From: Alden James [aldenjames9@hotmail.com] |
Short Sales [Release No. 34-48709; File No. S7-23-03] Please post this corrected copy for mine of 12/9/03. Based on the discussion and answers to follow, I suggest consideration of the following rules governing short selling in all public exchanges: 1. If a DTCC market maker or broker dealer (“members”) may short a stock, then short selling of that stock shall be open to all investors, including retail investors, subject to reasonable margin requirements. All margin shall be actually held in the accounts of the member, i.e., no letters of credit, etc. A member may not short any stock for its own account unless immediately thereafter its assets will exceed its liabilities by an amount greater than or equal to the margin charged to non-members for their short positions. 2. Total covered short interest in a stock is capped at 100% of outstanding shares. Naked short selling of a stock is capped at 30% of outstanding shares. Once the naked short cap is reached, members must surrender their short positions to satisfy short sell purchases of customers. A member’s and its customers’ naked short positions shall be closed prior to a regular short interest position being created. A member may substitute a customer’s naked short position for a regular short position. 3. Short positions in all stocks shall be reconciled at the end of each trading day by the DTCC. In the event an aforementioned cap is exceeded, the DTCC shall order a pro rata reduction by all market makers and broker dealers on the next trading day until the cap is reestablished. In any calendar quarter wherein the volume of trading of a stock is in excess of 25% of its outstanding shares, further naked shorting of that stock for the balance of that quarter shall be prohibited. 4. By 9:00 p.m. (ET) on each trading day, a member of the DTCC shall report, whether or not its position is “flat,” for each stock owned by it and/or its customers, the following: Stock (XYZ); Total Shares Outstanding; Member’s Customers’ Shares Owned; Member’s Shares Owned; Member’s Customers’ Total Short Positions - Covered; Member’s Customers’ Total Short Positions - Naked; Member’s Total Short Positions - Covered; Member’s Total Short Positions - Naked. A responsible managing officer (RMO) of the member shall certify under penalty of perjury based upon information and belief and reasonable inquiry that such reports to the DTCC are true and correct. From time to time, members’ books and records shall be audited by federal banking examiners. 5. Naked short sales in violation of the aforementioned rules shall be deemed fraud on a customer. Members (particularly wholesale market makers) cooperating to close short positions in a stock shall be deemed market manipulation. Members’ daily short position history for each stock shall be publicly available at the close of each trading day, 30 days in arrears. DISCUSSION: The Depository Trust and Clearing Corporation (DTCC, a private broker dealer and market maker membership organization) and the SEC correctly state that the issues surrounding naked short selling are not germane to the manner in which its subsidiary Depository Trust Company (DTC) operates as a depository registered as a clearing agency. (See References 1 and 2 below) The DTCC clears and nets members’ positions while the members keep track of their customers’ positions. The DTCC simply knows its members’ net positions in a stock, long or short. The SEC has described in its comments its belief that most specialists and market makers seek a net‘‘flat’’ position in a security at the end of each day and often ‘‘offset’’ short sales with purchases such that they are not required to make delivery under the security settlement system. (See Reference 3 below) Therein lies a significant problem. In the case of regular shorting, the DTCC does not even add up all members’ short positions to determine that there are actually shares to borrow, i.e., members are borrowing on already once borrowed shares and in some cases short positions exceed shares available to borrow. Recognizing this, Equilend and SecFinex are private initiative of key members of the DTCC to facilitate real and orderly borrowing of securities for short sales. (See Reference 4 below) Naked short selling of OTC stocks goes one step further by waiving the pretense of borrowing shares as part of a short sale. A broker dealer member sells a share to its customer that does not exist - an artificial or “virtual” share. (See Reference 5 below) A broker member keeps the customer’s purchase money while “crediting” the customers account with the intent, in the future, to actually deliver a real share. The broker member then has a “flat” position described above of one share in a customer account and one virtual share short, and no interaction with marketplace through “broker internalization” and no delivery requirement. Market liquidity and efficiency are enhanced by this procedure since customers can continue to “buy and sell” closely held and illiquid shares through virtual shares. Moreover, when liquidity isn’t readily available, wholesale market makers can step forward to do what an ECN can’t do - take risks (i.e., naked short) on behalf of their clients. (See Broker/Dealer Internalization: http://www.knight?sec.com/How_the_Trade_Gets_Done/HowStock.asp) Since members and exchanges, but not the SEC (See Reference 6 below), prohibit retail customers from shorting a stock with a price under $5, almost all naked shorting is done by brokers dealers and/or market makers who make a profit by actually buying the previously credited share, with the customer’s purchase money, in the marketplace once the price has dropped. Because of the dilution caused by naked short selling, the long term price trend for most OTC stocks is down. However, to hedge their naked short positions, the broker dealers, market makers and exchanges permit hedge funds, institutional investors, and foreign investors to add through regular shorting procedures to the members’ naked short positions with a 50% margin further protecting the entire pool of naked short positions. Foreign investors’ short sales can be facilitated through the NASDAQ London office and U.S. market makers having London satellite offices. In the less usual case where an OTC stock price begins to rise, the broker dealers and market makers can clear their naked short naked positions first and before too much upward momentum is built by artificially controlling the bid and the ask. Justifications offered for naked short selling are liquidity and efficiency. Currently, naked shorting achieves both objectives since the sale of non-existent shares is profitable and unlimited with bankruptcy of the target company the preferred result. However, the enrichment of a few by destroying promising U.S. companies is obscene and supports offshore money laundering, drug running, terrorism and organized crime world wide. It is one thing to let air out of a stock and quite another to destroy it with the aforementioned consequences. I have the following comments to the SEC’s staff questions: ANSWERS TO SEC’S QUESTIONS: Q. What harms result from naked short selling? Conversely, what benefits accrue from naked short selling? Penny stocks often have the bare minimum 300 shareholders necessary to publicly trade and these shareholders believe the value of the penny company is going up. These stocks are therefore illiquid and trade inefficiently, e.g., a few low volume trades can turn a penny stock into a dollar stock while a few other trades can do the reverse. Even if retail investors were permitted by the OTC and Pinks to short penny stock, most would not because of significant risks if the penny stock follows its natural bias upward caused by its pool of “true believer” shareholders. Naked short selling provides virtual (i.e. “counterfeit”) shares to the market place to avoid day to day panic buying. There are always enough counterfeit shares to keep the penny stock low. At some point, market makers and broker dealers can become so locked into their naked short positions that they simply cannot afford to let the underlying stock rise. The market makers and broker dealers prolonged dissipation of buying energy for promising penny stocks through the sale of counterfeit shares leads to the collection of a large pool of customers’ purchase money for the shares, double or triple the outstanding shares of the underlying company in customer accounts, a paper credit to the customers’ statements for the nonexistent shares, and an incentive to either drive the underlying company out of business or repeatedly over time drive the underlying stock up on low volume and then plunge the underlying stock on large volume to cover the naked short positions, i.e., a process to actually free up and deliver real underlying shares to the customers who cannot be shaken loose. By trading in a circle, market makers and broker dealers can create the illusion of volume on the upside. All this can be accomplished without interference from the DTCC. Since market makers and broker dealers control the market price, to shake off the naked shorts, the underlying company is force to sell out (probably to a potential competitor seeking to acquire the disruptive technology), to delist to the pink sheets to avoid centralized OTCBB/ DTCC clearing thereby making naked short selling more inefficient and more dangerous, to go private forcing all naked shorts out, or to give these market manipulators significant time to unwind their naked short position during which the underlying company is unable to obtain additional financing or is tempted to accept death spiral financing, particularly when management is more interest in continuation of their pay than appreciation of their stock. However, each of the alternatives requires that the penny company actually be valuable and have some residual strength. According to Paul Harrison of the Federal Reserve Board, short selling and naked short selling have been around for 400 years - at least. (See Reference 7) Given such longevity, this writer is willing to accept that short selling has some efficacy. But when one broker can sell 162% of a company’s outstanding shares and still maintain a “flat” position, it doesn’t take other brokers long to follow and dilute the outstanding shares by a factor of 3 or more. As a famous wag once said, “You got to keep the game honest enough for the suckers to play.” The market place has reached that point, and through the internet, we suckers finally have a sense of what is really going on. The SEC must cap, track, and audit short selling to realize its perceived benefits without permitting the continued selling of air to investors as was historically the case. Q. Are there negative tax consequences associated with naked short selling, in terms of dividends paid or otherwise? Yes. When the market makers and broker dealers are permit to kill the gold goose, the government losses all the future taxes at the corporate and individual level. In addition, most penny stock losses are short term capital losses offsetting the investor’s short term capital gains so the government loses out again. Q. What is the appropriate manner by which short sellers can comply with the requirement to have ‘‘reasonable grounds’’ to believe that securities sold short could be borrowed? Should short sellers be permitted to rely on blanket assurances that stock is available for borrowing, i.e., ‘‘hard to borrow’’ or ‘‘easy to borrow’’ lists? Is the equity lending market transparent enough to allow an efficient means of creating these lists? SecFinex and Equilend. See Reference 4 below. If caps are imposed and tracked at the DTCC, the SEC will know if the lists are working and correct lists that are not providing accurate information. In fact, caps make such lists less relevant. Q. Should short sales effected by a market maker in connection with bona fide market making be excepted from the proposed ‘‘locate’’ requirements? Should the exception be tied to certain qualifications or conditions? If so, what should these qualifications or conditions be? Absolutely not!!!! Unless caps are implemented so it becomes easy to verify “bona fide market making activity.” Q. Should the proposed additional delivery requirements be limited to securities in which there are significant failures to deliver? If so, is the proposed threshold an accurate indication of securities with excessive fails to deliver? Should it be higher or lower? Should additional criteria be used? As suggested above, the DTCC should settle the market place every night just like the banks do. A solid currency in stock has become as important as our money. The DTCC is already a member of the Federal Reserve System. Broker dealers and market makers should be subject to announced and unannounced audits by federal bank examiners with penalties equal to those imposed for bank fraud, etc. If DTCC members want their private entity to perform settlement and custody functions, they really have to do so in the public interest rather than their own. Q. Are the proposed consequences for failing to deliver securities appropriate and effective measures to address the abuses in naked short selling? If not, why not? What other measures would be effective? Should broker-dealers buying on behalf of customers be obligated to effect a buy-in for aged fails? Until the DTCC knows that broker dealers are putting IOU’s in their customers’ accounts rather than shares via “flat” positions, how will “failures” to deliver be discovered? Aged fails can be concealed by simply rolling real shares in customer accounts from one aged failure to another. Q. Is the restriction preventing a broker dealer, for a period of 90 calendar days, from executing short sales in the particular security for his own account or the account of the person for whose account the failure to deliver occurred without having pre borrowed the securities an appropriate and effective measure to address the abuses in naked short selling? Should this restriction apply to all short sales by the broker-dealer in this particular security? Should the restriction also apply to all further short sales by the person for whose account the failure to deliver occurred, effected by any broker dealer? The broker deal should also be force to immediately eliminate its entire short positions in the particular security for the same period. Q. Should short sales effected by a market maker in connection with bona-fide market making be exempted from the proposed delivery requirements targeted at securities in which there are significant failures to deliver? If so, what reasons support such an exemption, and how should bona-fide market making be identified? Bona-fide market making is short term. Without consolidated reporting at the DTCC level, bona-fide market making is simply a claimed justification not subject to proof. Q. Under what circumstances might a market maker need to maintain a fail to deliver on a short sale longer than two days past settlement date in the course of bonafide market making? Is two days the appropriate time period to use? I have no comment. Q. Are there any circumstances in which a party not engaging in bona-fide market making might need to maintain a fail to deliver on a short sale longer than two days past settlement? If so, can such positions be identified? Should they be excepted from the proposed borrow and delivery requirements, and if so, why, and for how long? I have no comment except to say that I am SURE that such positions cannot be identified and are concealed all the time. Q. Are the delivery requirements in proposed Rule 203(a) appropriate? I have no comment. I am not an expert on market regulation but I support the foregoing discussion and answers with excerpts from internet available documents cited below. If I am wrong on some of my contentions I apologized, but by design or otherwise, it not easy for an outsider to piece together exactly what is going on behind the market curtain. But something smells behind that curtain and abusive short selling should be the next shoe to drop like Eron, Worldcom, NYSE pay and oversight scandals, mutual/ hedge fund after hours trading, etc. Thank you for your consideration. Sincerely, P.S. I request that you scan, publish and post comments received through non-electronic means, particularly those received from the industry. This would be educational for the investing public, initiate further feedback, and reduce fears that the industry is seeking only cosmetic changes to assuage public outrage while maintaining the currently profitable status quo at the expense of the investing public and the national interest. REFERENCES: Reference 1. (http://www.dtcc.com/PressRoom/2003/nakedshorts.html) DTCC Statement On Alleged Short Selling And Issuers Withdrawal From DTC New York, January 23, 2003 — In recent months, a number of small OTCBB companies have announced plans to withdraw from The Depository Trust Company (DTC), a subsidiary of The Depository Trust &Clearing Corporation (DTCC), and move to physical certificate ownership only of their shares, ostensibly to reduce the alleged short selling or “naked short selling" in their shares. Why the statements by issuers on this subject are lacking in merit The rules governing short selling are the same in a physical environment as they are in a book-entry environment. Moving to physical securities does not inhibit short selling in any way. The rules governing short selling are the same, and are made and enforced by the SEC and major markets. Those are Rule 3370 for NASD members and Rule 440B for New York Stock Exchange members. DTC rules do not allow its participants to be short in deliveries to other participant firms. While a brokerage firm can lend shares to an investor, the brokerage firm cannot be short in delivering shares to another brokerage firm through DTC. If necessary, a firm can and must borrow shares from one or more brokerage firms that currently have enough shares in inventory to lend. Brokers who fail to deliver shares owed at DTC are subject to penalties. Reference 2. (http://www.nakedshortselling.com/news/NAANSS_July09‑2003.htm) On June 4, the SEC stated "the issues surrounding naked short selling are not germane to the manner in which DTC operates as a depository registered as a clearing agency. Decisions to engage in such transactions are made by parties other than DTC. DTC does not allow its participants to establish short positions resulting from their failure to deliver securities at settlement. While the Commission appreciates commenters' concerns about manipulative activity, thoseconcerns must be addressed by other means." Reference 3. http://www.sec.gov/rules/proposed/34-48709.pdf Naked short selling has sparked defensive actions by some issuers designed to combat the potentially negative effects on shareholders, broker dealers, and the clearance and settlement system. Some issuers have taken actions to attempt to make transfer of their securities ‘‘custody only,’’ thus preventing transfer of their stock to or from securities intermediaries such as the Depository Trust Company (DTC) or broker-dealers. A number of issuers have attempted to withdraw their issued securities on deposit at DTC, which makes the securities ineligible for book entry transfer at a securities depository. Withdrawing securities from DTC or requiring custody-only transfers undermine the goal of a national clearance and settlement system, designed to reduce the physical movement of certificates in the trading markets. The Commission is proposing an exception from these requirements for short sales executed by specialists or market makers but only in connection with bona-fide market making activities. We believe a narrow exception for market makers and specialists engaged in bona fide market making activities is necessary because they may need to facilitate customer orders in a fast moving market without possible delays associated with complying with the proposed ‘‘locate’’rule. Moreover, we believe that most specialists and market makers seek a net‘‘flat’’ position in a security at the end of each day and often ‘‘offset’’ short sales with purchases such that they are not required to make delivery under the security settlement system. Reference 4. http://db.riskwaters.com/public/showPage.html?page=7476 London, October 17th 2002 - Securities financing has been an area of the securities industry that has long been a sticking point for straight-through processing initiatives, as highlighted by the Securities Industry Association (SIA) in both its next-day settlement and STP plans. Movements towards increased STP in this area have been boosted significantly this year with the live trading of two online securities lending platforms, SecFinex and Equilend. Equilend has been trading live for three months and in that time has facilitated more than $120 billion in lending transactions. This trading has up to now been achieved through the founding ten members of Equilend alone, though the group has been attempting to extend its client base since its launch. The first addition to the group of ten has now occurred, Equilend confirms, with the signing of Deutsche Bank. Jean-Paul Musicco, managing director and global head of securities lending at Deutsche Bank, expects its membership of the platform to add value to clients through increased automation. Securities lending activity at Deutsche had previously been carried out through manually intensive processes, such as using faxes and phone calls and redundant back-office processes. By using the platform Deutsche will be able to electronically trade and automate back-office functions building an STP environment. The founding members of Equilend are Barclays Global Investors, Bear Stearns, Goldman Sachs, JP Morgan Chase, Lehman Brothers, Merrill Lynch, Morgan Stanley, Northern Trust, State Street and UBS Warburg. Reference 5. (http://schwert.ssb.rochester.edu/short.htm) Short Sales, Damages and Class Certification in 10b - 5 Actions Robert C. Apfel Bondholder Communications Group, New York, NY 10004John E. Parsons Charles River Associates, Boston, MA 02116G. William Schwert University of Rochester, Rochester, NY 14627and National Bureau of Economic Research Geoffrey S. Stewart Jones Day Reavis &Pogue, Washington, DC 20004 In a short sale, an investor sells a share of stock he does not own, and only later purchases a share to close out the transaction. The short seller profits when the price of the stock declines. A peculiar feature of short sales is the apparent increase in the number of shares of stock beneficially held by investors over and above the actual number of shares issued by the corporation.... 3.1. Short Selling Mechanics conceptually the simplest way to implement a short sale is something like a forward contract: a short sale is a sale at a price fixed now for delivery later.6 Another relatively simple way to implement a short sale is to take advantage of the window of time allowed for the actual delivery of shares on a sale. A seller of stock has three days to make delivery of the stock sold. A short seller can execute a sale if he is able to obtain a share for delivery within this window of time. A short sale made without possession of an actual share is called a naked short. In practice, short selling is more commonly facilitated through an accompanying borrowing transaction. The short seller enters into an agreement to borrow a share from one investor in order to sell it to another investor. The short seller hopes to be able to purchase a shore at a later date and at a lower price. He can then return this share to the investor from whom he had originally borrowed one. The short seller’s profit is the difference between the initially high selling price and the later low buying price, less the costs of borrowing the stock in the interim. When borrowing a share, the short seller agrees to return a like kind and amount of stock within a specified period of time, and also posts collateral as security for the loaned stock. The lender of the stock earns a profit by charging a fee for the loan and by investing the collateral less a rebate on such earnings paid to the borrower. The lender continues to expect to enjoy the gains from any increase in the price of the stock (and suffers the loss from any decrease) since she will receive the share back at the end of the loan period and can then sell it at the higher (or lower) price. The borrower also typically agrees to make the lender whole for any cash distributions made on the stock during the period of the loan. 3.2. The Apparent Expansion of Beneficial Ownership Due to Short Sales... In this sense the short sale has resulted in an apparent expansion of the beneficial ownership of the company’s shares. Where previously investors had held beneficial ownership in only two shares of the company’s stock, now investors hold beneficial ownership in three shares. This expansion is only apparent, however, as it must be. The short seller who issues a sort of‘artificial’ share creates the apparent expansion in the beneficial ownership. He takes the mirrored position, paying a dividend when the corporation pays a dividend, enjoying a loss when the third shareholder enjoys a gain and vice-versa. After netting out the short seller, the total beneficial ownership matches the number of shares actually issued by the firm. There is an expansion of beneficial ownership when the short seller himself has been left out of the equation ,but taking the short seller’s offsetting position into account there is no expansion. 3.4.1. Institutional Changes in Custody Practices Before 1973, almost all settlements of stock transactions were made by delivery of physical stock certificates. A “stock power” on the back of the certificate would be endorsed in favor of the purchaser. Short sellers typically had to obtain physical certificates to borrow from lenders. Lenders with physical certificates registered in their names had to endorse their stock over to the borrower. This was in accordance with Article 8 of the Uniform Commercial Code. In the standard Securities Loan Agreements published by the Security Industry Association as well as the standard customer agreements between brokerages and their customers, the parties agree that the lending customer waives his right to vote proxies for any securities that have been lent. The reason for this waiver of the right to vote is operationally critical to the stock loan transaction. On the record date for the proxy or annual shareholders meeting, only the “stock holder of record” is entitled to vote. Among our hypothetical customers,‘K’ and ‘L’, only L, the purchaser of the lent shares (who bought her shares from the short) is entitled to vote at the meeting. If the lender of the shares, K, had them out on loan on the record date, she is not entitled to vote. In these circumstances it would have been clear that investor K owned the artificial share while investor L owned the actual share. In lending her share, investor K surrendered ownership in the actual share and substituted ownership in the artificial share. Circumstances changed significantly starting in 1973 because of the adoption of the practice of holding securities in nominee name (“street name”) through intermediaries including brokers, banks and securities depositories. The move to holding securities in street name was part of a wider shift that followed on the securities industry’s paperwork crisis in the late 1960’s, when processing problems associated with the physical certificated transfer of millions of securities caused a major disruption in the financial industry. The Depository Trust Company(DTC) was created in 1973 as a privately operated ‘Federal Reserve for stocks’ designed to provide efficient, secure and accurate central custody and post trade processing services for transactions in the United States securities markets. The DTC is owned by several hundred brokerage firms, financial institutions (collectively, the DTC “participants”), and the New York and American Stock Exchanges. Its vaults in New York contain over $23 trillion of securities, including stocks, corporate bonds, mutual funds, warrants, and municipal bonds and government obligations. The DTC carries out two major functions. The first is the immobilization of the securities of DTC participants, which reduces the need for participants to maintain their own certificate safekeeping facilities. Second, the DTC maintains a computerized book-entry system in which changes of ownership among participants are recorded. This replaces costly, problem-prone physical delivery of securities for settlement. The DTC holds all securities in “fungible status” (also known as “fungible bulk”), with the DTC’s computers recording ownership of aggregate amounts of each security in the name of a participant firm. The DTC does not maintain records describing the ownership of securities by individual customers, other than for the holdings of major institutions that are themselves DTC participants. Instead, the DTC regards the participant firms as the nominal holders, in “street name”, of all their customers’ securities. Customer level record keeping is the responsibility of the participant firms. The DTC’s book entry system allows participants to deposit securities for safekeeping, transfer them conveniently to other participants, collect payment for the securities transferred and withdraw certificates, if desired by a customer. It is the widespread use of these services by DTC participants that creates economies of scale, permitting low-cost processing and speed without the sacrifice of security and accuracy. In 1999, for example, the DTC processed more than 189 million computer book entry deliveries between brokers and clearing corporations, with a value of over $94 trillion. Today over 72% of all common shares issued by NASDAQ-listed companies are immobilized at the DTC, and not held by the investors themselves. Not all changes in security ownership result in DTC transfers. The National SecuritiesClearing Corporation (NSCC) operates clearing, netting and settlement services that assist member firms in processing transactions. The NSCC compares buy and sell transactions and nets them down to reduce the number of transactions requiring a transfer of securities positions on the books of DTC. For example, if, during the same day, customers of Merrill Lynch sell customers of Goldman Sachs 50,000 shares of XYZ stock, and customers of Goldman Sachs sell customers of Merrill Lynch 50,000 shares of XYZ stock in numerous separate transactions, the NSCC will automatically net down the transactions, and no transfers will result on DTC books. In 1999, DTC and NSCC combined together under a new umbrella organization called Depository Trust and Clearing Corporation (DTCC).Under the standard arrangements between customers and their brokerage and banking firms, the securities held in brokerage accounts are commingled in a single fungible mass. For example, if Merrill Lynch had five customers who held CLC stock on a single day, Merrill Lynch would hold all of the shares of these five customers in a single commingled fungible bulk account at DTC in Merrill Lynch’s name. Of course, Merrill would have a record of the identity of the investors whose stock is represented in the mass. Consequently, where securities are held in street name, the task of keeping records as to which individual customer owns how much of which security is the responsibility of the brokerage firm. In the absence of paper shares, the only written evidence that an individual customer has of his or her holdings are brokerage statements or trade confirmation slips. The typical brokerage customer margin account agreements allow the brokerage to hypothecate or lend the customers’ securities without notice or benefit to the customer. It is the brokerage that earns interest on the loan, and not the shareholder, and this fact is acknowledged in the account agreement. When brokerage firms lend their customers’ stock, they do so out of the general pool of marginable fungible securities held by the firm. Having deposited all of their customers’ securities into a fungible mass, they cannot and do not keep records documenting the ownership of the securities that have been lent. Brokers cannot tell their customers when their stock has been lent (or returned) because it is the fungible pool of stock that serves as the source of the loans. In fact, this pool of stock has no identifying characteristics linking it to particular customers, because it is simply an electronic entry at the DTC and the brokerage. The move to holding shares in street name significantly complicates identifying which investor holds an actual share and which investor holds an artificial share. Figures 8A, 8B and8C reproduce the short sale transaction previously shown in Figures 3A through 3C, with the difference that shares may be owned through a broker and kept at a brokerage account. In Figure8 investors J and K have bought their shares through the broker who holds them in street name. The short seller borrows a share from the broker. In contrast to the example shown in Figure 3B,in which investor K knows that its share had been lent, in the example shown in Figure 8B,neither investor K nor J knows that one of their shares has been lent. Customers whose shares are held in street name do not possess an actual stock certificate evidencing their ownership. The only written evidence an individual customer has of his or her holdings are the records of the brokerage, including statements or trade confirmation slips. 4.1. “Real” and “Artificial” Shares As pointed out above, the act of shorting a share of stock creates an artificial share. These artificial shares are called “shares”, but they are not. They are not stock that is issued by the company; they are not authorized for issuance by the company’s Board of Directors. In fact, in some cases the sum of these artificial shares and the real shares exceeds the number of shares the company even is authorized to issue. The shares are not registered with (or approved for sale by) the Securities &Exchange Commission, and the company neither sells, nor receives value for, them. See Committee on Government Operations Report, 3-5, 24. Similarly, these are not shares of stock that have an entitlement to dividends or distributions from the company and, to the extent they even have a right to vote, it is pursuant to the contract between the short seller and the brokerage firms that loaned the stock, not because they are actually “shares” of a company’s stock. The artificial nature of these shares is even more telling in the case of “naked”short sales, that is, where a short seller sells stock without first borrowing it. One of the perplexing questions about short sale transactions is the issue of who truly“owns” the share that is loaned. The question is a difficult one because, according to the standard industry Master Securities Loan Agreement, both the lender of the share and the short seller each have some rights that fall within the rubric of “ownership”. For example, the SIA's Master Securities Loan Agreement stipulates that the short seller will enjoy “all of the incidents of ownership,” including the right to transfer title to the share. On the other hand, the lender of the share retains the right to dividends and, it seems, the right to vote the share when the shares are held through a broker and the DTC in a fungible mass. Under the federal securities laws, the fact that the short seller has the right to transfer title to the share indicates that he is the “owner”. “A person shall be deemed to own a security if (1)he or his agent has the title to it….” 17 C.F.R. § 240.3b-3 (1998). This conclusion is supported by other evidence, notably the fact that a person who buys that share from the short seller is, under the securities laws, considered the share’s new owner. Id., § 240.3b.3(2). But if this is true, then the “share” that still appears on the customer account statement of the brokerage firm as belonging to the lender of the share must be the “artificial” share. 4.2 “Are Artificial Shares “Securities”? This, in turn, leads to the questions whether that “artificial” share is itself some form of a“security” within the meaning of the federal securities laws and whether that “artificial” share is a security upon which a lawsuit can be brought. Although there is room for debate, the more persuasive view is that the “artificial” share is not a security. As noted before, the “artificial”share is not even a “share” to begin with: it simply is called a “share” because of the bookkeeping conventions of brokerage houses. In terms of economic and legal reality, the artificial share is a different thing to different people. To the brokerage house that loaned the actual share to the short seller, the artificial “share” is actually nothing more than a contract right to make the short seller return the real share (or another real share) at some date in the future at the end of the loan period.11 It is worth remembering that the character of a securities loan is different for the brokerage firm than for the short seller. From the short seller's point of view, the transaction is a borrowing of stock and the pledging of cash collateral to secure the short seller's obligation to return the stock at a future date. The short seller will earn modest interest on that cash collateral, but also pay the brokerage firm a fee for letting him borrow the share. At the end of the transaction, the short seller returns the stock, and receives in return the cash collateral he posted. From the brokerage's standpoint, on the other hand, the transaction is a short-term loan of cash(i.e., the cash collateral posted by the short seller) from the short seller to the brokerage house, collateralized by the stock the brokerage pledges to the short seller. When the transaction is unwound, the short seller repays his borrowing of stock and the brokerage house repays its borrowing of cash. Thus, while these two cross-loans are outstanding, the brokerage's firm's right in the “real share” is simply the right to get its collateral back when it repays its loan from the short seller. The “artificial share” held on the brokerage house's books is a reflection of this right to the return of collateral.12 As such, it does not have the obvious characteristics of a “security” as that term generally is understood. Indeed, to the extent that it represents a contract right to obtain a security that itself might change in value over time, the artificial share resembles creatures like “stock appreciation rights”, which have been held to not be securities. See Clay v. Riverwood Int’l Corp., 157 F.3d 1259, 1264 (11th Cir. 1998). See also Marine Bank v. Weaver,455 U.S. 551, 560-61 (1982); Caiola v. Citibank, N.A., 2001 U.S. Dist. LEXIS 3736* (S.D.N.Y2001) (swap contracts); Procter &Gamble Co. v. Bankers Trust Co., 925 F. Supp. 1270 (S.D.Oh. 1996) (swap contracts); In re EPIC Mortgage Ins. Litig., 701 F. Supp. 1192, 1247 (E.D. Va.1988), aff’d in part, rev ‘d in part, sub nom. Foremost Guar. Corp. v. Mentor Say. Bank, 910F.2d 118 (4th Cir. 1990). Although it is possible to liken these artificial shares to stock options, the analogy is a weak one. First, artificial shares do not have the same characteristics as stock options. Artificial shares are not — like stock options — expressly included within the definition of “security” in §3(a)(10) of the Securities Exchange Act of 1934. 15 U.S.C. § 78(c). Second, where options are traded on established markets, artificial shares are not traded at all and probably could not be. In fact, the value of artificial shares should not fluctuate at all, since they are a fully-collateralized contract right to obtain the return of a specified share of stock at a fixed time. Even if these artificial shares were some form of a security, it remains unclear that theywould be a security upon which an issuer could be sued. In the area of puts and calls, courts are divided on the issue whether a company that issues the stock underlying the put or call relates can itself be sued for securities fraud by holders of the puts or calls. 13 See, e.g., Laventhall v. General Dynamics Corp., 704 F.2d 407, 414 (8th Cir. 1983); Data Controls N., Inc. v. Financial Corp. of Am., Inc., 688 F. Supp. 1047, 1050 (D. Md. 1988), aff’d, 875 F.2d 314 (4th Cir. 1989);Starkman v. Warner Communications, Inc., 671 F. Supp. 297, 304-7 (S.D.N.Y. 1987); Bianco v. Texas Instnu. Inc., 627 F. Supp. 154, 161 (N.D. Ill. 1985). But see Deutschman v. Beneficial Corp., 841 F.2d 502, 508 (3d Cir. 1988). In Fry v. UAL Corp. 84 F3d 936, 939 (1996), the Seventh Circuit held that option traders did have standing to sue under Rule 10b-5. Curiously, the court found this to follow from the fact that short sellers were held to have standing in Zlotnick v. TIE Communications, 836 F.2d 818, 821 (3d Cir. 1988), although Zlotnick specifically distinguished between option traders and short sellers.14 Many of the characteristics of options that have caused courts to reject them as proper grounds for a securities fraud action apply with at least equal force to artificial shares. Like stock options, the issuer did not issue the artificial shares and has no ability to control their issuance. See Laventhall, 704 F.2d at 410-11; Bianco, 627 F. Supp. at 159. Short sale transactions are more risky than buying shares of stock. See Laventhall, 704 F.2d at 410; DataControls, 688 F. Supp. at 1050; Bianco, 627 F. Supp. at 161. Finally, artificial shares do not represent capital investment in the issuer. See Laventhall, 704 F.2d at 411; Data Controls, 688F. Supp. at 1049.15 4.3 Class Certification The twin facts (1) that there is no right to bring or maintain a federal securities action based on the holding of “artificial” shares and (2) that it is all but impossible to distinguish between real and artificial shares make it difficult for a court to grant class certification to a plaintiff class in circumstances where there has been a high level of short-selling. Although there are various reasons for this, the most fundamental reason is that class certification in these circumstances will lead to an enormous volume of false claims for damages. As mentioned before, there are at least three classes of persons who might be included in a securities class action case against the issuer of a stock. The first would be the short sellers themselves, since they were indeed “purchasers” of the stock during the class period. See, e.g., Zlotnick, 836 F.2d at 820-21. The second group would be the investors whose stock was loaned by their brokerage firms to short sellers. The third group consists of those investors who purchased the borrowed shares from the short sellers. At the outset, one question is simple to answer. Most courts have concluded that the short sellers themselves should not be included within a plaintiff class of purchasers. Courts have reasoned that short sellers, because they are gambling that the stock will drop in value, cannottake advantage of the fraud-on-the-market method for providing reliance and must instead show individual reliance. See, e.g., Zlotnick v. TIE Communications, 836 F.2d 818, 823 (3d Cir.1988). This generally is fatal to participation in a class action. In the Computer Learning Centers case it was the inclusion of short sellers in the class that was the basis for the court’s denial of class certification. 183 F.R.D. at 491-92. The question becomes more difficult when one looks at the two remaining categories of potential class members. Much of the analysis turns, as it must, on the method by which class members are identified and upon which claims for damages are submitted. In a customary class action lawsuit under the federal securities laws, an investor proves his membership in the class and claims his damages by submitting to plaintiffs’ counsel copies of the confirmation slips he received from his broker showing that he purchased the stock at a particular time for a particular price. But, as pointed out before, in a short sale, there are two different people who will hold confirmation slips evidencing the purchase of the same share. Both holders of real shares and holders of artificial shares will have in their possession evidence showing that they have purchased the stock and, further, the transfer agent’s records (from which the list of class members ultimately is compiled) will show that both people were members of the plaintiff class. There is no easy way to disentangle this overlapping ownership. Unlike the regime during the days of paper certificates, stock held in “street name” does not have certificate numbers or any other form of numerical identifier to distinguish one investor’s stock share from another. In fact, revised UCC Article 8 (which governs dealings in investment securities)stipulates that, in a book-entry system, a shareholder owns only a pro rata share of his broker’s overall holdings of any given security. UCC § 8-503(b). “The idea that discrete objects mightbe traced through the hands of different persons has no place in the Revised Article 8 rules for the indirect holding systems.” § 8-503, Official Comment 2. In other words, since all securities of any given issuer are fungible, it is not possible to determine whose stock is being loaned in the first place. Lacking a system to trace down which stock is being loaned, it is impossible to determine in any individual case whose stock is being sold or is being purchased in a short sale and, ultimately, who it is who holds real shares and who holds artificial shares. This becomes both a legal problem and a practical problem with profound legal implications. On the purely legal level, this becomes an issue of legal standing to bring a claim. By definition, a class in a securities action may consists only of those persons who purchased the defendant company’s securities, and were damaged thereby. This is a necessary element of standing that each class member must meet before he can bring and maintain suit in the first place. See, e.g., Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 750 (1975). The burden of proving standing rests with each plaintiff, not with the defendant. See Sea Shore Corp. v. Sullivan, 158 F.3d 51, 54 (1st Cir. 1998); Takhar v. Kessler, 76 F.3d 995, 1000 (9th Cir. 1996).Where there has been a high incidence of short selling, the defendants will raise the defense of lack of standing against each member of the class. As noted before, there are serious issues whether the holders of the “artificial” shares – whoever they might be – owned a “security” at all or, alternatively, owned a security that they could sue upon. In addition, since the “artificial”members of the Class may not all be artificial for the same reason, each class member’s proof of standing will vary considerably.16 And since this would cause individual questions topredominate over common ones, class certification would be inappropriate under F.R. Civ. P.23(b). Even past this threshold, there are pervasive problems of class certification. In most cases, both the investor whose shares were loaned and the investor who purchased those shares from the short seller will believe themselves to be holders of the security in question and also have confirmation slips from their brokers that document their purchase of the share. Both will thus seek membership in the class and also, ultimately, submit claims for payment of damages. This fact guarantees a large number of false claims, since owners of “artificial” shares will be claiming damages they are not entitled to. Moreover, because there is no way of knowing who is a “artificial” claimant and who is a “real” claimant, a court asked to certify such a class would do so only by creating a massive liability for the defendant issuer for damages to people who had no right to damages. 5. Conclusion The only certain way to mitigate these problems would be to limit the class to those shareholders who held paper certificates or whose brokerage accounts do not permit the lending of securities. This would eliminate the problem of “artificial” shares altogether, although at the cost of seriously reducing the size of the class. Another means of mitigating the burdens would be to develop a model that applies a pro rata discount in damages to claimants who had accounts with brokerage firms that loaned securities, such discount to reflect the number of shares that were loans and when they were loaned. But the use of any such model will result in an impossible administrative problem. It would require extensive discovery of various brokerage houses and short sellers, and require the court and the litigants to engage in a detailed attempt to reconstruct the trading positions of thousands of dealers, brokerage houses and investors in millions of shares of stock over the months of the class period. Various courts have made clear that it is inappropriate to certify a class when damages cannot be determined by a formula and the court would have to preside over a series of mini-trials on damages. See, e.g., Windham v. American Brands, Inc., 565 F.2d 59, 70 (4th Cir. 1977). In the Computer Learning Centers case the court did not address the standing and certification issues pertaining to the holders of artificial shares since class certification was denied on the basis of the inclusion of the short sellers themselves. While the court gave leave for an amended class to be proposed, the case settled before this was done. End Notes to Reference 5 5 Paul Asquith and Lisa Meulbroek, “An empirical investigation of short interest,” Harvard Business School working Paper 96-012, Table 1, results for 1993, the most recent date for which they present data. The data show that mean short interest has been increasing over time. 6 This is how Judge Posner characterizes a short sale in Sullivan &Long v. Scattered, 47 F.3d 857, 858. 11 To the brokerage house’s customer, the share remains the “securities entitlement” that he has always had to demand that the brokerage house hold, deliver or sell the share. See revised UCC § 8-501. 12 In fact, the Master Securities Loan Agreement permits the return of cash or other things of equivalent value instead of stock, demonstrating the insignificance of the stock itself in the transaction. 13 A more extensive review can be found in Elizabeth M. Sacksteder, Securities regulation for a changing market: option trader standing under rule 10b-5, Yale Law Journal 97, March 1988, 623-642. 14 Zlotnick was also questionable authority in another respect. Zlotnick held that short sellers had standing to sue precisely because they had been both sellers and purchasers of the actual security, since the short sellers sold the security when they shorted the stock and purchased the security when they covered. 836 F.2d 818, 821. Both steps, obviously, involved transactions in “real” shares of stock, and not artificial shares. 15 There is an interesting circumstance created by the broker’s repeated lending, then collection, of the investor’s shares. Since title to the shares passes to the short seller with each loan, and title also presumably returns to the brokerage house with each return, it would seem from a legal standpoint that the brokerage house is constantly selling and re-purchasing the shares during the periods of time it is lending securities. It is an anomaly of short selling, though, that when the brokerage house repurchases the shares (i.e., obtains their return from the short-seller),it does not do so at the market price, but rather does so at the contractual price agreed with the short seller (i.e., the market price at the time the securities were loaned). Consequently, the price the brokerage house “pays” for the shares when they are returned is not a product of any information known to the market at that time of the repurchase and, thus, the brokerage house cannot be considered to have relied upon it. Since reliance upon information known contemporaneously to the market is an element of a § 10(b) and Rule 10b-5 claim, any such re-purchases of shares when the share lending is unwound should not be a purchase that would give the brokerage house (or, by implication, its clients the investors) rights to sue. 16 Because of the manner in which short sales work, the question of who holds the real share and who holds the artificial share may depend on the timing and circumstances of each short sale. For example, an investor who purchased from a “naked” short may never have owned a real share of stock; an investor who purchased from a short seller but who had not yet taken delivery of the stock on the day the company’s stock price fell may not have been a purchaser of stock on the day the damages occurred; and so on. In each of these cases, there will be a need for each plaintiff to demonstrate that it purchased stock on the relevant dates and this, in turn, requires a particularized factual inquiry into the circumstances of each claim. Reference 6. (http://sec.broaddaylight.com/sec/FAQ_18_6386.shtm) The SEC does not have any specific rules limiting short sales at a specific price. In theory, all stocks can be shorted, including those, for example, below $5.00. But in reality, brokerage firms may impose their own policies about what stocks can be shorted, such as a minimum stock price. In addition, depending on where the stocks trade, they may be subject to certain restrictions. Reference 7. (http://icf.som.yale.edu/pdf/hist_conference/Paul_Harrison.pdf) The Economic Effects of Innovation, Regulation, and Reputation on Derivatives Trading: Some Historical Analysis of Early 18th Century Stock Markets Paul Harrison, Federal Reserve Board 2. Financial Innovation on Early Stock Markets: The stock exchange has not been a static institution. During the early 1700s (but also prior to) a variety of innovations in market structure took hold. Many of these innovations appear to have explicit roots in the desire of market participants to reduce transactions costs. The most obvious innovation is perhaps the development of centralized trading at the coffeehouse trading sites of “exchange alley” and the eventual focus on Jonathan’s and evolution into a more formal stock exchange. Centralized trading had the clear effect of reducing information and “shoe leather” costs. In addition, as I will argue later, it may have helped foster the formation of reputations and therefore of “reputation effects.” Other innovations made it easier – that is less costly – for investors to trade by facilitating transactions without the trouble of actually transferring property rights. For instance, most trades were done for the “difference,” so that possession of the shares need not be exchanged. Trading for the difference was an important development accomplished either by “keeping” fictitious holdings properly accounted for in a broker’s account or, most likely, by purchasing a forward contract to be settled at a future date. These innovations greatly simplified trading because for most securities it was a laborious process to be the official “holder of record” of the share. Ownership typically required being entered into the company’s books at their offices (Dickson, 1967). Of course the initial capital required to support a trade for the difference as opposed to an outright purchase was also much less. Another common innovation allowed trades in fictitious partial shares, to make the denomination more affordable to non-high-income individuals. In addition, brokers facilitated client’s trading by allowing them to trade on credit or margin. Also, the stock exchange developed a clearing-house mechanism between the brokers and eventually instituted regular quarterly settlement dates as existed in Holland (Dickson, 1967). At the settlement date, a given trader might have made both purchases and sales. Instead of having to settle each individual trade, the “rescountre” allowed for trades to be systematically settled on a net balance basis (De La Vega, 1688, Mortimer, 1801), thereby simplifying settlement and again reducing transactions costs, in this case for brokers. At the settlement date, rather than settling, investors could extend the contract for an additional premium. Not only did forward transactions allow traders to avoid possessing shares and to trade with less capital, but they similarly made it possible for speculators to easily – that is with reduced cost – take the short position in the stock. Put and call options also traded frequently and for similar reasons. Taken together, derivative contracts, by all accounts, almost certainly outstripped cash/spot trades (see Harrison, 1999, Banner, 1998, and Dickson, 1967). Not much is known about the exact form of the contract used for derivative trades. Dickson (p. 491) discusses a typical option contract (apparently in use for much of the early 1700s) which specified the parties, the shares, the position, the price, and the date (which were “on or before” dates) and a premium. But traders also used simple covenants and indentures to record trades. Dickson examines the trades of Sir Stephen Evance and finds that Evance recorded a series of apparent forward trades “undertaking to deliver stock in six months’ time at a given price; when the premium is stated it amounted to roughly 20 percent.” This 20 percent premium for a forward contract is assumed to be the margin requirement, since forwards were typically for the difference, but it could be that even these trades “to deliver” were of the option variety. It is possible that not much distinction was made between an option and a forward. Market critics certainly lumped them together when assailing trading practices. Derivative trades were often called “time trades” or “time bargains” or “jobbing” trades and were criticized as mere gambling or imaginary trading “in the air.” However, a close reading Sir John Barnard’s Act – the 1734 act outlawing derivative trading – suggests that the two types of derivatives were distinct and Banner’s (1998, p.28) reading of Houghton’s 1694 market primer suggests that forwards were distinct from options at that time too.... 5. Regulation Does Not Necessarily Effect the Market: But all of the regulations were ineffective at eliminating the time trades and had little effect on the behavior of market participants. Derivative trades in England and Amsterdam for the second half of the seventeenth century and the first half of the eighteenth century (before Barnard’s Act)were already viewed as gambling contracts under the law and thus were unenforceable in court. Shirkers (renegers) could not be sued for failing to uphold their end of the contract. Yet the derivative trade flourished and subsequent critics repeatedly called for the regulation of stock jobbers and the elimination of time bargains, especially in the early eighteenth century after options became widely used and, as we have seen, after the South Sea Bubble. For example, a typical critic (“An examination ... ,” 1720, 19) lamented, “I should think it a great Happiness to the Nation, that buying without Money, or selling without Stock, could be prevented, which is a practice worse than wagering.”The clearest evidence that the regulations did not have their intended effect is the repeated calls for new regulation. Short-selling bans in Amsterdam were repeated every few years. Despite the failure of the Acts of 1697 and 1708 to curb stock jobbing, and the difficulty in even getting the Bill passed, there is some evidence that contemporaries thought that Sir John Barnard’s Act would be effective. However, in the event, it seems clear that the Act was generally in effective at preventing the trade for time, because in 1746 and again in 1756 and again in 1771 similar Bills were introduced to repeatedly curb time trades. The 1746 and 1756 bills were entitled (emphasis added): “A bill more effectually to prevent the infamous practice of stock-jobbing.”Given the continued use of time trades in earlier Amsterdam and London when they already held no legal standing, it is probably not surprising that the explicit prohibition did not eliminate them either. Banner (1998, p.106) notes the same phenomenon and cites a number of later sources, but also one from the 1740s, as pointing to the ongoing use of derivative contracts despite their being illegal. Mortimer (1801) similarly notes continued use of derivatives trades in the middle 1700sand calls Barnard’s Act “ineffectual.”Similarly, restrictions on gaming and gambling, which like the early derivative contracts were legally unenforceable, were also continuously repeated over this time period. Notably, in 1708“An act to prevent the laying of wagers relating to the publick” and again in 1710 “An Act for the better preventing of excessive and deceitful gaming.” Here too the moral message is muddled by the government’s need to raise funds. In fact, new war loans in the 1740s brought with them new public lotteries and sales of shares of tickets (down to a sixteenth) and the subsequent stock jobbing of lottery tickets. The stock-jobbers, similar to their practices for trading stocks, sold lottery numbers without owning actual tickets. This was called the “hiring” of tickets, and Parliament outlawed it in 1743 and (of course, it had to be repeated) again in 1744, since the government wanted to monopolize the revenue from issuing tickets. After hiring was outlawed, the jobbers took to offering a similar service under the guise of ticket “insurance”. De Marchi, Neil and Paul Harrison. (1994) “Trading ‘in the wind,’ and with guile: the troublesome matter of the short selling of shares in seventeenth century Holland,” in Higgling: Transactors and Their Markets in the History of Economics, edited by Neil De Marchi and Mary S. Morgan, annual supplement to volume 26 of the History of Political Economy, Durham: Duke University Press. Reference 8: (http://www.investrend.com/articles/article.asp?analystId=0&id=6037&topicId=160&level=160 ’Extreme Short Selling’ Rocks London Markets / December 2, 2003. (FinancialWire) Naked short selling, which apparently robs American investors thousands, perhaps millions of dollars every day, is causing an uproar in Britain. In the U.S., the controversy, the subject of Regulation SHO, which is available at the U.S. Securities and Exchange Commission web site through January 5, has embroiled at least 119 public companies, including some 13 brokers, including Ameritrade Holding Corp. (NASDAQ: AMTD), Deutsche Bank AG (NYSE: DB), and E*Trade Group, Inc. (NYSE: ET). The London controversy centers on Room Service (LSE: RSV). Britains Financial Services Authority is considering a “crack down” on short‑selling after being alerted to a massive short position in an AIM‑listed company which has left a group of private investors claiming unfair treatment, according to the British press. Press reports said the city watchdog said it had taken a "keen interest" in the case and was "working closely" with the London Stock Exchange to see whether regulations had been breached. Room Service, a cash shell, had been founded to operate an online food delivery service, and a huge short position by Evolution Beeson Gregory, a market‑maker in the company, is believed to have developed. It is estimated that the broker has sold stock more than the entire value of Room Service, equaling as much as 162% of the company. Because of that, Evolution has been unable to deliver shares, the investors group has alleged. Of course in the U.S., that is an every day occurrence in an untold number of stocks. The FSA had investigated short selling earlier in the year, and stated that the practice has a “positive impact” on the market, sounding a bit like the “anonymous” detractors recently quoted by Business Week. Now it says it is launching an inquiry into “extreme short‑selling.” In March, the FSA imposed disclosure rules on short‑selling after a review of the practice. Some thirteen on the list of 119 U.S. companies, such as FleetBoston (NYSE: FBF), Goldman, Sachs &Co. (NYSE: GS), Knight Securities, LP (NASDAQ: NITE), Ladenburg Thalmann &Co., Inc. (AMEX: LHS), M. H. Myerson &Co., Inc. (NASDAQ: MHMY), Olde / H&R Block (NYSE: HRB), Charles Schwab (NYSE: SCH), Toronto‑Dominion’s (NYSE: TD), TD Waterhouse Group and vFinance, Inc. (OTCBB: VFIN). A.G. Edwards, Inc. (NYSE: AGE), Ameritrade Holding Corp. (NASDAQ: AMTD), Deutsche Bank AG (NYSE: DB), and E*Trade Group, Inc. (NYSE: ET), have been accused by one or more public companies as allegedly participating in short selling activities or abuses, or of failing to settle trades. |