Subject: File No. S7-19-07
From: Paul Floto

December 29, 2007

The curious case of the infinite share creation agency

Each option cycle, the SEC has allowed the option market makers to create and sell an unlimited number of undelivered shares as a hedge against as many puts as the OMMs choose to sell.

This has been going on for years, unaffected by Reg.SHO.

On December 22 a very curious event occurred. Over 9 million in-the-money puts on NFI were presumably put to the OMM, since these contracts were never closed out prior to the end of trading in the series. Where did these shares come from? NFI has about that number of legally issued shares, but since many are held by insiders, and no Form 4s or Form 13s reporting ownership or sales by 5% holders were filed, it is highly unlikely that the shares put to the OMMs were held by the parties exercising the puts.

Given total trading volume after the 22nd, it is also not possible for these shares to have been purchased to cover delivery after the fact.

It is obvious that the SEC tolerates unlimited share counterfeiting by the OMMs, and further "fails-to-deliver" when the put options are exercised. Since the SEC significantly restricts access to "fails" data, and since "fails" data does not even include "ex-clearing" fails, those favored by the current policy can counterfeit an infinite number of invisable shares, destroying the market value of any company they choose to attack.

The public investor might reasonably conclude that the SEC is an active co-conspirator in the largest criminal fraud ever to be perpetrated on the US economy.