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Non-Tech : Naked Wall Street – the Conference

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From: Jeffrey S. Mitchell2/22/2006 12:47:38 PM
   of 9
Re: Bob O'Brien lays out an agenda for the DTC

Re: In The Interest Of Scientific Discovery... By bobo on 2/21/2006 10:07 PM

Jeff: I'm not sure I understand. we left this with I would support the endeavor if you felt like doing the heavy lifting, but that I felt it was an exercise in fuility without data. Susan Trimbath, Robert Shapiro, Finnerty, Angel, DeCosta, Burrell, Patch, all have a wealth of understanding of the business and the issues, but that does no good unless there is disclosure from the SEC and DTCC as to the size of the problem and relevant data points. Otherwise it is nothing more than one side going, "it could all be innocent" and the other going, "it could all be larceny."

But it's all angels on the head of a pin without the data.

How are you proposing anything different than what took place at the NASAA conference, where the DTCC didn't show up, and the SEC sent Brigagliano, who carefully mouthed the party line?

And what will make it different?



Re: In The Interest Of Scientific Discovery... By Jeff Mitchell on 2/22/2006 8:14 AM

Let's assume for the moment, for the sake or argument, that all this talk about naked shorting is truly much ado about very little. If I were someone from the DTC, I'd be thinking to myself "How can I shut these crazies up?" So why not throw down the gauntlet. Why not write a blog entry of exactly what you want from the DTC to shut you up. Challenge them to present it at my conference in a forum where y'all can debate it with the world watching. Can you think of any better way to resolve things than in an open public forum? After all, aren't you tired of writing entry after entry of insults? Where does that get you?

- Jeff


Re: In The Interest Of Scientific Discovery... By bobo on 2/22/2006 8:45 AM

Jeff: Actually, I do enjoy insulting, early, and often. That said, your point is not invalid. The problem is that you are entertaining a marvelous delusion - that the DTCC would have any interest in letting the cat out of the bag.

They were invited to the NASAA conference, failed to attend, then lied about it. They knew all the authorities would be there, and the last thing they wanted was to have to answer hard questions with straight answers.

Here are some examples of hard questions you will NEVER see answers to:

1) How may shares of FTDs were grandfathered in Janurary, 2005?
2) What dollar figure did that represent?
3) What is the cumulative daily FTDs (in shares) per day on the NYSE and NASD, INCLUDING EX-CLEARING?
4) Ditto for OTCBB?
5) What percentage of trading in OSTK, or NFI, or NAVR, fails per month?

That addresses the how large a problem is it. Next, we have mechanical questions:

1) Does the SBP allow redeposit of shares by the new buyer's broker, for relending - an anonymous, replenishing lending pool with virtually no controls?
2) When a SBP share is lent to cure a FTD, is what is left in the SBP in its place an "Entitlement", possessing no voting rights, or other rights of a genuine share?
3) Is the lending shareholder ever informed that he has lost those rights?
4) Can not a single genuine share than create an endless stream of "Entitlements", as it bounces from broker to broker to broker? If not, why not? We are not talking about being re-lent from the same broker - we are talking about new brokers.
5) Is it true that the SBP's share availability is on the honor system, with no regulation or verification to ensure that cash and retirement accounts are not also being lent from this anonymous pool?
6) The NSCC acts as the contra-party, guaranteeing delivery, but simultaneously says that it is "powerless" to buy in a failing seller. Why is that, and does not the time delay amount to zero effective guarantee - given there is no time guarantee?
7) The DTCC claims no ability to police ex-clearing contracts. Doesn't enabling participants to arrange for delivery outside of the system, on the honor system, result in an effective mechanism to violate 17A and T+3 requirements for prompt settlement? How is this a good idea for anyone but larcenous participants? What safeguards are in place to ensure that this does not result in wholesale abuse?

These are just a few questions you will never see answered. They could answer them today if they wanted. They don't want to.

It doesn't require a symposium to have them refuse to answer. They refuse every day.

Without the data, your meeting will degenerate into a bunch of apologists claiming that it is all a load of hooey - non-disprovable, in their minds, and certainly not definitively disprovable absent the data - and those on our side of the fence who will cite a mountain of evidence, and be told, "that isn't definitive proof" - regardless of what is offered up. That is also non-disprovable, as the relevant data is missing.

Again, I would celebrate a forum where the SEC and DTCC come to the table to disclose the size and scope of the problem, with hard, complete data, but it will never happen. Won't. If you can make it happen, you are a God, walking the earth, among mere mortals.

I won't hold my breath, but will support your efforts, as I have indicated before. I am not anti-short selling, I am anti-fraud, and this particular fraud is my pet peeve. I don't care where or how the true lay of the land is presented, or which "side" arranges for it to occur. Your problem is you are about to discover that the DTCC doesn't wish to rush in, make disclosure, and discuss things open and honestly, and neither does the DTCC. The reason is because this is a huge issue for them, and if all facts were known, they would be facing Congressional sanctions, or worse. So they have a lot to hide, from you, me, and everyone else.

So my bet is no DTCC, certainly no disclosure, a bunch of apologists claiming that their industry "experience" "tells them" that it "couldn't be" all that big - absent any data on the relevant areas.

Wanna bet?

There are a ton of qualified experts available to draw from for this from "our" side. Best of luck getting 1 SEC ranking expert and 1 DTCC ranking authority into the room, much less with data supplied for verification.

Transparency is their enemy.

Why is that, do you think?
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