May 6, 2011
page 1) not all trades are on consolidated tape. a FINRA attorney told me that some brokers do not report trades to consolidated tape. i think the majority of those trades are shortselling. you should not let brokers continue to not report trades to the government as a first priority. for instance, SBAY, on 3/30 reported volume of 46,930 shares but 88,446 shares traded. on 3/31, they reported 89,216 shares traded but 151,775 shares were traded. i have a whole spreadsheet of this stock from 1/7 to 4/6, if you want to see this.
in addition, shortsellers will sell as long or short. the common symptom is a failure to deliver shares. if you count anything, this is what you must count. many shortsellers use portals that do not have filters. many shortsellers do not borrow shares before they short. they use shares available to borrow to change duedates of transactions to give them another 13 day window to cover. if they borrow shares for one day, the clearinghouses reset the duedate to give them the additional days to cover because they have given the borrowed shares to the old buyer and now have a new buyer to deliver shares. they even due this during a trading halt, although this is trading. see the # of shares shorted for SBAY and CCME and other stocks that are halted and you will see that there is a movement in the #'s although the stock has not been open for trading.
page 3: you should find this statement extremely troubling:
In the Divisions estimation, data made public by certain self-regulatory organizations (SROs) indicate that orders marked short under current regulations account for nearly 50% of listed equity share volume.3
this means that the # of shorted shares are continuing to climb. even if investors bought no shares, the shortsellers would have extreme trouble covering the short shares UNLESS they continue to decrease price. and this is what we are seeing in many stocks, particularly the exchanges where most of the activity is taking place: NASDAQ and pink sheets.
this also means that something is funding the shortselling and they have more $ than the investors. there is so much shortselling that they control price. margins are too generous. brokers accommodate shortsellers and short themselves. the brokers have breached their fudiciary duty to their clients by not forcing the shortselling brokers to buy in. further, some brokers short against their clients' orders. further, shortselling brokers are allowing their clients to naked short, which is illegal.
this also means that there are not enough shares available to borrow to cover each day's shortselling. by reporting this to the SEC, the brokers are admitting that they are breaking the law, allowing illegally naked shorting trades.
as a curiousity, what is the level of "buy to cover" shares? how does this compare to the # of shares sold short?
shortselling cannot run an economy. it is a capital outflow, whether most of the $ goes overseas or in american shortsellers' pockets. shortselling can only be a parasite on a capitalistic system. it cannot be a driving force. the SEC has a short period of time left to solve this problem. Can it crash the economy? oh, yes. all that has to happen is for the shortsellers to start buying in and the prices of stocks will increase. the problem is that some shortsellers (particularly overseas) will refuse to cover and this will leave the american correspondent brokers holding the bag. the brokers will go broke because no one can cover this risk. the margins won't be able to cover this risk.
the SEC MUST act quickly. they must see the # of shares owed to the broker and the # of shares owed by the broker. they must get a true picture of the brokers' position.
and this also means that the shortsellers and brokers, by breaking the rules, have taken investors' money. the price-volume equilibrium is broken. the market is flooded with imaginary shares. they are bought and sold every day.
your report to congress by 7/21 will not describe the market forces that are controlling the stock market. you only seek to measure the shortselling. measurement is not sufficient. shortsellers will just use dark pools. they will just mark their shares as long. they will mark their shares as "short exempt". they will continue to internally settle trades. and they will continue to fail to report the true # of shorted shares. they will continue to decrease prices. they control the bid and the ask. this is robbery without a gun. and they will continue to juggle the balls in the air by failing to settle trades.
this is a national security problem. this is bankrupting companies and will bankrupt brokerages. while brokerages make $ by renting shares and charging shortsellers interest on their position, their financial position is threatened by the risk involved when the dam does break.
the problem with your proposal is that even if the shorted position is disclosed to the public (and many of us investors already know about how shortselling affects the price of the stocks in our portfolio), it will be too late. even if we receive the information as it occurs, the shortsellers have more money than the investors. all the information will inform the public that they are on the wrong side of every transaction, that the individual investor has little chance of making $ in this market. granted, i think information is a good thing, but having the information available to the public will cause a crisis in investor confidence. this is because there is so much shortselling going on and they are taking our $. if shortselling were only 10% of the trades, this proposal would make some sense. but it is 50% of the shares and that is too much. i am all for disclosure, however the SEC must act immediately. there should be no charge for this information. the most crucial information that investors need is the failure to deliver information and we don't now have that because dealers or FINRA or the SEC is not reporting this.
on 3/15 SBAY there were 200 shares reported as failure to be delivered. but also the dealer survey came out and there were 130,825 shares reported short by the brokers. worse, the internally settled shares were not on that report. the data is inconsistent. this should tell you that the SEC is not getting accurate information from the brokers.
maybe you should talk to the websites that offer more information, such as:
or patrick byrne of overstock.com.
in my view, transparency of data is insufficient. the SEC must regulate the brokers because we are approaching an international crisis in the stock markets around the world.
Q1: if the information is publicly available, there should be a repository for the links to the information. while information is publicly available, it is not accurate so that investors can inform themselves about their position. and shortsellers can also not see their position which has led to this amazing position. there is no good information about shares that have failed to be delivered. there is no information about shares that are settled internally. i am not convinced that the SEC and FINRA even has this information. the settlement system is broken.
Q2: marketmakers say that they provide liquidity. the shortselling that is currently going on in the market is far beyond providing liquidity. some people want to be marketmakers in order to short stock more cheaply and easier. this should not be the primary motivation of a marketmaker. the SEC must look at the marketmakers' function and see if the function actually matches what the marketmakers are doing.
Q3: abusive market practices? when are we going to be able to call a spade a spade? when the shortsellers short 80% of the shares daily? how about 90%? this is a market wide abuse of the investors at the current level. of course there is an imbalance of sell-side interest. when the price goes down in after-market, and the investors have no chance to recover by selling, this is abusive. when trades are made in the final minutes of the day to bring the price down, this is abusive shortselling. when prices must decrease markedly on a daily basis, this is abusive shortselling. under market conditions, given an average stock, the price should fluctuate. instead, shortsellers short on good news and bad news. they don't care. they short on good news to force the price down so that investors cannot benefit and the investors will get discouraged and sell.
II. position reporting
the position of the shortsellers is not transparent to anyone. internally settled trades are kept out of the reporting cycle. the clearinghouse nets positions daily. however, depressed prices are being used to calculate this. those depressed prices do not reflect the real price of a security because shortsellers owe the investors of a stock for a buy-in.
an option is not the same as a stock position because it depends on someone else delivering on their position.
further, it sounds as if Hong Kong calculates the short and long positions correctly.
but i don't know how the SEC will come to terms with all of this unless you can require the brokers to disclose their failure to delivered shares. i don't know how you can regulate the stock market if 30% of the stock that is traded is now traded in dark pools. perhaps we will just have to watch our financial system collapse.
Q4. real time reporting is desirable but it is insufficient to just measure the amount of shortselling in the market.
Q5. as an investor, i would use any accurate reporting of short position. i would use any accurate reporting of short position daily. the value of knowing the short position decreases over time, so reporting this information 2 weeks later is much less valuable. further, if the publicly available information is inaccurate, this makes the infodrmation much less valuable. however, this is our current information, inaccurate and late.
Q6. if you require shortselling reporting, the shortsellers will just quit marking their orders as short and will start selling shares long but fail to deliver those shares. they will go to the dark pools that are unregulated to this point. they will cover or short in those dark pools. shortsellers sometimes sell to themselves because they tend to have multiple accounts with different brokers.
what is wrong with revealing shortselling trading strategies? why is it so important that their strategies should continue, especially since they are not following rules? the long strategy can be summed up in "buy and hold". the public should know how this fraud has been perpetrated.
Q7. see the answer to Q6.
Q8. short positions should be reported gross. netting the short and long positions means that the investors are subsidizing the short position. investors are likely to have cash accounts, while all shortsellers have margin accounts. all marketmakers have margin accounts. the two are not equivalent. further, investors that own stock should have all the rights of ownership. cash accounts should not have their stock loaned by the broker. brokers and clearinghouses should not be charging interest for illegal transactions. the short position is a debt to the investors and should promptly be bought in. shortsellers don't need those 13 days. shortsellers should not be able to reset duedates by borrowing stock for one day. clearing and settlement could occur within 5 days.
Q9. no comment except for my answers to the preceding questions.
Q10. it is insufficient to report information to any official entity if the official entity does not understand the implication of the information.
Q11. clearinghouse and broker's data should be correlated periodically to make sure brokers are correctly reporting data. this test should be part of an audit. accurate reporting in a timely fashion would be great. brokers should instantly be able to report how many shares were shorted and failed to deliver in clearing in XYZ stock as of a certain date. they should be able to tell you which entity is clearing, how old the trades are. the clearinghouse should be able to show that the shares were included in the reporting for each broker in their audit. shortselling involves trading AND settlement.
Q12. no comment. i am an investor.
Q13. no comment. i am an investor.
Q14. no comment. i am an investor.
Q15. and this is one of the problems. foreign brokers may not be following the rules that we have set for our stock market. currently, correspondent brokers are aiding and abetting this.
III. transaction reporting
brokers now do not report all transactions to consolidated tape.
Q16. i think this will not deter shortsellers. they are addicted to shortselling and they want the investors' $.
Q17. investors do not like shortselling because it is stealing our $. people are building retirement accounts, etc. they do not like the people posting on messageboards, laughing at them. they do not like it when someone just takes their $. but now, 50% of the shares sold are shorted. it is time to take investors' $ out of the stock market. in fact, it is past time, but we didn't know it was shorted to this extent.
Q18-23. no comment. i am an investor.
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Making a Grey Market in PUDA Stock
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