Tuesday, January 24, 2006

BALONEY DEBUNKED: Today the Depository Trust and Clearing Corporation, the staid Wall Street trade-processing collective that is the bogeyman for many an anti-shorting fantasy, issued a press release summing up a forum that was held recently by the North American Securities Administrators Association on the "naked shorting" red herring.

This release is important so I'm excerpting from it at length, which hopefully the DTCC won't mind. Basically the Baloney Blitzkrieg has been discredited yet again -- not that it matters even a bit, as I will be explaining.... :

"NEW YORK--(BUSINESS WIRE)--Jan. 24, 2006--Despite extensive examinations by the SEC and the markets, there has been little or no evidence of extensive "naked short selling" to date, according to comments made at a recent forum held by the North American Securities Administrators Association (NASAA).

"The forum was designed to examine how well Reg SHO, a regulation designed to modernize rules on short selling, had performed.

"James Brigagliano, assistant director of market regulation at the SEC, said, "While there may be instances of abusive short selling, 99% of all trades in dollar value settle on time without incident."

"Brigagliano said the SEC conducted examination at 45 broker/dealers and asked the markets to look into the trading of securities in which large amounts of "fails to deliver" have been registered.

"Anand Ramtahl, vice president in the New York Stock Exchange's division of member regulation, told panelists that the exchange was conducting rigorous examinations of its members to make sure they are complying with Reg SHO.

"NYSE officials noted later that when Reg SHO went into effect in January 2005, the exchange had 78 issues on the threshold list. (The threshold list contains the names of issues that have more then one-half of one percent of their shares failing to be delivered.) As of early January 2006, the number of NYSE issue on the list had dropped to 37 issues.

"Cameron Funkhouser, NASD's senior vice president of market regulations, told the forum that NASD had found no evidence of rampant naked short selling. He also noted that although a number of companies have in the past alleged their shares have been manipulated through the listing of their stocks on foreign stock exchanges, he had found no evidence of such activity.

" 'We took (these allegations) very seriously,' Funkhouser said. 'We have seen not one instance of naked short selling or any abusive short activity" through foreign exchanges.'

"According to the SEC, a short sale is "generally the sale of a stock you do not own (or that you will borrow for delivery). Short sellers believe the price of the stock will fall, or are seeking to hedge against potential price volatility in securities that they own. In a 'naked' short sale, the seller does not borrow or arrange to borrow the securities in time to make delivery to the buyer within the standard three-day settlement period. As a result, the seller fails to deliver securities to the buyer when delivery is due, which is known as a 'failure to deliver' or 'fail.'" The SEC noted that fails can occur for a number of reasons other than naked short sales, however.

"The Depository Trust & Clearing Corporation was not invited to attend the NASAA forum, but officials noted that 85% of all fails were resolved within 10 business days (i.e., before any buy-in would be allowed under current rules), and 90% resolved in 20 business days. DTCC does not regulate short selling, naked or otherwise. However, it compiles lists of fails each day and provides that data to the market regulators.
"
Additional information on naked short selling can be found on DTCC's Web site at http://www.dtcc.com/ThoughtLeadership/keyissues/naked_short_"

Something stands out in that press release -- DTCC's exclusion. The DTCC is a staid and totally blameless organization that has had its name dragged through the mud by the brainless boobs of the Baloney Brigade, and knows more about short-selling mechanics than just about any other person or institution. Why was it excluded?

As I pointed out in an exchange (see the ninth and tenth comments) with one of the leading lights of the anti-shorting movement -- a brave soul who cowers behind the pseudonym of "Bob O'Brien" while making scurrilous attacks and nutty allegations -- this is all a crying shame. Regulators are supposed to be responding to genuine investor concerns, and they do a mediocre enough job of that without having their attention diverted by non-issues. I've always admired NASAA, which has been in the forefront of protecting investor concerns, but I think they've taken this naked-shorting nonsense far too seriously.

I see that the Baloney Blitzkrieg is hard at work trying to spin this DTCC press release, using the usual combination of smoke, mirrors and baloney. The shame is that no matter how many times the sheer idiocy of their allegations is exposed, they just plow on ahead.

Why is that? Because, by definition, satisfying the Baloney Brigade is impossible. These are people -- very few, but very loud people -- who are united by a desire to find someone other than themselves to blame for either their own lousy investments or their own lousy companies. They see the shares that interest them decline. So rather than approach the subject rationally, they try to blame a scapegoat. So they find an old one: short sellers.

Even if you believe that naked shorting is the scourge that these people say it is, there is not a shred of evidence that it comes even close to the kind of problem that they claim it to be. That's a fact, and all the shrill and nutty rants in the world won't change that.

By the way, a couple of these individuals have taken me to task for "insulting" them. Not so. You can only insult a real person. Very few of these people utilize their real names in their various Internet missives. You can only insult a real person, not a fictional one and certainly not a fictional one with a fictional cause.

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