August 16, 2006
I lend my FFH and OSTK shares to Charles Schwab (my counterparty) who in turn lends them to another counterparty who then again in turn lends them to short sellers.
The loan income I earn (the market loan rate) is a direct function of the number of shares being borrowed against the available pool of shares being offered for loan.
The trouble with grandfathered existing fails to deliver is that it allows for "naked" short sellers to avoid the borrowing of shares. They are not paying any loan income and do not add to the demand for the shares, therefore they do not contribute upward pressure to the cost of borrowing the shares.
In a nutshell, by grandfathering these fails the SEC is hurting me. My loan income would be higher were the SEC to police the market and force these brokers to settle their trades.
There is a great amount of harm that the grandfathering of FTDs has cost me. As an individual investor, there is nothing I can do about it. Were this someone breaking into my car and stealing my personal property, I could just phone the police and have a suspect apprehended. Yet everyday these naked short sellers are stealing SUBSTANTIAL sums of unrealized share loan income from me, and I cannot call the police to report the crime.
Please, SEC, put an end to this theft. I deserve to earn the full market rate for loaning my shares - powerful hedge funds have no right to profit from my loss.