Blog

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...

Trillions eh Bunny !!!..now I know where that bonus money Wall Street throws out to everyone and his mother every year comes from. The insidious thing about it is they give everyone a vested interest in perpetuating the fraud.Even the City of NY which receives over three billion in taxes each year, keeps its mouth shut, and that goes right up the line to the Senate and Congress...Hey I want in on this scam too...

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...

Bobo, I notice where evever you post these "miscreat helper" wanna be players come after you to confuse the issue of the 8 billion a day in fails, well let them try to dispute this one. This should be good from here on.. LOL!!Good stuff by the way. Thanks.

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...

A little off topic... but

I have a very simjple question. These banks are cash strapped and have been literally borrowing monies to the tunes of 30 to 40 billion per week to exist from the Federal Reserve (better knows as the taxpayers) how can they afford to pay these enormous settlements to customers all of a sudden? Does’nt this seem fishy to you guys? Please explain it to me like I’m a five year old.
Citi 20 billion
UBS 18.6 Billion
Morgan Stanley 1.5 billion
Merrill Lynch 12 billion
Goldman???
JPM ????
Lehman????

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...

Now it's easy to piece together a few things. Jim Cramer comes out hard to stop naked shorting and the SEC protects 19 financial corps, most of whom need their stocks to get up higher so they can use the share price for some needed liquidity. Meanwhile, every other publicly held company continues to get hammered by naked shorting while the SEC allows them to linger on the Reg SHO list without a forced buy in....How much you wanna bet that on August 12th , there is no immediate protection for all companies, but rather some rhetoric that goes like this "blah blah blah, we need time to develop the proper language and a pubic comment period."

The SEC knew that these settlements were begin made while Cox went before the public proclaiming the need to provide emergency protection. Sure these guys need protection....they get their shares protected as they admit "no wrongdoing" but agree to buy back billions in fraudulently mis-represented securities.

Any questions?

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...

Jesus H. Christ ('scuse my French). I knew the fails figure was high, but I was hoping against hope that the "real" figurer(s) would ultimately amount to much lower than even my childish imagination would allow.

Another childish bubble burst.

Okay, so the miscreants are basiically siphoning off anything worth scrounging before the sh*t really hits the fan, when international creditors come to collect, ya? Or am I reading this wrong? Rome was basically sacked under the same sort of pretense, if I'm not mistaken....

God help us all.

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...

Listen to this. It really explains Naked Short selling. Follow up to Bloomberg piece on Naked Shorting.

www.netcastdaily.com/broadcast/fsn2008-712-2asx If this does not work there is a link on the ABK message board under Bud Burrell The Greatest Crime In History.

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...

What is most scary to me is that IN BROAD DAYLIGHT, Chris Cox protected 19 companies, the market (unable to short them) bid the prices higher while the companies, one by one announce deals to buy back BILLIONS of fraudulently mis-represented securities, without admission of wrongdoing and NOT ONE INDIVIDUAL IS NAMED.

There's no discovery needed, folks, it's all happening right under the noses of our enforcement people. Let's see if they do anything......

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...

Activists have been fighting stock counterfeiting for at least 34 years when Richard Ney wrote "the Wallstreet Gang" and at least 78 years since the Pecora hearings. Nothing ever happens because the people running the printing press run this country.

Naked shorting became big news in 2000 when news of "Operation Bermuda Short" hit the wires.

http://www.rgm.com/articles/tk2.html

Hunter Carr made the news when he sued in 2002

http://www.rgm.com/articles/predatororprey.html

Dozens of others have sued since, without success.

Then stockgate hit with the "National Association Against Naked Short Selling". RGM began the fight as did Burrell and our own bunny.

Recent History Since 2000:

- companies exercised their right to exit the DTC and self-clear through their transfer agent and the SEC came up with a new rule banning it

- In 2003, the BBX was announced, which was supposed to replace the OTC and get rid of naked short selling. The SEC canned it weeks before it was to launch after companies had spent millions getting ready for it

- heavily shorted companies were listed against their permission in Berlin to take advantage of shorting loopholes and the SEC assured there was no shorting from Berlin

- the NASD came up with a rule banning their members from dealing with foreign brokerages that failed to deliver and the SEC killed the rule at the last minute, saying that they would come up with SRO, which would be better.

- over a year later, SHO launched and the SEC gutted it with a grandfather provision

- they promise to fix SHO, but leave so many exemptions it is still useless

The SEC has killed every rule that has worked and has been stalling on behalf of the industry since the 1930's. They've lied on behalf of the industry for years and have no intention of ever protecting investors from Wallstreet's dirty little counterfeit secret.

After all they have $1.5 trillion reasons to turn a blind eye.

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...

More stalling and total BS from feckless SEC.

‘Naked’ short-selling rule set to expire
By Joanna Chung in New York
Published: August 10 2008 18:34 | Last updated: August 10 2008 18:34
An emergency measure protecting a select group of financial stocks from abusive short-selling expires on Tuesday, probably leaving at least a two-month gap before a similar rule, currently being considered, is imposed.

The US Securities and Exchange Commission has said that it would not extend the rule preventing “naked” short-selling in shares of 19 key financial entities, including mortgage groups Fannie Mae and Freddie Mac, and big Wall Street firms that include investment bank Lehman Brothers.

EDITOR’S CHOICE
In depth: Short-selling - Jul-17
Lex: Short measures - Jul-27
Short-sellers caught out by higher costs - Jul-16
Lex: Naked shorts - Jul-16
Confusion over UK rules on shorting - Jul-06
‘No action’ by FSA after abuse probe - Jun-22
Instead, its staff is drawing up new proposals to guard against abusive short-selling in shares across the entire market.

However, it is likely to be a couple of weeks before they are proposed, followed by a public comment period of at least 30 days. Several ideas are being studied, including the requirement that is at the heart of the emergency rule.

Short-sellers aim to profit from share declines, usually by borrowing a stock, selling it and buying it back after its price has decreased. In “naked” short-selling, the shares are sold without being borrowed first. The emergency rule requires investors to borrow the security first and deliver at settlement.

The rule slowed down trading, some market participants said, because most traders had to make pre-borrow arrangements manually for the 19 shares. But any new pre-borrow requirement rule, which would involve collecting public comment, is unlikely to be imposed for at least two months, according to SEC officials.

Other ideas, however, could be adopted earlier – at the time proposals are issued – including a requirement to disclose substantial short positions or to use a price test or some kind of “circuit breaker” to limit short-selling when, for instance, shares fall by a certain percentage.

“Given the great differences between all of the companies across the market, a one-size-fits-all approach is unlikely,” one SEC official said.

Nevertheless, market participants say traders might not engage in “naked” short-selling in the intervening weeks.

“A message has been sent and I don’t think we’ll see a return to that,” said one, while another said the emergency measure gave the market a necessary breather. Others say traders can short-sell legitimately through numerous other methods, including using derivatives.

However, some market participants are uneasy. “We remain concerned that during this interim time period our members will continue to be exposed to these “distort and short” campaigns,” said Sarah Miller, senior vice-president of the American Bankers Association.

Ms Miller wants the SEC either to extend the emergency order and include all banks or to issue a proposal as soon as possible.

She said the growing volume of “failures-to-deliver” are indicative of abusive short-selling, and that a spike in FTDs is invariably accompanied by significant stock drops, not all of which can be attributable to market or bank-specific conditions. “We suspect that the volume of FTDs has only continued to grow, perhaps dramatically,” she said.

SEC officials, who are also working on amending some existing rules governing short-selling, are still studying the impact of the emergency rule.

Copyright The Financial Times Limited 2008

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...

I once read a newspaper article where the local authorites said a whistleblower committed suicide by shooting himself in the head. TWICE.

They said it with a straight face as they knew they had so much power, that "what are you going to do about it."

It's almost like its a dare. The prime brokerages which have counterfeited other companies into oblivion are unable to honor their obligations and are facing collapse.

Suddenly, Cox says that an illegal strategy the SEC claimed for years never existed is suddenly legal as long as it doesn't apply to these 19 companies. This follows the SEC grandfathering what is clearly an illegal activity.

It's like Cox is saying all those other companies went bankrupt because of bad management. They committed suicide by shooting themselves in the head, twice. Then he wraps his arms around the murderers and tells them he will protect them from being suicided, too.

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...

Was watching a youtube viedo of don harrold (interesting youtube type live blogger) when they were talking about the Fed printing money and then lending it out for interest payments.

Think about it the economy weakens the Banks in the Federal Reserve print money "out of thin air" and then get interest on the money they just printed.

Now if you think about it, if the economy weakens by all of the Naked Short selling much of which is done by the Banks that are a part of the Federal Reserve it creates a downward spiral that benefits the Banks.

Stay with me for a minute. Ok, a Bank Naked Shorts all of the Financial stocks makes Billions from shares that do not exist and may never have to cover or account for thoes shares and then as a part of the Federal Reserve has to print more money out of thin air and get an interest return on counterfeit dollars to speak.
It is no wonder that the market and the economy is in the shape it is in.

Kind of like a double wammy of profit. Profit from Naked Short selling where the profit may or does not have to be reported or taxed and then profit from interest from money newly created that cost nothing to produce.

No wonder why all Americans are scratching their heads wondering why they have no money are losing their homes, cannot pay their credit card bills or afford to heat their homes. The Central Banks have figured out a way to Rob Americans of all of their Wealth and become a superpower within themselves.

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...

Finally, Bloomberg publishes the story so-called "journalists" have pretended didn't exist even though it was called to their attention in detail as early as 4/26/08 under the title: "One of the greatest financial scams ever! And not a peep from the financial media."

(at root here is also the totally crooked options market -- and use of the options market maker exemption to naked short a company to death.

Bringing Down Bear Began as $1.7 Million of Unsuspected Options
By Gary Matsumoto

Aug. 11 (Bloomberg) -- On March 11, the day the Federal Reserve attempted to shore up confidence in the credit markets with a $200 billion lending program that for the first time monetized Wall Street's devalued collateral, somebody else decided Bear Stearns Cos. was going to collapse.

In a gambit with such low odds of success that traders question its legitimacy, someone wagered $1.7 million that Bear Stearns shares would suffer an unprecedented decline within days. Options specialists are convinced that the buyer, or buyers, made a concerted effort to drive the fifth-biggest U.S. securities firm out of business and, in the process, reap a profit of more than $270 million.

Whoever placed the bet used so-called put options that gave purchasers the right to sell 5.7 million Bear Stearns shares for $30 each and 165,000 shares for $25 apiece just nine days later, data compiled by Bloomberg show. That was less than half the $62.97 closing price in New York Stock Exchange composite trading on March 11. The buyers were confident the stock would crash.

``Even if I were the most bearish man on earth, I can't imagine buying puts 50 percent below the price with just over a week to expiration,'' said Thomas Haugh, general partner of Chicago-based options trading firm PTI Securities & Futures LP. ``It's not even on the page of rational behavior, unless you know something.''

The 5.7 million puts that traded March 11 at the $30 strike price and the 1,649 that traded at $25 were collectively worth about $1.7 million, Bloomberg data show. Each put is equal to 100 shares of stock.

`Lottery Ticket'

``That trade amounted to buying a lottery ticket,'' said Michael McCarty, chief options and equity strategist at New York- based brokerage Meridian Equity Partners Inc. ``Would you buy $1.7 million worth of lottery tickets just because you could? No. Neither would a hedge fund manager.''

During the next four days, New York-based Bear Stearns unraveled in the swiftest investment-banking failure in Wall Street history. Speculation about a cash shortage proved self- fulfilling, causing customers and lenders to demand their money back. Bear Stearns's stock sank 47 percent to $30 on Friday, March 14. That's when the Fed moved to stave off a panic by helping the U.S. Treasury arrange JPMorgan Chase & Co.'s purchase of the company for $2 a share, a price unimaginable to the firm's 14,000 employees and more than 500 shareholders.

In the aftermath, Bear Stearns Chief Executive Officer Alan Schwartz told Congress that the firm was toppled by rumor- mongering and abusive trading. Regulators have begun peeling back trading records, hunting for suspects.

Schwartz and officials at the SEC declined to comment for this story.

Wall Street Seizure

The fire sale of Bear Stearns was the climax of a nine-month credit seizure that started with the failure of two Bear Stearns hedge funds, caused more than $490 billion of losses and writedowns in the banking and securities industry and ousted the CEOs of Citigroup Inc., Merrill Lynch & Co., and UBS AG. Never in its 95-year history had the Fed done so much to rescue Wall Street during its worst financial crisis in at least two decades.

Evidence of any scheme to bring down Bear Stearns is most likely buried in options data, according to former government investigators. Options, contracts to buy or sell shares by a certain date at a specific price, can offer forensic evidence of market manipulation and insider trading, said Brent Baker, a former U.S. Securities and Exchange Commission Enforcement Division lawyer who helped prosecute Anthony Elgindy, the stock- picker convicted in 2005 on 11 counts of securities fraud, wire fraud, extortion and racketeering.

The DNA

``On CSI Wall Street, the options are the DNA,'' he said, referring to the television series, ``Crime Scene Investigation.''

While Bear Stearns executives tried to quash rumors about the firm's insolvency with press releases and television appearances by its CEO Schwartz, the number of $30 Bear Stearns put options held by speculators soared 10,768 percent from Monday March 10 to Tuesday March 11, Bloomberg data show.

On March 11, when the Fed said it planned to make up to $200 billion available through weekly auctions and for the first time lend Treasuries in exchange for debt that includes the devalued mortgage-backed securities that contributed to the credit seizure, one or more unidentified traders requested the Chicago Board Options Exchange list the even deeper out-of-the-money strike at $25.

Bear Stearns also was rocked that week by failed trades, a problem associated with naked short selling. Failed trades in Bear Stearns soared more than 10,800 percent during the week of March 10, according to data released by the SEC.

Stock in Freefall

Bear Stearns fell 11 percent to $62.30 in the first trading day of the week on speculation that the firm had insufficient liquidity, or enough funds to cover any sudden withdrawals. The 58-year-old Schwartz, who was in Palm Beach, Florida, at an industry conference, was puzzled by the rumors, according to people who talked to him. He was told by associates that the firm had no shortage of cash. Clients weren't pulling their money, trading counterparties weren't refusing to do business with Bear Stearns, and short-term credit lines weren't being cut.

To quell the speculation, the company issued a two-paragraph statement at the end of the day, saying its financial position was ``strong.''

Hedge funds, concerned about losing their money, weren't convinced. Eagle Asset Management Inc. moved to other prime brokers, according to Managing Director Todd McCallister. Investors who had credit default swap contracts with Bear Stearns turned to Goldman Sachs Group Inc. and other Wall Street firms, asking them to buy the contracts.

Bankruptcy Put

On Wednesday, March 12, Schwartz appeared on CNBC, live from Florida, saying the company had ample resources to weather the credit crunch. While for the moment, at least, that assuaged concerns in the market, the capital flight began again the next day. Many of Bear Stearns's traditional creditors reduced or halted their lending to the 85-year-old company founded by Joseph Bear and Robert Stearns.

By the end of the day, Bear Stearns's cash was almost depleted and its stock closed at $57. As Schwartz realized the company couldn't function on Friday without access to overnight borrowing, he called government officials, regulators and JPMorgan CEO Jamie Dimon.

After discussions late into Thursday night, the Fed agreed to provide cash through JPMorgan, the second-biggest U.S. bank by market value, because Bear Stearns didn't have direct access to the Fed as a lender of last resort.

Then, on March 14, the CBOE listed a series of put options with less than five days to expiration. The lowest strike price, $5, was more than 90 percent out-of-the-money in what options traders refer to as a ``bankruptcy put.'' Bear Stearns slumped 47 percent that day to $30 in NYSE trading.

`One Tick'

The out-of-the-money Bear Stearns puts point to a raid, said Baker, who's now a securities lawyer whose clients include companies that have filed complaints over naked short selling.

The $25 Bear Stearns puts, and others obtained March 14 involving the right to purchase 630,000 shares at a strike price of $5 by March 22, were ``bizarre,'' according to Haugh, the PTI partner who spent 18 years as a CBOE options-market maker.

John Olagues, who started trading options 30 years ago, said he has never experienced anything like it. Olagues, who runs a New Orleans consulting company called Truth in Options, also manages more than $1 million for a client who had a stake in Bear Stearns, which plummeted 94 percent in value on March 17. The drop prompted Olagues to start pouring over options trading records and call officials at the CBOE.

``In just one tick, the company's share price lost nearly all its value, a steeper drop than Enron's right before its de-listing in 2001,'' said 63-year-old Olagues, referring to the bankruptcy of Houston-based energy trading company Enron Corp. ``I've never seen a stock perform like that in my life.''

Vertical Put

Olagues, who was an options market maker at the Pacific Exchange and then the CBOE from 1976 to 1984, said he knows all about so-called time decay, implied volatility, arbitrage and the complexities of options trading. The former all-conference pitcher at Tulane University, who started his own firm called Truth in Options in River Ridge, Louisiana, in 2003, said he has found options transactions that convince him Bear Stearns was the victim of insider trading.

``I would stake my reputation on that,'' he said.

Olagues said he was able to avoid losses for his client on Friday, March 14. His hedged position -- a so-called vertical put spread designed to absorb losses as great as 50 percent -- made money by the closing bell that day. The hedging failed the next trading day, March 17, when the stock opened at $3.17.

``Nobody prepares for the stock going from $57 to $3 in just two days,'' he said.

SEC Review

Schwartz told the U.S. Senate Banking Committee on April 3 that there are ``lots of reasons why people could have a financial motivation to induce panic'' and ``a lot of trading would point to that.''

Bear Stearns has forwarded options data to the Senate Banking Committee and the SEC, said a person close to the firm, who declined to be identified.

SEC Chairman Christopher Cox told Congress last month that the agency is probing whether illegal trading spurred the collapse of Bear Stearns and the 72 percent drop this year in Lehman Brothers Holdings Inc.'s market value. The inquiry focuses on investors suspected of seeking to profit by intentionally spreading false information about the companies.

The SEC subpoenaed Wall Street's largest firms and hedge funds for trading records and communications, including e-mails. The agency also enacted an emergency limit on so-called naked short sales in Freddie Mac, Fannie Mae and 17 brokerages as it prepares broader rules to thwart stock manipulation.

`Turbocharge' Effect

Naked shorting, which can be illegal, occurs when short sellers who intend to profit from a decline in securities prices fail to borrow stock by the settlement date. Traders can use that method to drive down prices by flooding the market with sell orders.

The strategy can ``turbocharge'' the effect of false rumors on a stock price, Cox said on a July 16 conference call with reporters. The SEC will consider new rules to prevent improper short selling, Cox told Congress on July 24. It also may force investors to disclose ``substantial'' bets on falling stocks, he said.

On Tuesday, March 11, when Federal Reserve Bank Chairman Ben Bernanke attended a luncheon with Wall Street executives at the New York Fed and the CBOE listed its $25 Bear Stearns put option, McCarty of Meridian red-flagged Bear Stearns in his ``MEP Noteworthy Option Activity'' memo.

Big Bets

What got McCarty's attention that day was the volume of put trading in strike prices of $35 and below. Investors bought 84,109 puts at strike prices that would require a calamitous drop to make money, he said.

``Somebody placed some big bets that day that paid off,'' McCarty said. ``The question is did they make it pay off?''

On March 14, when Schwartz sought emergency funding, Bear Stearns opened at $54.24 in NYSE trading. That day, the CBOE listed eight new put options that expired in five days with strike prices that ranged from $22.50 to $5. The lowest was 90.7 percent below the opening stock price.

Gail Osten, a spokeswoman for the CBOE, declined to say who placed the order for the options.

``Nobody in their right mind would buy that put unless you knew what was going down,'' said Ray Wollney, Olagues's partner at Truth in Options. On Friday, March 14, a total of 6,303 of the $5 Bear Stearns puts traded.

Paulson Calls

That night, Schwartz got a call from Treasury Secretary Henry Paulson making it clear that the Bear Stearns had until Sunday evening to find a buyer because the Fed planned to withdraw its financial backing. Paulson, who didn't want the government to appear to be bailing out a Wall Street firm, then brokered the sale to JPMorgan.

Schwartz and Bear Stearns Chairman James ``Jimmy'' Cayne convinced fellow board members by explaining that their only alternative was to accept the deal or face bankruptcy. The agreement was announced Sunday night.

Options bets that looked irrational on Friday proved brilliant on Monday, when the shares traded between $3 and $5. By Wollney's calculations, the traders who spent $35.8 million on the deep out-of-the-money puts reaped an estimated $274 million windfall from the plunge in Bear Stearns.

Peter Chepucavage, a former general counsel for compliance at Nomura Securities and onetime SEC lawyer, said the Bear Stearns bets were neither smart nor lucky.

`Riddled With Bullets'

``When you buy $5 strikes when the stock is trading over $50, you either have to be manipulating, or you have to have insider information,'' said Chepucavage, who's now with Washington-based Plexus Consulting.

John Welborn, a London School of Economics-educated economist who works at Haverford Group investment firm in Salt Lake City, has been analyzing data released by the SEC on Bear Stearns shares sold but not delivered to buyers within the required three-day limit.

From March 10 to March 14, SEC data show that the failed Bear Stearns trades jumped to 2.1 million from 19,424, Welborn said. The failed trades correlate with increases in the firm's put volume. The volume of Bear Stearns puts soared to 237,770 on March 11 from 32,081 on March 7. Put contracts doubled again to 445,635 on March 14.

``It looks to me like Bear Stearns got riddled with bullets,'' Welborn said.

The question is whether the trading was premeditated and designed to ruin Bear Stearns, Chepucavage said. If there is a link between these separate activities, only subpoena power will be able to establish it, he said.

``Track the rumors,'' Chepucavage said. ``Follow the puts.''

To contact the reporters on this story: Gary Matsumoto in New York at gmatsumoto@bloomberg.net.

Last Updated: August 10, 2008 19:01 EDT

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...

waterfallsparkles, that's an interesting theory, although to me it sounds a bit over the top. I maintain that since naked shorting is counterfeiting, the Secret Service should crack down against it, since the feckless FED and spineless SEC apparently aren't going to. The Secret Service has direct jurisdiction to guard the nation's money supply and prevent wire fraud. (18 U.S.C. sections 1029 and 1030.)

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...

http://www.financialstandard.com.au/news/view/23739/

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...

********

Investment News also has a great one, referencing and quoting many of the good guys.

Snippet:

<< Naked short selling has allowed short-sellers "to create stocks that are unregistered and sell them as electronic entries and get the money for it." >>

http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20080811/REG/827522981

**********

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...

http://www.theregister.co.uk/2008/08/11/wikipedia_and_byrne_again/

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...

A report to banking and financial services committee on how the clearance system works and what the risks are.

http://tinyurl.com/5moh7r

Some of the pages are missing unless you buy the book, but still a good read.

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...

I like the section on page 56 where the NSCC is said to be exposed to counterparty risk from marking to market.

The NSCC is at risk as they GUARANTEED the trade would settle and would need to buy in the failing participant and that participant may not have enough assets.

Note that when they say the DTCC can't buy in, that's because it is a different company. The NSCC literally is the one that OWES us the failed shares as they interpose themselves in the trade. Someone else may owe them shares, but that's their problem.

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...

Market maker knight wants to keep the right to pre-net. What are the odds that knight's counterparty isn't a related company?

Market makers have been accused of doing fake trades, such as whacking their old bids and pulling them to make it seem like the market is falling with aggressive selling, wash trades, etc. Why should they get to hide that from the NSCC and regulators by netting everything into a single trade for the day?

"Knight opposes this proposal in its current form and respectfully requests that the Commission reject this rule filing – particularly, the provision to eliminate all forms of “pre-netting” on trades submitted to NSCC. Knight does not take issue with the concerns advanced by the NSCC, rather we oppose strongly the “means” they propose to achieve their “ends.” In fact, we believe that there are far less disruptive and costly solutions which can achieve the stated goals of the NSCC.

Trade compression occurs when trades for the same security, on the same side are grouped together for clearing purposes. More specifically, it is a process by which an executing firm (the one locking-in a trade) compresses trades with a willing counter-party and reports the compressed (single) trade to the NSCC for locking-in purposes. Trade compression simplifies transaction processing and offers many advantages, including minimizing the number of transactions submitted for clearing and internal processing. Trade compression has been a growing part of the backbone of the U.S. capital markets for the last several years. In fact, as executing firms take on more and more of the correspondent clearing tasks for routing firms – through qualified special representative agreements (QSRs), and with ever increasing trading volumes, trade compression has been (and continues to be) a critical part of the clearing process and has helped to reduce dramatically transaction costs overall.

Hundreds of thousands (potentially millions) of trades are compressed each day. The results are huge clearing cost savings, which ultimately result in less transaction costs to the investor. In its filing, the NSCC has offered no valid basis for overturning this longstanding industry practice. In fact, such action effectively interferes with the legitimate rights of correspondents and clearing firms to process and settle trades in the most efficient and cost effective manner. Thus, the NSCC’s effort to eliminate a well-established industry practice through regulatory fiat without fully vetting the impact on the industry is simply excessive and unfair."

http://www.knight.com/ourperspective/letter_20060530.htm

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...

The story is already here in this blog as a post, what you don't see is the Title given to the story on Bloomberg.Here it is, it may sound familiar to some of us, right Bobo? The media is starting to tell it and CALL it like it is. "A RIGGED MARKET" Please note this is the new title of the story posted above by rmr from Gary Matsumoto of Bloomberg.

•Bringing Down Bear Began as $1.7 Million Options Pointing to Rigged Market

Link..

http://www.bloomberg.com/apps/news?pid=20601109&sid=aGmG_eOp5TjE&refer=home

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...

Funny (not) that NSCC's fees appear to be the main reason for NSCC's proposal to change the pre-netting practice ("enabling participants to persist in this practice permits them to continue to evade paying their fair share of NSCC's costs, thus rendering NSCC's fee schedule, as currently applied, inequitable to those firms for whom trades are submitted real-time without any pre-netting), although, to its credit NSCC also argues that without a change in pre-netting "[i]t will also make it effectively impossible for the industry ever to move to a shortened securities settlement cycle, since it would lock in place a practice of delaying input to the clearing corporation until late in the trading day."
http://www.sec.gov/comments/sr-nscc-2006-04/nscc200604-9.pdf

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...

Many market makers are small and under capitalized. Does anyone verify that there is a real counterparty on the other side? What stops them from under reporting obligations and just saying there is a mysterious buyer that nets against all their shorting?

They have to report their net assets, but it would be easy to hide all their obligations, leaving huge naked shorts at the level of the market makers.

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...

When the SEC discloses the size of the phantom share problem, do they include market maker pre-netting? That's on top of NSCC netting, clearing house pre-netting and desking.

Each one of these levels potentially multiplies the problem by one hundred times.

It's ridiculous.

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...

I'm told the biggest problems are foreign clearing and pre-netting at non participant clearing brokerages and market makers.

Here's the NSCC's response where they spill dirty laundry on who clears for who.

http://www.sec.gov/comments/sr-nscc-2006-04/nscc200604-9.pdf

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...

Qualified special representatives get to pre-net. Pay special note to the ones who pre-net for CDS (Canada) which then pre-nets before going into the DTC.

http://www.dtcc.com/customer/membership/nscc-qsr.php

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...

Some excerpts on how trades are pre-netted, possibly warehoused for days or longer before being submitted to the NSCC:

http://www.sec.gov/comments/sr-nscc-2006-04/nscc200604-9.pdf

It takes very little assets to become a market maker. What would stop a market maker from compressing trades with a hedge fund they own, which pretends to have an offsetting buy for their naked short? Who audits and regulates compression?

Summarization is the practice of combining like-sided trades by executing/correspondent broker, and compression is the practice of combining like-sided trades by clearing broker. While NSCC is not aware that fms are actually netting opposite-side trades prior to their submission to NSCC, the proposal seeks to prohibit all forms of "pre-netting" for trades ultimately submitted to NSCC for clearance and settlement.
place a practice of delaying input to the clearing corporation until late in the trading day.

allowing clearing and executing firms to "warehouse" trade data throughout the day (so that they can summarize or compress it later) makes it extremely unlikely that NSCC could meet the targeted recovery and resumption objectives


Discussions with firms have indicated that bilateral "compression" arrangements do exist between many QSR's (or the automated execution systems that they clear for) and their customers. The level of compression was then estimated first, by performing a distribution analysis on the trade data by trade share size, marketplace and price, and then by comparing trade share size and prices from those markets where NSCC receives trade submissions on trade-for-trade basis against over the counter activity, which includes QSR submissions.

In fact, the practice of correspondent brokers pre-netting their trade data prior to submitting that data to their clearing broker compromises the clearing broker's ability to reconcile a trade break in a compressed or summarized transaction, without having all the underlying trade details.

The most notable example of a Member's failure brought about by the activities of its correspondents was the 1995 failure of Adler, Coleman Clearing Corp ("Adler"). Adler was primarily a clearing fm acting for 42 introducing fms and clearing trades for over 66,000 customer accounts. Adler's demise immediately followed the collapse of Hanover Sterling & Company, Ltd. ("Hanover"), one of the introducing fms whose trades Adler cleared. As determined by the SIPC Trustee appointed to liquidate Adler, Hanover's failure was due to massive, organized short selling in various securities as to which Hanover was an underwriter and market maker. The short selling activity that led to Hanover's demise ultimately caused Adler's financial collapse. Through its trade guaranty, NSCC took on and settled Adler's outstanding trade obligations. As a result, NSCC sustained a loss in liquidating those positions.

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...

The deadline for the NSCC rule to get rid of pre-netting expired May 2006, yet they are still actively posting comments.

http://www.sec.gov/comments/sr-nscc-2006-04/nscc200604.shtml

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...

http://www.sec.gov/comments/sr-nscc-2006-04/nscc200604-10.pdf

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...

http://www.knight.com/InvestorCenter/AR/pdfs/Knight2007AR.pdf

pg. 17

Knight traded 2.6 million trades totalling $29 billion on their peak day. That's $11,000 per trade which means these are probably already netted amounts.

pg. 63

Knight's direct (presumably naked) short position: $335.3 million

In addition:

Knight has failed to deliver $382.5 million and failed to receive: $117 million

This is after all their internal netting which presumably reduces their obligations 98%.

As I understand it, they wouldn't be included in DTCC fails or SIA fails. Knight is just one of a half dozen ECN's complaining about proposed rules from 2006 to ban netting.

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...

So what am I missing - now that 8-12 has come and gone - where is the SEC at their 19 favorite banks

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...

Harvey Pitt, former SEC chairman, is now calling for an all out ban on naked shorting.... This is good news!!!

http://www.google.com/search?q=harvey+pitt+naked+short&rls=com.microsoft:*:IE-SearchBox&ie=UTF-8&oe=UTF-8&sourceid=ie7&rlz=1I7ADBR

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...UPDATED 8/13

Bobo,

I have no idea if this is real. What we do know is that negotiations are going on now to solve this mess, and who ever posted this is on the money. And this isn't going to be easy. Anyway, this is getting around, and it's very good.

Please post this here for comment from others.


SEC Preliminary Guidelines of Naked Short and Fail-To-Deliver Reform(condensed highlights in rough draft form)

DTCC & NSCC Federal order to open their books via DOJ, ICC, and SEC

To protect the privacy and practices of current trading strategies, a new regulation (Regulation FTD) will be mandated to provide a daily list indicating all open fails on every security where one exists in the marketplace. The total of fails shall be updated daily on each security. No equity or derivative shall allow any borrow from any entity until all current and past fails are eradicated.

Immediate buy in on all current and existing fails out side of 13 days. Current fails have up to the mandated 13 days per Regulation SHO to "buy-in" and be covered.

Going back to introduction of SHO, any fails never bought in and covered will be "busted" and accounts disgorged with fines. Current fails listed on the Regulation SHO list outside of 13 days will be bought back in at market effective immediately.

All fails since the introduction of Regulation SHO will be reposited to every broker-dealer, market maker, hedge fund, and individual account as a short sale by cusip replication on a journal basis for the extent of time they were in fail status. No actual trade will occur. The fail will remain in the account affected for the entire time the position was in fail status. The position must be covered in such time or shall be "bought in" by the SEC and DOJ. Example: If the fail occurred exactly 3 years ago, it will remain in the client account for three years.

No additional short position shall be allowed on any particular security or derivative in which a journal entry exists or a current fail is open until that position is either bought in by the party involved or by the deadline of the fail period noted.

Any party affected with a particular fail can and may buy in to cover the open ledger entry fail at any time before the end of the period of original fail.

When fails are recovered on the open market, subsequent journal entries will be made affecting every equity or derivative to retire those securities from circulation and return those companies affected back to their exact oustanding and authorized shares.

By way of example, if the market maker SBSH or NITE or UBSS has net fails of 1.2 trillion shares over the past 3 years since the introduction of SHO, then those parties that traded those shares in net fail status shall have 1.2 trillion shares placed back in their account net short. They may not execute a short on that particular security at any time until the exisiting fail is covered by an order to buy on the open market. Each market maker will take the proper measures necessary to clear the fails recorded and report the transactions accordingly to their corresponding broker dealers. In finality, each broker dealer has 24 hours to accurately report the journal entries and "buy to covers" to their associated client accounts. No individual client may affect the buy-in on their own. The transaction must come at the broker-dealer level as prescribed by the commission. Any customers who end up with a deficit balance in their account as a result of these transactions will have their accounts closed and appropriate action will be taken to recover those losses beyond the capital in their account.

Should a company no longer be in existence then those fails will result in a special task force designed to reverse all transactions involving a fail that occurred from the introduction of SHO until the company's exit from the market. All monies involved in the failed transaction will be pooled and disgorged from the parties account that initiated the fail. A list of all shareholders that held that particular equity from the introduction of SHO until its exit from the market will be compiled. All monies will then be divided among the shareholders of record and returned to them by equity.

A separate task force will be implemented to calculate all fails "ex-clearing" of the DTCC. An intercontinental coalition will be formed to force the buy in under the same regulations for all foreign entities. They will then be extradited to the United States for prosecution.

To protect the privacy and practices of current trading strategies, a new regulation (Regulation FTD) will be mandated to provide a daily list indicating all open fails on every security where one exists in the marketplace. The total of fails shall be updated daily on each security. No equity or derivative shall allow any borrow from any entity until all current and past fails are eradicated.

It is expected the SEC, ICC, and DOJ will employ 5200 employees for a period of 48 months to complete the process with the option to extend for up to 12 months. The cost of such a program is expected to be $1.5 billion and shall be born by the entire program on a "per fail" charge basis to the offenders involved. At the conclusion of this program, the DTCC and NSCC will become a branch of the government and fall under the auspices of the DOJ.

Th Securities Act of 2008 will be set into effect and will include but not limited to:

No further naked shorting of any kind will be considered legal or acceptable by any measure or entity. Details of the only acceptable measure to initiate an open short position will be released at a later time.

Regulation FTD to list all past net fails and current fails on a share basis.

Full hedge fund disclosure of all positions held and timely reports filed with the SEC.

The immediate initiation of full electronic trading across all exchanges and trading vehicles. No algorithmic programs will be accepted or allowed.

Regulation NMS will be rescinded indefinitely immediately preceding this order.

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...UPDATED 8/13

Bobo deserves credit for editing the letter and making corrections. Take a bow!

I was reviewing the FOIA letter I received from the SEC and regret not hitting the FTR issue even harder, because the SEC says in their letter :....the commission does not have or maintain fails to receive data." What????!!! Are they serious?

It is the single thing that will bring down the financial markets and they don't track it at all?

FTDs actually show up as a benefit, as accounts receivable to broker-dealers on their balance sheets, because the money paid by the seller is held by the clearing agency for the sellers on a mark to market basis. As the price goes to zero or if delivery should ever occur, that money is earmarked for the sellers - the broker-dealers.

Fails to Receive on the other hand are pure liabilities for broker-dealers as these are securities owed their clients, also calculated for balance sheet purposes on a mark to market basis.

If the FTRs ever had to be delivered, the money it would take to do so would exceed the FTD benefit held for them many times over. The net capital available to NYSE broker-dealers is about $102 billion Dollars.

The most the cost to deliver all the FTRs can be before they have to declare BK is $219 billion. At that amount they will have no cash at all. On a mark to market basis, the liabilities are shown as $140 Billion. The cost only needs to rise by 57% over what they are claiming the delivery liabilities are, and they're Bankrupt. Anything near or over 219 Billion to close out their FTR liabilities and they're Stearned.

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...UPDATED 8/13

Bob,

NIPC's comment letter to the SEC is absolutlely bloody eh-fing brilliant. I hope it gets their attention (hard to avoid). I know this issue of naked shoring has been enervating for everyone affected by it (as in, "you can't fight city hall"), but I would urge everyone who has been affected by naked shorting to read as much of it as they can. It may sound dry, but from a legal (administrative law) standpoint, it is absolutely bloody eh-fing brilliant. THANK YOU, NIPC!!!

Re:Naked here, naked there, naked mthrfkrs everywhere.... How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...UPDATED 8/13

AT: http://www.investmentrarities.com/08-18-08.html

TED BUTLER COMMENTARY
August 18, 2008

The Lessons of a Lifetime

(This essay was written by silver analyst Theodore Butler, an independent consultant. Investment Rarities does not necessarily endorse these views, which may or may not prove to be correct.)

In order to understand where you may be going, it is important to understand where you have been. Nowhere is this more true than in silver. The historic price sell-off, coupled with the obvious shortages in almost all forms of retail physical silver present the lessons of a lifetime. I believe that how we learn from this lesson will determine our future financial situation, good or bad.

The drastic sell-off in silver (and gold) is further proof of an ongoing manipulation to the downside. My advice to own real silver on a fully paid for basis, has been borne out. Real pain exists among those who held silver or gold on margin. Many leveraged investors have lost their positions because they couldn’t meet margin calls. Meanwhile, no fully paid up investors sold because they had to come up with more margin money. That’s lesson number one.

The Anatomy of a Crime.

What we just witnessed in the historic sell-off in silver and gold was a crime. That’s not a crybaby complaint. There were no supply or demand developments that could account for the severity of the sell-off. The proof that this sell-off was criminal lies in public data provided in the Commitment of Traders Report (COT) and a basic understanding of how the futures market works. This has been the most extreme sell-off in the recent history of silver and gold. We are farther below the moving averages than at any point since I have been writing about silver. Price movements this severe are likely to be intentional and not accidental.

Every criminal act must have a motive and an opportunity to commit the crime. By the simple process of elimination, those responsible for this crime are the concentrated commercial shorts on the COMEX. No one else fits the profile. They had the means (through their dominant and monopolistic position), the profit motive and the skill to cause the sell-off.

I can’t identify the concentrated shorts by name, as commodity law protects their identity. But the regulators certainly know who they are and continue to choose to do nothing about them. (They also knew the identity of the SemGroup, which appears responsible for the recent run up and collapse of crude oil prices.) While I can’t identify the perpetrators by name, I can label senior management of the NYMEX/COMEX , as well as the commissioners and other high ranking employees at the CFTC as being complicit and involved in the manipulation. Incompetence can no longer be considered an explanation or excuse for them not enforcing the law. (While not the purpose of this article, I will list the e-mail addresses of the regulators at the end of this article, for those who want to make their feelings known.)

I am not writing this article in anger. I understand how many could feel angry, particularly if leveraged silver or gold positions were liquidated as a result of this sell-off. Not only does this episode confirm that these markets have been manipulated, it also strengthens my conviction that the termination of this manipulation is a certainty. The commercials know better than anyone how the markets function mechanically. This is their full-time business. They know when the markets are least liquid and when many traders are absent. Perhaps the most illiquid times, with few traders present, are in the overnight sessions. The most illiquid time is around 8 PM EST. On Thursday evening, right at that time, the price of silver suddenly plummeted by almost $1.50. It had never before fell by that amount so quickly in any overnight session.

So, how did the concentrated shorts pull that off? They waited until the most opportune time and threw in some relatively small, but aggressively placed sell orders. These sell orders caused the price to fall, touching off further sell orders from under-margined longs, which further caused prices to fall. The analogy I like to use is that it is similar to rolling a small snowball down a hill and watching it pick up size and momentum. As the sell orders began to snowball more and more, guess who was buying after prices dropped? Correct, the concentrated shorts.

How is it possible that the commercials could buy back short positions on thousands of contracts at times of steep sell-offs, without triggering a rise in price? There is only one possible and plausible explanation - through discipline and collusion. The commercials know the price levels that tech funds and other large speculators are likely to sell at on the way down. In addition, some of those large commercials do the clearing for these speculative traders. In that position, they know the finances of the large long silver traders better than anyone. The commercials know, in advance, the sell points and vulnerability levels of the longs as well as the longs themselves. So all the commercials have to do is trigger low enough prices at illiquid times in the market to manufacture an avalanche of selling. Then they sit back with low priced buy orders and wait for the desperate sellers to come to them. Previously, I have referred to the behavior of the commercials as a wolf pack. It is shocking that the regulators can permit this.

To those who claim that these are normal market games, and the commercials are market makers, let me point out that commodity law does not allow for market making. The markets are supposed to operate as an open outcry (now electronic) auction, not as a specialist system. Even assuming that the commercials operate as self-appointed market makers, what kind of legitimate market maker only caps price rises by increasing short selling. Then they create disorderly moves to the downside. That’s why all silver price rallies are contained and orderly and why we get vicious, out of control sell-offs. The commercials make markets only for their own financial benefit. Some market makers.

I promise you that I could prove this if I were privy to the trading records rather than just the CFTC and the exchange, whose mission is to look the other way. But that is impossible, so I have to prove it with public data. While the data for this Thursday-Friday sell-off won’t be available until the next COT, the last few COTs provide ample evidence to prove what I allege.

The most recent COT, for positions held as of 8/12, confirm that the commercials have been on a buying binge for the past month. In other words, they have rigged the sell-offs in silver and gold over the past month and used those sell-offs to collusively buy as many contracts as possible. The numbers are impressive. Since the COT of 7/15, the commercials have bought back and reduced their total net silver futures short position by more than 20,000 contracts (100 million ounces) In gold the commercials have bought back, as a group, more than 90,000 futures contracts, reducing their net short position by 9 million ounces. Undoubtedly, more contracts have been bought by the commercials in the current week.

In addition to this buying on the COMEX, I believe that the naked short position in shares of the silver ETF, SLV, have been bought back, either entirely or in large part over the past month. This was the plan.

However, the percentage of net buying by the concentrated shorts in COMEX silver and gold has decidedly lagged the overall pace of commercial net buying. In silver, the big 4 concentrated shorts only bought back 10%, or 2000 of the 20,000 silver contracts bought, while the raptors (the 9+ smaller commercials) bought 12,000 and the 5 thru 8 largest traders bought a bit more than the 6000 contract balance. In gold the big 4 only bought back 22%, or 20,000 of the 90,000 net contracts bought, with the raptors buying 40,000 contracts and the 5 thru 8 largest traders buying 30,000 contracts.

What this tells us, for sure, is that the concentrated short position of the big 4 in silver and gold, while somewhat reduced in total contracts over the past month, has grown more concentrated and manipulative. The big 4 in gold and silver have grown more and more isolated from the rest of the commercials and, therefore, more desperate. This fully explains the disorderly nature of the recent sell-off and will explain any further disorderliness. The very small amount of short covering by the big 4 increases the likelihood that they may be trapped in these short positions.

Remember, concentration and manipulation go hand in hand, and the more concentrated the short position becomes in silver and gold the clearer the proof of manipulation. Only those that refuse to analyze the public data and reject the very idea that silver and gold could possibly be manipulated can conclude that we are witnessing free market behavior and not a rig job. With the growing evidence of a retail investment shortage in silver, those who deny manipulation are about to look very silly.

The Retail Silver Investment Shortage

The growing and persistent retail silver investment shortage is becoming increasingly obvious. This segment makes up a small part of the total silver market on a daily basis. However, due to the large number of participants, on both the buy and sell side, the demographics elevate this segment to a more reliable barometer than daily volumes might suggest. With some 5,000 US retail dealers and perhaps 100,000 customers, there is much to learn from in this retail market.

What is happening is nothing short of astounding. For the first time in our lifetime, there is not enough silver to go around. Just about everywhere you look, dealers are sold out or low on inventories, throughout the entire supply chain. Delays in deliveries, the clearest definition of a commodity shortage, are commonplace. This is unprecedented. That this is occurring precisely at the same time of a sharp sell-off in the price of silver, should make your head spin.

I would suggest, if you have college-age children or that you borrow any basic economics textbooks they have. What you will read, is what you already know. The most basic law of supply and demand dictates that low and falling prices must be an indication of growing supplies or falling demand. You will find no suggestion that the price of anything could fall sharply with record demand, especially with the unavailability of supply. At least, not in any free market system.

Then I would suggest that you consider the only plausible explanation to silver investment shortages amid plummeting prices. That explanation is that there must be something wrong with the price of silver, not with supply or demand. After all, the actual supply or demand can’t possibly be "wrong." They are what they are. Only the price could possibly be wrong. To be exact, the price of silver is manipulated, something that I have maintained for more than two decades. The growing retail silver shortage confirms this manipulation.

I recognize that even if the true Prophet of any or all religions descended from the Heavens and certified that the price of silver (and gold) was manipulated, there would still be many who doubted it. That’s because one of the most powerful forces on the face of the earth, is the inability to admit that they may have been wrong. If that error is about something as basic as a market being free or manipulated, then the denial is likely to be more obstinate. In fact, as the evidence becomes more apparent, it’s actually quite humorous to read and listen to why the shortage doesn’t matter.

As regular readers know, the inevitability of a silver shortage (as a direct result of the long-tern manipulation) has been at the center of my message. If there is one thing upon which I have agreed with my good friend and mentor, Izzy, it is the coming shortage of silver. This has been an issue on which we have agreed for more than 20 years. But it is only recently that I have come to appreciate his true take on what shortage will mean to the price of silver. He has a perspective that few of us have, including me.

By way of review, the silver retail investment shortage emerged some six months ago, shortly after Izzy’s article extolling the advantage of buying US Silver Eagles. http://www.investmentrarities.com/12-03-07.html There is not the slightest doubt in my mind that his article jump started the huge demand for Silver Eagles and as a result the US Mint could not keep up with demand. They still can’t. Already, the Mint has sold more Silver Eagles in the first seven and a half months of this year than it sold in any full year in the 22 year history of the Eagle program. And we still have four and a half months. Clearly, Silver Eagle sales would have been higher were the Mint able to keep up with demand. I believe the demand for Silver Eagles subsequently generated sales for all retail silver investment products. Those not able to buy Eagles bought other forms that were available, until demand exceeded supply for other silver products.

Now many may doubt that a retired grandfather could write a single article that could launch a shortage of retail silver for the very first time in history, but I know better. I know that is exactly what happened. And the reason I know it is because I knew that was Izzy’s intent beforehand. Everything he wrote about the benefits of owning silver was the gospel truth. But, he also intended and set out to highlight just how tight silver supply had become by forcing the Mint into a position where they could not meet demand. He knew that the Mint couldn’t hide a shortage of Silver Eagles. There’s no way that someone sets out to accomplish such a specific objective and then achieves it by accident.

The reason I am recounting Izzy’s remarkable accomplishment is to give you a sense of the true meaning of his thoughts on the coming silver shortage. Even I raise my eyes when he offers his seemingly outrageous price projections, although I know better to dismiss anything he says. But there is something unique in his experience and background that gives him a perspective unlike most. In fact, it is a perspective one can achieve only through first hand experience.

Izzy has experienced the kind of shortages of basic goods only witnessed during war. He was present during communist take over in his native Romania. He has related to me how people would pay any price for a loaf of bread, a chicken, even a tool. You and I can’t conceive of such shortages because we have never experienced them first hand.

Perhaps you can mentally transport yourself to imagine such shortages, where price becomes secondary to availability,. If so, you may get a brief glimpse of Izzy’s vision and "crazy" price targets for silver in a time of true shortage. I can only do it for the shortest of times, before my imagination shuts down. If this persistent and growing retail shortage of silver develops into a true full-blown wholesale and industrial shortage (as I believe we may already be in), we will not be able to judge what price is truly crazy. Those most likely to gauge price correctly in a shortage may only be those who have been there and done that.

Lessons For Everyone

I realize I am running long here, but I ask your indulgence. This article is about the important lessons before us. Let me summarize the lessons to different segments of the silver market.

For investors, don’t let this opportunity slip by. I realize you are seeing something with your own eyes that you have never seen before, namely, shortages and low and sharply declining prices. This is contrary to everything you have learned and experienced. It is nothing short of extraordinary. You must rely on your common sense. Something has to give, either prices or supply. This can’t last for long. Continued low prices won’t increase supply. The only solution for shortage is higher prices. In the case of silver, sharply higher prices. Don’t hesitate in buying silver now.

Recently, I wrote that I thought silver was exceptionally low-risk, since it had fallen sharply. The price then went lower than I thought it would or could. But my basic premise is still intact, namely that the lower the price goes, the lower the remaining risk.

For those investors capable of switching gold owned into silver, this is a particularly opportune time to switch, as silver prices have been manipulated much lower than gold prices. Silver is cheaper, compared to gold, than it has been in a long time. That can’t last. Yes, gold looks cheap here and appears to be also tight on a retail supply basis, but the big difference is this; due to silver’s industrial consumption nature and deeply depleted world inventories, higher prices for silver will not cure a shortage for a long time.

Investors should recognize that the manipulative sell-off may have created the very springboard that will cause the price of silver to soar. This is not about some academic discussion on whether silver is manipulated or not. This is about identifying and taking advantage of a potential price explosion. It has been my long-held premise that before we took off to the upside, we were likely to get a super smash to the downside. I think this was the super smash.

For industrial consumers of silver, the lessons are even more compelling than for investors. That‘s because, investors don’t have to buy silver. They have the choice to buy or not buy. Users don’t have that choice, they must buy. Their only choice is when, how much, and at what price to buy silver. A few weeks ago, users were paying more than $19 an oz for silver. Since then, the price dropped more than $6. Users will not consume less silver just because the price declined.

If you know you must consume an item, price declines are the time to stock up. This is not complicated. If you consume a favorite type of coffee, when it goes on sale for 30% off, the reaction is to take advantage and buy more than you normally would. Likewise, some industrial consumers of silver will do the same. It’s called legitimate hedging, which is the economic justification of the futures markets.

A special note to users. For the past ten years or so, hedging has been a disaster for the producers who sold future production at too low of a price. But if there was one shining example of a good hedge, it was on the buy side by a user. I am speaking of Southwest Airlines, and their magnificent buy hedge of fuel. As a result of locking in low prices, those responsible for the fuel hedge are placed upon a pedestal at the company, and rightly so. Someday soon, there will be some great success stories about those users who locked in silver at current prices.

For mine producers of silver, the current sell-off presents unique risks and opportunities. Obviously, the low price presents danger to your shareholders. I don’t know of a primary miner that can operate at a profit at current silver prices. Producers can and should do something about it. At a minimum, producers should speak up about the sell-off and question its cause. They might threaten to withhold production. Such actions would meet with strong approval from shareholders. It would be a public relations bonanza. Shareholders don’t want to hear producers say everything is fine in the silver market, because they know otherwise.

A few years ago, a silver mining company, Silver Standard, appeared to take my public advice to buy some silver. The results were spectacular. Not only did the company and its CEO, Robert Quartermain, reap shareholder goodwill, it achieved a profit of roughly $25 million, when it sold the silver earlier this year above $20. I would suggest that this company (and others) take advantage of the sell-off and do it again. If they do, I think the results, both from a public relations and profit standpoint, will be even better.

Finally, the lessons to the regulators from this sell-off may be the most important of all. This year we have witnessed disorderly pricing in many markets. In oil and cotton, the disorderly markets were caused by speculator shorts, masquerading as commercials, who ran into trouble and had to buy back their short positions. While the concentrated shorts in silver and gold have not yet lost control, given the growing physical shortage in silver, it would appear to be only a matter of time.

In the meantime, the regulators are permitting a crime to remain in progress. This is shameful. Worse, I believe that their denial of the existence of a silver manipulation has, effectively, given a green light to the concentrated shorts to continue the manipulation. In other words, the CFTC is directly responsible for the recent silver and gold sell-off. That’s beyond shameful.

Any pretense that the concentrated short position in silver was somehow a legitimate hedge went out the window the minute that the price cracked below the cost of production and shortages started to develop. After all, who legitimately hedges to lock in a loss or hedges against nonexistent inventory?

Here are the e-mail addresses for the regulators. If you want to give someone a piece of your mind about the manipulation, this is a good place to start. While it may or may not do any good, it is the right thing to do, especially if you are disturbed by this manipulation, as you should be.

WLukken@cftc.gov

BChilton@cftc.gov

MDunn@cftc.gov

JSommers@cftcf.gov

Jnewsome@nymex.com

Rschaefer@nymex.com

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...UPDATED 8/13

http://tinyurl.com/5leeu2

At the commission’s request, Alabama Attorney General Troy King appointed former U.S. Securities and Exchange Commission Chairman Harvey L. Pitt as a deputy attorney general to help investigate the case.

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...UPDATED 8/13

Interesting thought. I think that the SEC benifits from Naked Short selling.

Consider this. In most law suits the Firms or Wrongdoers pay a fine and admit no wrong doing. Interesting, since the fine and no admission of wrong doing lets them off the hook for Shareholder Law Suits.

Then you have to ask who gets the fine. Hmmm. Looks to me the Government gets the fine. The SEC most of the time. Why? Do they encourage infractions of the rules to raise money? Why do they always let the Firm or Party off the hook by paying a fine "TO THEM" without admitting any wrong doing? What about the Shareholders that were injured. Without admitting an wrongdoing and paying a fine they are let off the hook for any Shareholder Law Suits.

Why does the SEC profit from wrongdoing and Shareholders are still left holding the bag with no legall recourse because of the settlement with the SEC.

Does the SEC want to cause Shareholder losses to raise money for themselves thru settlements? Do the Brokers know they will get a pass for making a Billion Dollars and paying a fine of $100,000. and get off the hook for law suits from Shareholders.

It appears to me that if you follow the money you can see how the SEC benifits from Fail to Delivers, even if it causes the average Shareholder to lose substancial amounts of money. It looks to me that they have a financial interest that is greater than enforcing their rules.

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...UPDATED 8/13

The Securities and Exchange Commission’s temporary restrictions on naked short-sales expired just over a week ago, but something much more long-term is in the works.

SEC Chairman Christopher Cox said the regulator will propose new rules covering short-selling within the “next few weeks,” and the new restrictions may go much further than the ones that expired on Aug. 12.

“Our proposals will be designed to ensure the smooth functioning of markets and to support equally the important role of bets on the upside and the downside,” Cox said.

The temporary restrictions on naked shorts put into place on July 15 covered only U.S. mortgage giants Fannie Mae and Freddie Mac, as well as 17 brokerages, in an effort to shore up those companies and protect them from market manipulation. The new rules may cover all short-selling, and not just financial names, Cox said.

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...UPDATED 8/13

goldnsil: On the TV the SEC is talking about eliminating naked short selling in a few weeks all together. They said there are a billion shares that are sold naked short every day. Also stated is that they are ruining companies...! Also stated that the shorts are concentrated within 100 companies. I imagine they are the Financials, the precious metal companies, among others. Hopefully it goes through, the little guy retail investor needs something like this to fight the crooks.

http://tinyurl.com/5czkeh

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...UPDATED 8/13

Cramer Tape Hits Alex Jones' Infowars...Where Is Deepcapture?
Jim Cramer Goes Off On Everybody

You Tube
August 21, 2008

Cramer calls out what he regarded to be fraudulent destruction of Freddy and Fannie, shameful actions of the FED, SEC, Treasury, and Whitehouse; the damage being done to market capitalism; and directly implies that our economy is being illegally manipulated by insiders.

http://www.infowars.com/?p=4091

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...UPDATED 8/13

Check out the 5 part video about Debt As Money. Watch the 1st and click on each subsequent video on the right. 1 thru 5.

The video illustrates what the problem is with the Banks and the Markets today.

Very informative.

http://www.youtube.com/watch?v=vVkFb26u9g8

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...UPDATED 8/13

It seems simple to me. Just report the total of all long positions printed on broker statements for each stock. You don't need it broken down by broker. Just the total. Also show the total number of shares borrowed by short sellers. Then the companies report the number of shares held in DTC, not held directly by shareholders. This would clearly show the size of the unsettled trades. It would be the excess of longs less borrowed over the shares in DTC. Simple. And this is definitely within the SEC power to compel such disclosure.

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...UPDATED 8/13

The problem with that, Fred, is how would a domestic regulator regulate Canada, Germany and other offshore jurisdictions. They have no ability to force foreign brokerages to comply and its easy for US brokerages to route orders through foreign brokerages.

For example, foreign brokerages are not members of the NASD and are not subject to its rules.

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...UPDATED 8/13

Please read this story as it was well hidden from Pinksheets and Etrade news sources(I believe these, among others, are deliberately withholding the printing of anykind of Naked Shorting news) I found it on Yahoo Finance. Since , Bobo, Patrick, Dave Patch et al have been bringing this news to the forefront and taking the fight to these criminals, it has gotten harder to make money naked shorting the usual patsy companies, so therefore the have now gone after banks, thus we have the following..


AP
FirstFed jumps as analyst questions short selling
Thursday August 28, 5:25 pm ET
FirstFed shares climb as analyst questions whether naked short selling is affecting stock


NEW YORK (AP) -- Shares of FirstFed Financial Corp. jumped Thursday after a Keefe, Bruyette & Woods analyst questioned whether a certain type of short-selling might be affecting the stock.
Shares soared $4.03, or 34 percent, to $16.03. Shares are still down 55 percent this year.

ADVERTISEMENT


Short-sellers bet that a stock's price will fall so that they can profit from it. They borrow shares of the stock and sell them. If the price drops, they buy cheaper actual shares to cover the borrowed ones, pocketing the difference.

"Naked" short-selling occurs when sellers don't actually borrow the shares before selling them, and then look to cover positions immediately after the sale. A temporary order from the SEC banning naked short-selling of some financial stocks expired on Aug. 12.

In a note to clients, analyst Frederick Cannon said the short interest in FirstFed increased to 93 percent of outstanding shares and 108 percent of reported float shares on Aug. 12, according to the most recent report on short interest from the exchanges.

"We question whether or not this level of shares has actually been borrowed and sold short under stock exchange rules," Cannon said. "Further, this may raise the possibility of a New York Stock Exchange or Securities and Exchange Commission review of the short positions in the company."

"The KBW note stands pretty well on its own," said FirstFed Chief Financial Officer Douglas Goddard in an interview with The Associated Press. "It seems to be a pretty blatant case where (naked short-selling) may be happening."

Cannon, who maintained an "Outperform" rating and $40 target price on the stock, said there may be some effort to cover the shorts if naked short-selling is occurring, which would drive the stock up.

Then read this...

http://www.bloggingstocks.com/2008/08/30/bank-failure-count-2008s-10th-bank-failure/

Coincidence I think not. Our economy is under attack not by a credit crunch or subprime loans but by Greedy Hedgefunds looking to make a profit by hitting different sectors, one after the other. The question now is.. What sector is next??? Thanks for looking out for us SEC and our Gov. regulators.

Re: How Big is the Failure to Deliver/Naked Shorting Problem? Yet More Information...UPDATED 8/13

problem...there's a problem? i think all these market troubles were choreographed...housing market troubles equal lender troubles equal stock pps troubles equal big cash windfall for short...now what if the lender and bankers were all in on it where the money they supposedly lost had been handed around to others so then the average joe bails them out...yet they walk away with the money they "lost", profits from the shorts, and bailout monies...am i crazy or what?

http://www.startribune.com/business/28415554.html

SEC planning measures to rein in aggressive short-selling partly blamed for Lehman's demise
By MARCY GORDON , Associated Press

Last update: September 15, 2008 - 4:15 PM

WASHINGTON - With Wall Street engulfed in crisis, the Securities and Exchange Commission is planning measures to rein in aggressive forms of short-selling that were blamed in part for the demise of Lehman Brothers and which some fear could be turned against other vulnerable companies.

During emergency meetings between federal officials and investment bank executives over the weekend, SEC Chairman Christopher Cox indicated to the bankers that the agency plans in a few days to impose new permanent protections against abusive "naked" short-selling, a person familiar with the matter said Monday.

Unlike the SEC's temporary emergency ban this summer covering naked short-selling in 19 stocks, the new measures would apply to trading in the broader market. The person spoke on condition of anonymity because the SEC actions haven't yet been officially announced.

A critic of the agency said the action comes too late to stem a tide of short-selling attacks that have been felling huge companies.

The SEC measures likely would include removing an exception for market makers in options on stocks from rules restricting naked short-selling, and a tightening of anti-fraud rules related to that activity, according to the person familiar with the matter.

Those two measures could be put in place administratively by quick approval of the SEC commissioners. Another change, reducing from 13 to five the number of days that short-sellers would have to deliver stocks after an initial failure to do so, would require a public meeting and formal vote to propose it as a new rule.

Short sellers bet that a stock's price will fall so that they can profit from it. They borrow shares of the stock and sell them. If the price drops, they buy cheaper actual shares to cover the borrowed ones, pocketing the difference.

Naked short-selling occurs when sellers don't even borrow the shares before selling them, and then look to cover positions immediately after the sale.

Jim Hardesty, president and market strategist at Hardesty Capital Management in Baltimore, called the possible reduction of delivery time "a tepid little measure." He endorsed a ban on all naked short-selling similar to the one that the SEC instituted this summer on an emergency basis covering stocks of 19 major financial companies.

"We need to restore confidence in this system," Hardesty said. Hedge funds and other aggressive short sellers "are ganging up on one company after another. A company the scale of Merrill Lynch got into the clutches of those people."

Investors like Hardesty contend that naked short-selling, if left unchecked, would have given hedge funds and other aggressive short sellers an unfair advantage to attack other victims after Lehman Brothers Holdings Inc. Merrill Lynch & Co. — being bought by Bank of America Corp. in a $50 billion shotgun deal — or giant insurer American International Group Inc., which reportedly appealed to the Federal Reserve for emergency funding, were said to be among the likely targets.

Travis Larson, a spokesman for the Securities Industry and Financial Markets Association, Wall Street's biggest lobbying organization, declined to comment Monday. Spokesmen for the Managed Funds Association, a group representing hedge funds, didn't immediately return a call seeking comment.

But Steve Thel, a business law professor at Fordham University who was an attorney at the SEC, said the agency's actions are a way to limit abuses in short-selling in an orderly way without "making it hard for people to express negative opinion" about companies.

The purpose of market regulations is "not to protect incumbent management from the market's understanding of bad news," Thel said.

Investors have clamored for the SEC to institute another emergency order similar to its ban from mid-July to mid-August against naked short-selling of the stocks of mortgage finance companies Fannie Mae and Freddie Mac, and 17 large investment banks — including Lehman and Merrill.

The SEC's temporary order required short sellers to actually borrow shares before selling them. By law, it could not be extended beyond Aug. 12.

Cox has said the order helped prevent potential "distort and short" manipulation of stocks, which occurs when rumors and misinformation are used to drive down the price of a stock that has been sold short.

New York Gov. David Paterson said Monday that AIG will be allowed to use $20 billion in assets held by its subsidiaries to provide cash needed for the company to stay in business. Paterson asked state insurance regulators to essentially allow AIG to provide a bridge loan to itself.