cancel any trade. If they do, they lose the commission. And they are willing to defraud you and me to make sure they get their commission.
Re: More Information and Intrigue on FOIA Data By jza4 on 2/7/2006 12:21 PM
not to be picky or anything, but you may want to change the date to 05 from 06.
on to the blog, I think the SEC will only give what can not immediately cause any harm and will be very vague in the info that they do provide. It's gonna take a while to finally get the "foot" in the door somehow and to blow this wide open. But PLEASE keep up the good work and let us know if there is anything we can do to assist in furthering the cause.
Re: More Information and Intrigue on FOIA Data By bovinepoor on 2/7/2006 12:26 PM
I've been yakking for months about not calling these FTD sales 'naked shorting' because many were probably coded long; ergo, plain old sales followed by an FTD. This is because short sales require a borrow and naked short sales of SHO stocks by a market maker require cover within 13 days. And, I've been soundly thrashed for taking that position. Guess, just maybe, another WAG turns out to be correct? How about another, better worded FIOA request to the SEC? After all, the ground has been plowed and found to be fertile (versus futile).
Re: More Information and Intrigue on FOIA Data By bburrell on 2/7/2006 12:37 PM
It is well known in the industry that traders have marked short sale tickets as if they were long sales, to disguise the shorts. This has also come out in depositions in related cases.
Tricky part about this practice is that it is condoned by silence by the NASD. And you can't sue the NASD for violating its own rules, and if you want to sue your broker, you are forced into binding arbitration. This whole mess is a rigged game, like a dirty roulette wheel, or a fixed slot machine. And that is something the IRS uses to justify treatment of securities investments as betting.
We all need to wake up and smell the real stuff being shoveled here.
Re: More Information and Intrigue on FOIA Data By dave on 2/7/2006 1:15 PM
One thing to keep in mind is the multilateral netting.
Suppose client A sold Dr. Byrne a long sale. It wouldn't be that hard to find at least one long client around the time of the trade to allocate to Dr. Byrne's purchase.
Clients B through ZZ sold short sales.
As a group, the broker dealer was net short for the day and had an obligation to send shares to the NSCC corresponding to that net. Maybe they weren't able to meet that obligation and so it failed to deliver.
The previous blog talked about how the NSCC couldn't force delivery, but that is a total red herring.
The NSCC IS the party that is obligated to deliver as they step in between the trade.
The net selling brokerages have an obligation to the NSCC and the NSCC has an obliation to the net buying brokerages, but there isn't a net buying brokerage that matches up to a net selling brokerages. All the trades get netted and lost in the shuffle.
Here's the important part. THE NSCC HAS AN OBLIGATION to the buyer EVEN IF THE SELLER FAILS TO DELIVER TO THE NSCC.
The NSCC owed buyers $3,328,295,000 at current market prices at the end of 2004. If they tried to buy that in, it could easily be 100 times that figure or higher as in many cases there would be no float to buy.
From the DTCC annual report from 2004,
dtcc.com
pg. 60
"NSCC’s CNS system interposes NSCC between participants in
securities clearance and settlement. CNS transactions are generally
guaranteed as of midnight of the day they are reported to the membership
as compared/recorded. The failure of participants to deliver
securities to NSCC on settlement date, and the corresponding failure
of NSCC to redeliver the securities, results in open positions. Open
positions are marked-to-market daily. Such marks are debited or
credited to the responsible participants through the settlement
process. At the close of business on December 31, 2004, open positions
due to NSCC approximated $4,346,655,000 ($3,025,467,000 at
December 31, 2003), and open positions due by NSCC to participants
approximated $3,328,295,000 ($2,303,717,000 at December 31,
2003) for unsettled positions and $1,018,360,000 ($721,750,000 at
December 31, 2003) for securities borrowed through NSCC’s Stock
Borrow Program. At December 31, 2004, NSCC has an obligation to
complete pending transactions totaling $44.0 billion."
Re: More Information and Intrigue on FOIA Data By dave on 2/7/2006 1:16 PM
I posted this in the other blog, but I think it is important. The DTCC isn't owned by all the industry, but the DTC is.
Summary:
1. DTCC, which is possibly Cede & Co. is owned by:
NYSE, Amex, NASD, mysterious members of the financial community*
2. NSCC is owned by DTCC.
3. DTC is owned by the DTCC and their own participants. The DTC is also a trust governed by the US Federal Reserve and the NY State Banking Commission.
* this is based on identifying the shareholders of the NSCC and DTC prior to the merger. According to the 1998 annual report, prior to the merger, the DTC is a "Service company owned by members of the financial industry."
That seems like a pretty mysterious disclosure to me. I wonder who these folks are.
Re: More Information and Intrigue on FOIA Data By dave on 2/7/2006 1:17 PM
Click on this link and see how many participants have "clearing" in their name.
login.dtcc.com
Effectively, they net amongst their own customers. So if they clear for a net buying firm and a net shorting firm, those trades cancel out. For example, they may hold stock on behalf of a bunch of boutiques, which they lend out to daytrading firms that borrow it to short.
If this stock is lent more than once within their own pool of customers, who is going to know? No one knows how much stock they are supposed to have on hand.
Read up on the history of Adler Coleman for some insight.
Re: More Information and Intrigue on FOIA Data By bobo on 2/7/2006 1:47 PM
Bov: I think that FTD is fine - I personally don't like to use naked short selling anymore - I proposed fraudulent stock transactions, but that met some resistance, as there was dissension as to how many could be proved to be fraud. So FTD is probably the best euphemism for what I believe is fraud - in fact, it is difficult to believe that anyone can look at 144 out of 150 failed transactions marked "long" erroneously, and not conclude that someone was being defrauded out of their money, deliberately.
I'm often called paranoid, or delusional, but is it just me, or did all the articles today on OSTK skip that little observation? They parsed every dime on SG&A, but missed that of 150 trades, all failed, that 144 were incorrectly marked long. They also studiously avoided the implications of that on the 550K number the FOIA exposed. They further ignored Byrne's comments about the size and scope of ex-clearing - many multiples of whatever the true number for long AND short FTDs.
Hear no evil, see no evil seems to be the order of the day from the Wall Street press. As usual. Nothing new there.
And so it goes.
BTW, Cupandsaucer is making notable progress in filling up the Doggerel section - quite a word-smith, our C&S, along with his pen pal Mr. Weiss. If you want an example of the sort of toxic waste I have to deal with on a daily basis, read the second installment - or don't- it's all just the same thing over and over. You're a coward for being anonymous, you are a stupid, whaaaaaaa - clogging dreck of the most obvious and silly sort.
Doggerel, one could say...
Re: More Information and Intrigue on FOIA Data By bobo on 2/7/2006 2:17 PM
jza4, I think that we can send carefully worded FOIA requests for OSTK and for NFI for key dates - for NFI, obviously March 24-April 6, 2004, and then April 12-30 would be eye openers, as would be December 24-January 10, 2005. For OSTK, you could triangulate them around conference calls and big takedowns - allow T+3 days and then work forward a week or two to be safe.
I would use language like cumulative FTDs for both long and short sales, aggregated from all clearing sources.
BTW, for those that still have any interest, someone sent me the whopping 6 comments on Weiss's blog, and they were all his choagies telling him how smart he was, and how bad I am. I suppose nobody was allowed to point out that using his math he had omitted T+3 settlement, making a classic novice blunder. These guys kill me - many of the same guys from Mathews' blog are at Weiss', from what I can see, and all with the same lack of facts and abundance of venom that characterize their approach. I did note that the quality of discussion here is about 5 levels higher than what sticks there, which is likely why we are seeing huge traffic whilst those blogs languish. It is like being in another universe when you read their stuff - "Everyone there is crazy, they are all stupids, it's the twilight zone" and so n. Utterly forgettable, but confirms that the general intellectual capacity of the apologists is, to put it charitably, extremely limited...
Re: More Information and Intrigue on FOIA Data By AWS on 2/7/2006 5:26 PM
==
They further ignored Byrne's comments about the size and scope of ex-clearing - many multiples of whatever the true number for long AND short FTDs.
==
Headline on Piper Jaffray research piece to read:
Dr. Patrick "3 Comma Number" Byrne Out-Sagans Himself in Describing Ever-Expanding FTD Cosmos
Re: More Information and Intrigue on FOIA Data By Blackbartpo8 on 2/7/2006 5:49 PM
Bobo- Did Byrne state that his own trades in OSTK never settled and almost all of the transactions were illegal short sales. The sales were never identified as short sales? If so Byrne should demand rescission as he is entitled to do so as they were illegal trades. He can rebuy down here and save alot of money on his stock purchases. Also anyone who has purchased shares at higher prices can also do the same if they can prove that the transaction was a fraud. If Wall Street has to pony up funds on losing stock purchases they will soon stop this abuse. I reccomend everyone to do this who has lost money on their OSTK!
Re: More Information and Intrigue on FOIA Data By rtway on 2/7/2006 8:55 PM
Bart, I am certainly not an authority on this matter by a long shot, but wouldn,t you have to request your shares first to prove the FTD.
Re: More Information and Intrigue on FOIA Data By Alexander The Averager on 2/7/2006 8:56 PM
This is almost as interesting as the Divinci Code! Trying to summarize what you guys are saying is that I should get out of equities and bonds ASAP?
On a more serious note: Does your theory imply all these FTDs in the system from dealers such as Refoc that went under, hanging Greenspans if I may, then how do these hanging Greenspans get CLEARED from the system? Do they just stay for ever?
Do they get cleared only if investors and/or NASDAQ firms go bankrupt thus moving all shares to a value of 0 and hence eliminating all hanging Greenspans with them?
A new consipircy idea is that the war in Iraq (and now Iran) is based on evil Muslims trying to take down the entire western finanical system by techniques such as massive FTDs and that is why the US Gov first and formost stopped access to the financial system?
Finanally, I believe the secret catholic group Opus Diehards have landed on earth from another galaxy and are stealing the Earth's money and shipping it back to thier planet!
Re: More Information and Intrigue on FOIA Data By AWS on 2/7/2006 8:57 PM
Blackbartpo8-
//Also anyone who has purchased shares at higher prices can also do the same if they can prove that the transaction was a fraud. If Wall Street has to pony up funds on losing stock purchases they will soon stop this abuse. I reccomend everyone to do this who has lost money on their OSTK!///
...and you'd be laughed out of town.
Paired fails. The guys PB bought from were failed to by someone else, and someone else, and someone else...so the original "bad guy" who shorted the stock back last March can't be found. Every other seller was likely a long...at least on his brokerage statement.
Sorry, you are stuck owning at higher levels.
Re: More Information and Intrigue on FOIA Data By Jeff Mitchell on 2/7/2006 8:57 PM
OK, I understand the part where you say 97% of the FTDs are marked "long". I totally understand that if you can't somehow find a way to explain that "long" really means "short" you might as well turn out the lights here. But what I don't get is who at the DTCC is re-marking these trades? Someone on the take? A soldier in the mob? A plant by the Sith-Lord? TIA.
Re: More Information and Intrigue on FOIA Data By bobo on 2/7/2006 9:20 PM
Bart: Byrne indicated that 144 of his 150 transactions were marked long - but still didn't deliver. Thus, they are that most illusive of animals, the long FTD - how elusive, nobody really knows.
Alexander: Part of my philosophical problem with the SEC grandfathering all trades prior to a security winding up on the SHO list is that it creates a de facto pool of fraudulent trades, wherein an investor's money was removed from his account, but no share delivered. I'm kind of simple minded, no Illuminati or Trilateral commission required - take someone's money and don't deliver the product sounds like fraud to me. The cops saying all fraud up to a certain date or threshold never has to deliver the product, ever, sounds like state-sanctioned fraud to me. The SEC never indicated that it was even considering grandfathering until they dropped the bomb on everyone in December 04 - they knew that any request for comment would have been a bloodbath, and wisely just passed it by fiat, with the stroke of a pen, no comment or warning. Unprecedented, really.
Jeff: Very amusing stuff. Really. Perhaps set it to music and get a tent - I'd be in for my two bits. As to your question, I'm not sure that a long fail is re-marked short by the DTCC (actually the NSCC, but who is counting) - and even though there are rules against incorrectly marking short sales long, let's face it, it is an imperfect world, and folks will cheat at times - especially if there is money involved. Sort of like 340 out of 340 companies surveyed for over-voting having over-voting - nobody knows how it happens, and yet it is a ubiquitous practice. Just like the analyst abuse, and mutual fund front-running, and Specialist abuse, etc. Nobody saw anything, and yet the whole industry was knee deep in it. Tough sell.
I'm reminded of one discussion I had with a member of the press (who shall go unnamed) who took the position, "Why, that can't happen - it's illegal!" I asked if he drove to work every day on the freeway. Turns out he does, and the posted limit on his freeway is 55 to 60. And yet he, and most of the rest of traffic, moves at 70-80. "How can that be?" I inquired - that's illegal! Let's be adults here, OK?
If you want to take the credulous position that Wall Street has suddenly changed its stripes and is honest and conformist as the day is long, I would direct you to the articles from the weekend wherein JP Morgan is being hit for billions for out and out fraud in the bond market, and where short selling hedge funds were caught manipulating Teradyne using class action attorneys and contrived media slams. So the eye rolling, hand wringing sideshow is not particularly convincing - leave it to worm lips to try to sell that one, it falls on deaf ears here.
But the Sith Lord stuff is a knee slapper every time - I mean, imagine, after the S&L crisis, where Beebe was responsible one way or another for about 125 failed thrifts using a loosely affiliated network of deposit brokers and Wall Street guys, or where Valentine had 1200 related accounts to short sell from, or Elgindy organized bear raids on hundreds of targets, or Milken was involved in insider trading using a loose network of brokers - why, how wacky that anyone would posit that a central figure or two could be key in 1920's stock pool-like manipulations (like Jesse Livermore and Joe Kennedy used to run) updated with computers and better media via captured sources. How bizarre and incoherent. As long as you ignore most every historical precedent, and understand that most don't remember last week much less last year, you are safe.
But you should work on better tunes. Really. Something upbeat..."I never got naked with a short I didn't like"....maybe a duet with Cramer, a Cyrano spoof....
Re: More Information and Intrigue on FOIA Data By Blackbartpo8 on 2/7/2006 9:58 PM
AWS= Nice try but any illegal sale of a non-registered security allows the buyer to rescind the transaction. No questions asked! The orginal fraudulent seller can be found very easily. Remove his illegal profits and suddenly the system cleanses itself until the next scam. You have indicated that you have worked on the bond side of the market, correct? The bond market is reputed to have even a larger amount of FTD's. Working in that enviroment you probably never questioned your working situation which according to the law was operating illegally. Maybe you knew, maybe you didn't! Point is you are doing your best to clog here and distort the facts. If Dr. Byrne's purchases were processed illegally are you saying that he should just forget about it and put his butt in the air to await the next reaming? What about the rest of his company's shareholders? Should they just bend over?
Re: More Information and Intrigue on FOIA Data By blackbartpo8 on 2/7/2006 10:10 PM
An additional thought! Dr. Byrnes is charged with taking care of his shareholder's, right? If he is aware of his company's stock being diluted and manipulated illegally to the detriment of his shareholders is he obligated to pursue the vermin perpetrating theses frauds against his shareholders? You bet and he is about to set a precedent for all of corporate America. If I owned shares in NFI I would bring an action against the management for doing nothing while their stock is being manipulated illegally. This will become more important than Sarbanes-Oxley for CEO's.
Re: More Information and Intrigue on FOIA Data By InTheKnow on 2/8/2006 7:51 AM
Before the DTCC, Wall Street runners would physically deliver the stock certificates involved in the transaction. With the advent of the DTCC, designed to help speed up the paper crucnh, a monster was created.
The downfall of the system is the stock borrow program which creates counterfeit certificates. This is like creating automatic loans to people in a banking system without have the money in the bank to backup the loan.
The system is flawed, they know it and they can't get out from under it!
Re: More Information and Intrigue on FOIA Data By mhelburn on 2/8/2006 7:54 AM
Reading the list of participants, I came up with the following who have special accounts with "stock lending"or "stock loan" or lending in the name.
Wedbush/Morgan, Wachovia, Schwab, UBS, BA, DB, JPM, ML, Raymond James, RBC. These are the big boys. It appears that they get interest on the victim companies until they are bled to death and then move on to the next target. If the price goes down, the interest is less. If the legitimate shorts are the only ones paying interest, the big boys are missing out on a lot of money. If they don't report the fails to receive and pretend that the fake longs are short, they can collect interest on them. These fake shares have no owners..so they don't have to split the interest. There has to be a profit incentive for the brokers to let this prevail. Allowing the target companies to be driven to the pink sheets implies that the brokers are sitting on sizeable short positions. Why give up all that interest if they can't make it up some other way?
These guys have been caught many times doing illegal things. Lending out fake shares, charging interest on them is no worse than selling fake shares in the first place. Why would a broker borrow shares to give to a client when he can create them by naked shorting and can kite them around ex-clearing.. charge interest..
Re: More Information and Intrigue on FOIA Data By AWS on 2/8/2006 7:55 AM
////Nice try but any illegal sale of a non-registered security allows the buyer to rescind the transaction. No questions asked! The orginal fraudulent seller can be found very easily. Remove his illegal profits and suddenly the system cleanses itself until the next scam. You have indicated that you have worked on the bond side of the market, correct? The bond market is reputed to have even a larger amount of FTD's.////
Sigh.
You simplify that which cannot be simplified. What is now a naked/failing short may have been a legally borrowed short when the chain began. The holder of the hot-potato today (a long that has not fully settled) is not selling anything that should have been designated as a "short sale." He's selling out of a long position.
I'm not mucking up this blog. I'm injecting an ounce of the real world into an otherwise hopelessly doomed positive feedback loop.
I don't have all the answers...all the data...a perfect model to explain everything. What I do have is a modest understanding of how securities actually move around int he system, and how fails occur and clear up.
You see a light in the sky. You start with UFO and move backward through the list of possible reasons for the brightness. [Just like my wife.] I start with the most likely explanation and move forward. That's just me.
I understand - you're all lathered up. Sick 'n tired of all this corruption where the villagers are being raped, and the Sherriff of Nottingham is in the service of the pretender to good King's throne. Biggest financial scam of our generation. If only the world had a mouthpiece.
Good luck. Don't let a boring little explanation stand in the way of the mission.
Fails in the bond market are a common occurance and rarely are they indicative of a nasty cabal trying to fleece the good population of the Nottingham Forest. Occasionally there are buy-ins in smaller eurobond issues that some enterprising young buyer has coup'ed. The typical reason is that dealers are required to make markets in all sorts of issues. It is quite typical that they don't have in inventory that which their customer desires. Market convention says that any dealer worth his salt gives a bid and an offer on all securities on his list. Let's say he is a semi-government dollar eurobond trader...and there is out there a $300mm SNCF 5.85% of 6/2009 piece of paper out there. Most of the issue is put away (not in the street float) and only $20mm or so is availaibe to trade. Some could ask around for an offer on the paper (for say $40mm) in Tokyo trading hours...some unsuspecting dealer there might not know how difficult this security is to find/borrow...makes an offer which seems expensive on a spread basis...only to find that he's screwed. Short, failing...and when his dealer in London tries to bid the issue up in the broker markets he finds no sellers. Spread tightens every day. Other shorts get nervous, and you can get a buy-in at some point. With bonds, you know pretty quickly when you're #$%@ed. All the players are pros. Most lend/borrow. Fails are a way of life - not evidence of an NSS conspiracy to defraud the longs. Fails are expensive (coupons owed.)
I'll be the first to tell you that I'm not an expert in equity settlements, but I do know how fails work and how they don't.
Good luck with the Jihad.
AWS
Re: More Information and Intrigue on FOIA Data By AWS on 2/8/2006 7:55 AM
//Nice try but any illegal sale of a non-registered security allows the buyer to rescind the transaction. No questions asked! The orginal fraudulent seller can be found very easily. Remove his illegal profits and suddenly the system cleanses itself until the next scam. You have indicated that you have worked on the bond side of the market, correct? The bond market is reputed to have even a larger amount of FTD's. Working in that enviroment you probably never questioned your working situation which according to the law was operating illegally. Maybe you knew, maybe you didn't! Point is you are doing your best to clog here and distort the facts.//
Bobo:
I understand that you don't want to curtail all this frustrated energy fueling the cause...but you should have a master class on settlements for the inspired legion of followers.
Blackbartpo8 wants out of his purchas of 50 shares of OSTK purchased at $29.50 from me, that are now worth less. I want out of mine purchased at $30.86. That guy wants out of his bought at $34.43. We can all sue each other...try to break the trades, but that would violate every other aspect of our system of ownership, which allows for longs to sell out. If there were a short-seller at the top of the pile, it may have been a legal one (with a borrow for at least a day) way back when.
Supply/demand in the borrow pool changes over time even without NSS. The "guilty" party is not easy to identify at this stage.
Don't worry - I won't linger.
AWS
Re: More Information and Intrigue on FOIA Data By bobo on 2/8/2006 8:11 AM
AWS: A lot of words. These I particularly enjoyed, and would be further tickled if you could explain them to me in more depth:
"holder of the hot-potato today (a long that has not fully settled)"
Now, a long that has not fully settled - is that like a girl who is not fully pregnant? I thought either a share was delivered, including transfer of registered ownership per 17A, or it wasn't.
Maybe what you meant to say was that each FTD is just a resale of the original FTD? That speaks to my argument that the initial taking of the buyer's money and delivering nothing is fraud, and that each subsequent act of reselling this counterfeit representation of a share of stock is another act of fraud, and counterfeiting. Entertain me here. He that sells what isn't his'n...then refuses to deliver it, and gets the DTCC to run interference while he continues to sell, in order to create liquidity so he can shake loose some shares at lower prices.
Your model of the chain is not specious, but the euphemisms that seek to soften the initial and then subsequent fraudulent acts are unnecessary. Step one - seller sells a share, money is debited from the buyer's account, all commissions are paid, but no share is delivered. I maintain that is fraud, some believe it is also counterfeiting if represented to the buyer as a genuine share, or to a new buyer as genuine. New buyer buys this IOU, thinking he got the real thing, but actually was simply gamed by the system and sold a marker, or proxy for the real thing, which isn't. That is the "chain" you speak of. I agree it is complicated, and that is why there are rules against allowing delivery failures age and sit in the system - they result in a ghost float of frauds trading in the system, represented as genuine, and perpetuating more fraud.
Conceptually we are saying the same thing, only I am not coloring the core act of fraud as anything but. Close enough, though.
What is settlement time in the bond market now - T+15 seconds? And yet there are still fails - so the argument that going to dematerialization will eliminate this situation falls short in practice, but does effectively eliminate the only proof a retail holder has of ownership - huh.
I get that you see all sorts of possible explanations for what you are describing. Maybe some are correct. The problem is that we aren't being given enough info to verify, and those demanding our trust routinely lie or omit or distort, so there is no basis for trust.
I think the answer is the same as always - settle the trades promptly, and show us the data.
Simple.
Mary, you have pretty much got it - why buy shares when you can simply create electronic book entries at no cost? Hell of a lot of margin in a zero cost of goods business...
Re: More Information and Intrigue on FOIA Data By Blackbartpo8 on 2/8/2006 9:15 AM
AWS- My point in case you missed it was that almost all of Dr. Byrne's purchases were filled from sellers who were shorting stock illegally. You do not get to 144 separate transactions that were all not marked as required as short sales without massive fraud. Your spin is that these FTD's keep rolling along and we can't do anything about it. That the system cannot adhere to the rules and laws and therefore we should just accept it? I am sorry but if Dr. Byrne would demand to rescind his trades it would help to right the system. The illegal sellers would be forced to give up their ill-gotten gains. Your attitude is shared by the DTCC and SEC. See no evil, hear no evil. So you think it is ok to engage in illegal short sales?
Re: More Information and Intrigue on FOIA Data By AWS on 2/8/2006 9:17 AM
Bobo:
I responded to:
///AWS= Nice try but any illegal sale of a non-registered security allows the buyer to rescind the transaction. No questions asked! The orginal fraudulent seller can be found very easily. Remove his illegal profits and suddenly the system cleanses itself until the next scam.///
Hot potato is the long OSTK position in my account at Ameritrade that I sold out to blackbart at Ameritrade. Failing to me for delivery (for any number of reasons), but long in my broker a/c. When I sell to bart, He seems to think this should be labeled a short sale when it is not...and he seems to thing there is recourse to me. I simply suggested that the chain is huge, and there is no way to determine who the original "bad" seller is for "my" trade to him. Legal shorts may have borrowed at one point, and only yesterday the lender decided they wanted shares back (sold out? got a better lending arrangement? u name it) and now "someone" has to scramble for a borrow. The original short might decide to cover in the market today, but the musical chairs of the borrow continue. FTDs continue. There is no argument that heavily-shorted OSTK shares trade tight on the borrow.
///
"holder of the hot-potato today (a long that has not fully settled)"/// = my long position that has not fully settled with a delivery.
//
What is settlement time in the bond market now - T+15 seconds? And yet there are still fails - so the argument that going to dematerialization will eliminate this situation falls short in practice, but does effectively eliminate the only proof a retail holder has of ownership - huh.//
Have a gander:
ny.frb.org
Trades done dealer or client versus the issuer (the treasury) can be done interday, but dealer-client trades remain T+1. This gives all parties a chance to net-out daytrading/marketmaking/hedge positions (which don't require any delivery or money transfer via the DTCC) and allows retail accounts to notify their banks to have funds or securities ready for the DVP (delivery versus payment.) Trades "can" be done for "cash (same day)" settlement but default in the broker market is 1-day. "Cash" trades are the exception, not the rule. If I'm Lehman and I sell to you $25mm 10yrs, I likely cover my short via eSpeed, or Garban-Intercap if I were flat. Those trades settle t+1. The repo desks can borrow a day early if necessary (if I yell over "Yo Frankie...I just sold $25mm 10yrs cash. Where do they trade? (in repo)." Frankie says, "2%. Tight" So I adjust my offer price to reflect the cost of the borrow overnight. If you still want to lift the offer, you buy from me for today's settlement...I have Frankie borrow another $25mm today to deliver to you today (at 2% - interest on the money I lend to borrow the 10yrs...which the owner can re-invest overnight at the GC/FF rate of closer to 4.5%) and when my 10yrs come in from eSpeed tomorrow, I return the borrowed 10yrs. Hopefully my adjusted offer price covers my overnight borrowing cost.
Don't you just wish equities actually traded DVP? Money tied at the hip to deliverable securities. It would save all the aggravation.
AWS
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