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NYSE Focus Report Sourcing of $131 Billion in Fails for NYSE ONLY

Location: Blogs Bud Burrell - Front and Center    
Posted by:   bburrell 11/22/2006 1:44 PM
Dude. The scary number is the repurchase agreements. Makes the fails look like beer money.

On 11/22/06, Bud Burrell < b.burrell1@cox.net> wrote:

Re: SEC Internal Controls Rife For Abuse

By sgaah on 11/17/2006 8:56 AM

Firms that trade on the NYSE file "Financial and Operational Combined Uniform Single Report".

The total is a subset of all fails as it doesn't include foreign fails or custodians that don't deal on the NYSE. Also, firms have been known to lie on their FOCUS reports, so it is likely to understate the problem.

Data from Q2 06

Failed to Deliver: $28 billion
Failed to Receive: $35 billion
Total: $63 billion or ten times what the DTCC says

http://www.sia.com/research/other/NYSEFirmsTotals.xls

It shows that the fail to deliver peaked at $131 billion

http://www.sia.com/research/other/qrt_res.xls

These fails are above the billions in stock repos. Regulation SHO has a nasty loophole that being contractually obligated to buy stock in the future is the same as being long in the stock.

Instead of lending the stock, I do a repurchase agreement. I sell the stock to another firm, with the agreement to buy it back, minus my fee. It has the essence of a loan, but I don't have to report it as a loan and the borrow can sell it without reporting it as a short.

Here's the kicker. The person who buys the stock is long AND the person who lends the stock via a repo is also long.

The recipient can enter into a new repo agreement, creating a long chain of phantom longs, each long by virtue of their agreement to buy the stock back in the future.
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Comments (9)
Thanksgiving By clearthinker on 11/23/2006 7:26 AM
I'd like to offer a Thanksgiving wish to everyone who has written a letter, sent an email, signed a petition etc...on behalf of cleaning up this rat's nest. It has been incredibly frustrating and discouraging at times. It has ALWAYS been extremely sad to see this kind of activity going on under the noses of our regulators who have sttod by or worse, attacked the victims. This is a MAJOR tragedy in our lifetimes.

I'd like to send a big THANKS to Patrick, Bud, Mark, Dave, Gary, and many others who have spoken out on this issue. Regardless of the outcome, I and many others are grateful for your staying the course.

Best to all.

CT
Re: NYSE Focus Report Sourcing of $131 Billion in Fails for NYSE ONLY By oh donny boy on 11/23/2006 9:02 AM
Bud, did you notice Donaldson, Lufkin & Jenrette Securities Corp (now Pershing, a sub. of Bank of NY) has $1.7 billion in fails? Funny Donaldson couldn't have known about naked shorting when his own firm was a custodian that facilitated it.

Could they really be responsible for 34% of all fails or is it more likely the DTCC is lying when they say the total fails are $5 billion?

http://www.pershing.com/statementoffinancialcondition.pdf

This one clearing brokerage has fails to deliver totaling $1.7 billion as declared in their annual report.

This consists of $700 million of shares they owe other brokerages and $968 million of shares other brokerages owe them. These are "marked to market" amounts. The real dollar figure to cover is likely much higher.

They also have another $2.4 billion in repos and stock loans going in both directions.
Re: NYSE Focus Report Sourcing of $131 Billion in Fails for NYSE ONLY By oh donny boy on 11/23/2006 9:03 AM
Thanks to Mary, too.
Re: NYSE Focus Report Sourcing of $131 Billion in Fails for NYSE ONLY By bburrell on 11/23/2006 9:09 AM
Read through this in full, and you reaize that $65 Billion in fails that is from JUST the NYSE, means the total fails number includiing NASDAQ, the ASE, BB and PS have to be insanely larger.

I don't want to argue with these pencil necks, I want them to explain it to the FBI, with me standing on the other side of the glass noting every lie for the Agents.

Lying to a Federal Investigator is 10 years in prison per offense, and the hurdle is lower than that for proving perjury.

If that isn't where this is headed, this country and not just its financial system, is doomed. And I mean DOOMED!
Re: NYSE Focus Report Sourcing of $131 Billion in Fails for NYSE ONLY By davidn on 11/23/2006 9:46 AM
This is an international problem. These thieves are rarely domociled here and they move their money at the speed of electrons to the jursidictions where the regulation is most lax.

Bud, also take a look at the massive repo agreements between the European clearing system and custodians here. Repos create phantom longs which are every bit as devastating to the phantom long holder as a phantom short is.

Clearstream accidently overstated it's assets by $1.5 trillion in an accounting error and is presumed to launder money for the world's elite.

http://en.wikipedia.org/wiki/Clearstream
Re: NYSE Focus Report Sourcing of $131 Billion in Fails for NYSE ONLY By davidn on 11/23/2006 9:47 AM
I think many "naked shorts" are hidden by Clearstream, which owns the German exchanges. They enter into repo agreements with US custodians to mask the phantom nature of the shares.

When you add up repos, legitimate borrows and fails, it seems that it is possible there are almost as many phantom shares as real ones (only $31 trillion in real shares in the DTC).

This is the self regulatory association that manages international repurchase agreements. Rather than borrow shares, you buy them with a promise to sell them at some, possibly undated point in the future. The buyer is long and the seller is long by virtue of having a contract to repurchase.

http://www.icma-group.org/international1.html

The whole repo market is many quadrillion dollars, but the equity piece is almost $6 trillion or 1,000 times the $6 billion the DTC says fails to deliver.

"This market has a significant role in the international securities market as a whole by providing liquidity, marketability and in offering opportunities for the mitigation of credit risk. The most recent ICMA repo survey has set the lower boundary for the size of the market at EUR 5.8 trillion."

"Due to its inherent cross border nature, the international capital market is not subject to the same degree of regulation that governs domestic primary and secondary markets."
Re: NYSE Focus Report Sourcing of $131 Billion in Fails for NYSE ONLY By davidn on 11/23/2006 9:47 AM
The standard repo agreement:

http://www.euromoneyplc.com/images/covers/A%20Practical%20Guide%20to%20Using%20Repo%20Master%20Agreements/repo%20sample%20ch.pdf
Re: NYSE Focus Report Sourcing of $131 Billion in Fails for NYSE ONLY By davidn on 11/23/2006 10:54 AM
A bunch of new answers popped up in Oct.

http://www.sec.gov/divisions/marketreg/mrfaqregsho1204.htm

Hmm, X-Clearing fails as per the focus data are ten times the DTCC number, but the SEC exempts them as they believe they are rare.

Don't they read the dam FOCUS reports? Don't they know that Clearstream isn't a registered clearing agency?

"Question 5.3: Does the close-out requirement apply to delivery failures that do not occur at a registered clearing agency?

Answer: We interpret the close-out requirement to apply only to fail to deliver positions at a registered clearing agency. Our interpretation is based on our understanding that transactions conducted outside the Continuous Net Settlement System (“CNS”) operated by the National Securities Clearing Corporation (“NSCC”) are rare. If this historical pattern changes and a significant level of fails are not included in CNS, we will reconsider this position."
Re: NYSE Focus Report Sourcing of $131 Billion in Fails for NYSE ONLY By bburrell on 11/23/2006 9:49 AM
david,

I have told the authorities in this country this is a global fraud on an unprecedented fraud. I wrote reports on my discovery of massive international links to global terrorism, central banks and more, going back over 4 years.

You can read one of the reports here, by clicking on the Resources tab, and going to my commentary on this.

I may reprint it here.
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