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Posted by BuyTex on :
Am creating this for reference material, links, and archival posts.
Posted by BuyTex on :
2006 Trade Date-Settlement Date-Reg T Date

(re Holidays, schedules and special notes re Ex-dates, buy-ins and sellouots)
Posted by BuyTex on :
"Ex-Dates" from NASD manual
[ ]

11140. Transactions in Securities "Ex-Dividend," "Ex-Rights" or "Ex-Warrants"
(a) Designation of Ex-Date
All transactions in securities, except "cash" transactions, shall be "ex-dividend," "ex-rights" or "ex-warrants": (1) on the day specifically designated by the Committee after definitive information concerning the declaration and payment of a dividend or the issuance of rights or warrants has been received at the office of the Committee; or (2) on the day specified as such by the appropriate national securities exchange which has received definitive information in accordance with the provisions of SEC Rule 10b-17 concerning the declaration and payment of a dividend or the issuance of rights or warrants.
(b) Normal Ex-Dividend, Ex-Warrants Dates

(1) In respect to cash dividends or distributions, or stock dividends, and the issuance or distribution of warrants, which are less than 25% of the value of the subject security, if the definitive information is received sufficiently in advance of the record date, the date designated as the "ex-dividend date" shall be the second business day preceding the record date if the record date falls on a business day, or the third business day preceding the record date if the record date falls on a day designated by the Committee as a non-delivery date.

(2) In respect to cash dividends or distributions, stock dividends and/or splits, and the distribution of warrants, which are 25% or greater of the value of the subject security, the ex-dividend date shall be the first business day following the payable date.

(3) In respect to stock dividends and/or splits relating to American Depository Receipts (ADRs) and foreign securities, the ex-dividend or ex-warrants date shall be designated by the Committee.

(c) Late Information Re: Ex-Dividend, Ex-Warrants Dates
If definitive information is not received sufficiently in advance of the record date to permit designation of an ex-dividend or ex-warrants date in accordance with paragraph (b)(1) hereof, the date designated shall be the first business day which, in the opinion of the Committee, shall be practical having regard to the circumstances pertaining.
(d) Normal Ex-Rights Dates
In respect to transferable rights subscription offerings, if definitive information is received sufficiently in advance of the effective date of the registration statement, the date designated as the ex-rights date shall be the first business day after the effective date of the registration statement.
(e) Late Information Re: Ex-Rights
If definitive information is not received sufficiently in advance of the effective date of the registration statement to permit designation of an ex-rights date in accordance with the paragraph (d) hereof, the date designated shall be the first business day which in the opinion of the Committee shall be practical having regard to the circumstances pertaining.
Posted by BuyTex on :
Good tax-info Web site, re Machiavelli:

highlights: changes from previous tax year; says its downloads of IRS forms are quicker than IRS' site; "tax planning"; "Capital Loss Carryover Calculator; allocates a tab to "capital gains" ( ); more...
Posted by BuyTex on :
"Averaging down"
Posted by BuyTex on :
Ex-dates: re NASD--
Posted by BuyTex on :

With Ric's famous post--along with Diana's (Reality Inc)--this would make the "perfect" newbie thread:
Posted by BuyTex on :
MM tactics, axe, discussion:


Member Rated:
posted February 16, 2006 03:34 PM
thought i should share the knowledge for those who ask.

Good read

***** From another board *****

Market Millionaires Stock Market Investment Forum > Stock Market Chat > Market Discussion > Some MM explaining please


Ax - one market maker that seems to control the supply/demand of a security or

Convertible Debenture (CD) - Debenture which can be converted into stock at
the option of the holder and/or the issuer at a specified date in the future.
Because the buyer has the ability to convert the debenture into stock under
certain circumstances, the seller is able to borrow at a lower cost than if the
convertibility feature was not present.

ECN (Electronic Communication Network) - an electronic system that brings
buyers and sellers together for the electronic execution of trades. It
disseminates information to interested parties about the orders entered into the
network and allows these orders to be executed.

MM – market maker

S-8 - are paid out for services

SB-2 - are sold by company (Optional form for the registration of
securities to be sold to the public by small business issuers)

TOP 5 IMPORTANT MMs or wholesalers/retail (typically out of dilution):

Examples of wholesalers: HRZG, MASH, NITE, SHWD



Monthly share volume report is indicating the MMs and how many shares they bought/sold (it is a month delayed)
Important (on Level II)
1. to see who the players are
2. and who to watch for

Axes basically is main MM that is either supporting the bid or opposite (hitting the ask).It is the party who seems to be controlling the action in the stock.
Also when a stock is dumping S-8 shares he will be consistent on the ask. Once he jumps and starts supporting bid => S-8 close to being over => MM movement is big.The ax isn't always trading the stock in one direction or another. Sometime he is keeping it in a tight range. And sometime he is not there at all. Another ax may step forward, but there are times where there is no ax present doing anything of note.The point is the ax is the one to watch, closer than all other parties or MM’s.
When you learn to trade with the ax your odds greatly increase.

So how do we find the ax????????
The best way to find the ax is through familiarity of the stock. By taking the time to watch the stock trade via Level II the ax will usually become quite apparent. But since we want info now and not wait days to find out there’s a shortcut. It's no substitute for watching the action, but it can at least give you a lead on a few parties to watch closer than others or MMs. Key = Monthly Share Report!
Generally look at the top 3-6 spots on the report. I tend not to count wholesalers at all as market makers. I also don't count ECNs as any number of players can use an ECN (TRAC, DATA). I will also throw out retail ECNs like GVRC for similar reasons as just mentioned, and also since most of the traffic is retail. We are getting rid of unnecessary MMs. Plainly it just doesn't happen where a little guy is going to control a stock. So that’s why we narrow selection.

One, the ax is not static. On any given day any party can be an ax. Heck, there may be one ax in the morning and another in the afternoon and neither of them could be listed in the top ten of the monthly share volume report. If a big order comes onto the trading desk of a firm that doesn't do big volume in a certain name the firm will need to work that order. And if no one else is doing anything of consequence in the stock this new party will command the action.
An ax can easily use an ECN to hide much of their action. They can and will use fake outs.
Keeping a keen eye on Level II will reveal these things.
Monthly Share Reports and Level II patters are the key.
Watch the Level II and they use monthly share volume for confirmation.

Example of an ax who is selling:
When the market is rallying, the stock has a hard time moving higher, seemingly hitting a wall every time. And every time the wall seems to have the same initials and yet, when the strength subsides, the stock has no trouble falling. And funny enough, the ax seems to be following the stock down. That’s where Level II comes into play. You have now found the missing link per se. You can see around the corner and start to see patterns.
MM AX is on ask - it means he is driving price down - not good for us because we are buying and not shorting the stock (can’t short OTCBB).

Example of MM supporting PPS stock northward:
Let’s say that a stock (shell) has been lying quietly at $.25 bid $.50 offered. A limit order comes into one of the MMs to buy at $.50 for a thousand shares. Prior to this trade that MM may be "flat" (neither long nor short any shares). He fills the order and is now short 1,000 shares. He may raise his bid hoping to find a seller to "flatten" out his position. But before he realizes it a wave of buyers have come in and cleared out all the $.50 offers. Now the stock is $.50 bid .75 offered. Here comes that "Big" firm he just sold the 1,000 shares to at .50 with another bid for 1000 at .75. He makes this print. Now he is short 2,000 at an average of .625. The market keeps moving and now its .75 bid 1.00 offered. Now he has to make a decision. Just like investors, MM Hate to take a loss. So 9 times out of 10 he will now sell 2000 at 1.00 making him short 4000 but with an average .81. At this time he would love to see a seller at .75 so he can cover his short and make a few but instead the market keeps moving up. Now it is 1.00 to 1.25 and here comes the buyer again at 1.25. He doesn't want to lose the call so now he needs to sell 4,000 at 1.25 to keep his break even point above the bid. Now he is short 8,000. Market moves up to 1.25 bid 1.50 offer here comes the buyer now he feels he must sell 8000 here because "stocks don't go up forever". Now he is short 16,000. And so on and so on. If the stock keeps moving up, before he realizes it he could be short 50k or 100k shares (depending how big his bank is). Finally the market closes for the day and on paper he may look all right in that his "break even" price may be around the closing price. But now he has to figure out how to entice sellers so he can cover this short. It is important to note that if this happened to one MM it has probably happened to most all of them.

Some ways MM's entice sellers:
1. Run the stock up with a "tight spread" in a fast market, then "open" up the spread to slow down the buying interest. After it has "cooled off" for a little while lower the offer below the last trade right after a small piece trades on the offer then tighten the spread so that the sellers feel they can take a "quick profit" by "hitting the bid" on the tight spread. Once the selling starts the MM's will walk it down quickly by only making small prints on the way down with the tight spread.

2. Another way is by running the stock up in the morning, averaging up their short then use the above technique to walk it down in the afternoon. Hopefully, after doing this for several days, it will demoralize the buyers. The volume will dry up and the sellers will materialize thinking that the game is over. Contrary to popular opinion, MM usually Do Not Cover in Fast moving markets either Up or Down if they are short. They Short More. They usually try to cover after the frenzy is out of the market. There are many other techniques they use but the above are the most popular.
These techniques work about 9 times out of 10 particularly in a BB market. However, that is because 9 out of 10 BB stocks are BS. Remember what I said above. Most MM's don't have a clue as to the value of a Company until they get trapped.

The ax seems to be following the stock down. Ax is killing stock on ask.
Question: If this behavior is recognized what would be the appropriate course of action? Going long the declines or selling the rallies?

Answer: selling the rallies. Since we can’t on OTCBB and Upside is limited every time the stock tries to advance. Instead of trading against the ax and hoping that the buyers will overwhelm him, it is much smarter to sell with the ax and watch the stock fall as buyers pull away. Hence you would short it. The only kind of buying which should be going on is the covering of short positions as necessary. Work with the ax to your advantage.

Example: RWNT (trying to find dilutor):
Input RWNT into monthly share report. Remember focus on top 3 -6 spots. Don’t count wholesalers. VERT is the dilutor.
Explanation: Look at April. Then look at May. Nothing in April. Then he dumped 57mil shares in May. You can even go back to March and he wasn’t even a listed MM. So he came on in April and then he started his selling.
Keep in mind that RWNT is extreme and you’re not always going to see that.

S-8’s - you need to read filings and see exactly what they are for some s-8's actually aren't bad some are employee stock options etc.
MM can remain on the ask for months, however long it takes to fulfill S-8 shares. They don't care what price they get.
S-8's are great tools to watch and learn how an ax works once that seller steps off ask and starts supporting bid = boom. Usually want to buy a little before s-8 is complete because then you can accumulate more shares.
When S-8 is over - the seller you have been spotting for weeks, days, months will leave the ask and start supporting the bid. You will see a lot of market maker shifting as well as MM's need to get ready for stock to reverse into opposite direction.

Example of dilution:
On some dilution is smart like ONEV. For example BMIC was diluting ONEV big time, but he did it right and it still ran hard with him selling the whole way up check out BMIC monthly share report on ONEV. April – BMIC wasn’t there, same with PERT and UCAP.

Example: WNMI (finding an ax):
Apply process of elimination. You will see in Feb. CHIG and UCAP weren’t there.
The run started late march. Remember this is month behind (delayed) => reason we go back a month also another good idea to get more DD out of who is diluting check s-8’s, sb2's fillings, then look at chart before the stock broke out notice who was soaking more shares than others this. Remember little MMs don’t worry about, they won’t control stock and that’s the reason why we eliminate them (volume will blow them away)
There was also CD's (convertible debentures) out on WNMI before that u want to look for these also.

Miscellaneous Notes

NITE - doesn’t dilute usually, unless someone is selling through him.
MM’s know people are intimated by NITE so they use that to their advantage.
That’s why NITE is the shaker he scares folks out. So don’t get discouraged if
you see NITE on ask all the time. he could be leading a dip or something. he is
scaring sellers to his buddies TDCM, and SCHB on bids a lot of times.

Retailers you want bidding like TDCM

Big Shorters
JIMK - he seems like he is always short. Usually on those low vol. stocks
POND - is big shorter also

GNET is ARCA - anyone can use him, even other MMs because it’s an ECN.

TRAC & DATA - biggest OTCBB ECNs, you love them on bids also


Posts: 44 | Registered: Feb 2006 | IP: Logged |

Posted by BuyTex on :
State of Incorporation:


Member Rated:
posted February 16, 2006 11:03 AM
You can find their state of incorportaion right here:

Just type Interage in the search box.

from here:
Posted by BuyTex on :
Posts: 2 | From: LA | Registered: Feb 2006  |  IP: Logged | 


Member Rated:

posted February 17, 2006 09:27 PM                      

Originally posted by finalwish:
sorry for being a newbie but how do you check their after market price?
Follow the link below...



Posted by BuyTex on :
Quarterly Earnings:

Posted by BuyTex on :
warrants, from i-hub:

Posted by: SSP
In reply to: bagheera who wrote msg# 37785 Date:1/27/2005 9:17:52 AM
Post #of 81540

The workings of warrants and options
May 28, 2004

By Laura du Preez

Warrants and options, like futures, are derivatives that derive their value from an underlying product, such as a share. This article is Part 49 in our Scrapbook Series.

Last week’s Scrapbook article explained that futures are agreements to sell a specified quantity of a particular item or asset on or before a fixed date at an agreed price. Options and warrants offer a slightly less risky alternative to futures.

Options and warrants give an investor the right, but not the obligation, to buy or sell a specified quantity of an asset at an agreed price, on a fixed date. In other words, they differ from futures in that the investor does not have to carry out the transaction or “exercise the option”.

For example, you may buy an option to buy 100 Anglo American shares for R130 on a particular day. If on that day the shares are trading for R120, you are unlikely to exercise your option.

However, if on that day they are trading for R140, you are likely to exercise you option, because you will be able to buy the Anglo shares at R130 and sell them on the market for R140, thereby making a profit of R10 on every share.

In order to buy the right to buy or sell the underlying asset, you pay a price, called a premium, to the seller of the warrant.

Options and warrants are less risky than futures, because if the price of the underlying asset moves the wrong way, you can walk away – you do not have to buy or sell. However, if you do not exercise your option, you will lose the entire premium you paid to get the warrant or the option.

The advantage of warrants and options is that they give you an opportunity to profit from price movements in the underlying asset or share – whether up or down – for a lot less money than it would cost you to buy the asset or share.

However, you should remember that although warrants, in particular, offer you a relatively cheap way to get exposure to shares, you do not become a shareholder of the underlying share by holding a warrant, and therefore you do not receive the dividends paid to shareholders.

The difference between options and warrants
Warrants are options to buy or sell shares that are listed on a stock exchange. The warrants themselves are listed on that stock exchange, rather than on the futures market.

The underlying asset of a warrant is always a share or a basket of shares, while the underlying product of an option could be anything from wheat to gold to shares.

Warrants are usually more accessible to the small investor, because the size of the contract, called the cover ratio, is smaller.

The cover ratio of an option or warrant is the number of options or warrants you need to buy one unit of the underlying asset. Warrants may, for example, only entitle you to buy a quarter or a half of a share, rather than one share or even 100 shares.

Warrants have no set time to maturity as this depends on the warrant issuer, but typically they are issued with an expiry date of four to 18 months. Options on the futures exchange usually have expiry terms – generally three months – that are set by the futures exchange.

Terms you should know
The price at which you have the right to buy or to sell the underlying asset is called the “exercise” or “strike” price, and the date by which you must buy or sell it is called the expiry or exercise date of the warrant.

You pay a price, called a premium, to the seller of the warrant in exchange for the right to buy or sell the underlying asset.

When the price of the underlying asset on the open market is the same as the strike price of the option or warrant, it is said to be “at the money”. If the share price moves up or down such that you would make a profit by exercising your option, the option or warrant is said to be “in the money”. If, however, the share price or price of any other underlying asset moves such that you would lose money by exercising it, it is said to be “out of the money”.

Types of warrants and options
There are two main types of options and warrants:

# A call option or warrant, which gives you the right to buy the underlying asset; and
# A put option or warrant, which gives you the right to sell the underlying asset.

If you think the price of a particular share is likely to rise, you should choose a call warrant giving you the right to buy the shares at a price close to their current price.

As the price of the share rises, your warrant becomes more and more valuable, because its price (or premium) also rises.

Once the share price rises above the strike price of your warrant, your warrant is said to be “in the money”, because you could make money by exercising it and then selling the shares at the market price.

For example, say you bought a three-month warrant on shares worth R100 000. Say the premium is R2 000. If the price of the shares on the market goes above R100 000 – your “strike” or “exercise” price – you are “in the money” because it will be worth your while to exercise your option, buy the shares and sell them on the market. If the price on the market falls below R100 000, you do not have to exercise the warrant and all you have lost is your initial investment of R2 000. If, on the other hand, you think the price of the shares is likely to fall, you could buy a put warrant, giving you the right to sell shares at a specific strike price.

As the price of the shares on the market falls, your warrant becomes more and more valuable. If the price drops below the strike price, you are in the money because you could sell the shares at the exercise price and simultaneously buy them on the market at a lower price.

Warrants may also be American-style or European-style. If they are American-style, they can be exercised any time up to the expiry date. European-style warrants can only be exercised on the expiry date, although the warrant can be bought or sold at any time before that date. Typically, call warrants issued in South Africa are American-style and put warrants are European-style.

The price of warrants and options
The price of a warrant and an option varies according to the price of the underlying share, or the “intrinsic” value, and the length of time the warrant or option has left to run. The “intrinsic” value of the warrant is the difference between the strike price and the price of the share or other asset on the market.

For instance, if you buy a call option on a share with a strike price of R160 and the price on the market is R200, you can make an immediate profit of R40, so the price of the warrant must be at least R40. This is the “intrinsic” value of the warrant and it drops to zero when the price on the market drops to R160.

But even if a warrant no longer has an intrinsic value, it can still have a “time” value. This is the value to you of holding the warrant for the rest of the specified period, during which time the price of the share on the market may rise above R160 again. You are paying for the possibility of future profit. The longer the time until expiry, the more expensive the warrant will be.

How to trade them
Warrants, like shares, can be traded through stockbrokers.
Prices are quoted daily in the JSE Securities Exchange lists in your daily newspaper and in Personal Finance on Saturdays.

At present about 260 warrants are available, some on individual shares such as Anglo American, Billiton, Nedcor, Sappi and Standard Bank, and others on indices. Warrants are issued by Deutsche Bank, Investec Bank, Standard Bank, Nedbank, Absa and Rand Merchant Bank.

The price or premium of warrants that have traded on the previous day are usually quoted in the financial section of daily newspapers.

When you buy a warrant, you not only pay the price of the warrant, but also brokerage fees, which vary but are usually about one percent or less of the value of your purchase, and Uncertificated Securities Tax, which is 0.25 percent of the value of the transaction, and a Strate charge, which also depends on the size of your transaction.

Options are traded on the futures market or over the counter in private deals between buyers and sellers.
Posted by BuyTex on :
naked short, DTC:

From: nobody* [mailto:nobody*]
Sent: Friday, December 30, 2005 2:36 AM
Subject: enforcement complaint

12-30-2005 2:36:21
- - - - - - - - - - - - - - - - - -
Information About You:
Name: greg hogberg

Information About the Complaint
Type: all
Entity Name: STOCKS
Names, Addresses, Telephone number etc:

To: Jonathan G. Katz, Secretary, Securities and Exchange Commission
Subject: NASD-2005-112 Re: Release No. 34-52679

Dear Sir,

I thank you for this opportunity to comment on the proposed changes to NASD Rule 3360 in order to expand the short interest reporting requirements to all OTC securities. In a nutshell, I highly recommend this proposal and its implementation as soon as possible. I have been fortunate enough to devote the last 24 and one half years of my life to a very thorough study of the phenomenon known as naked short selling. During that timeframe I have written 2 unpublished textbooks on the subject, the most recent being an approximately 800-page analysis of naked short selling and the role of unethical DTCC participating market makers and clearing firms and their interrelationships with primarily unregulated hedge funds.

As you at the SEC have no doubt realized by now, the wording used in Reg SHO has left a glaring loophole that any DTCC participants wishing to circumvent the spirit of this new Federal Law can easily access. Although the “Forced” federally-mandated buy-ins for certain threshold securities are clearly outlined, somebody at the SEC unfortunately inserted the verbiage, “If the participant does not take action to close out the open fail to deliver position AS MANDATED BY THIS NEW FEDERAL LAW, the participant is prohibited from making further short sales in that security without first borrowing or arranging to borrow the security”. Unfortunately, no clarification of what constitutes a legitimate reason for being unable to execute a mandated buy-in was included except that the reason cannot be of a financial nature. In other words, if you refuse to obey this new Federal Law mandating “Forced” buy-ins which is now part of the 1934 Securities Exchange Act, your punishment is nonexistent but you’re reminded to obey the law in the future. I don’t know if this was inadvertent or just more “Deterrence-SEC style”.

In a recent “self-interview” published by the DTCC, the DTCC made it crystal clear that they intend to utilize this loophole graciously provided by the SEC. In this interview, the interviewer asks the Deputy General Counsel of the DTCC the following: * DTCC the interviewer: “So Reg SHO doesn’t force them to close out the position, even market makers are not exempt from this requirement, but if they don’t, they are prohibited from making any additional short sales without borrowing the shares first” Thompson the DTCC Deputy General Counsel: “That’s right.”

What’s interesting is that in the answer to the previous question this same Deputy General Counsel states: “The “Close-out” requirement FORCES emphasis added a participant of a registered clearing agency to close out any “fail to deliver” position in a threshold security that has remained for 13 consecutive days by purchasing securities of like kind and quality”. This verbiage is consistent with the exact phrasing of the law.

My question to you at the SEC is, “Which is it” Are these DTCC participants “FORCED” to do these “Mandated” buy-ins as outlined in the text of the law or not My second question would be can the DTCC’s actions be interpreted as recommending to its participants the breaking of the new Federal Law Reg SHO because the punishment, irresponsibly advertised by somebody at the SEC as being nonexistent, really is nonexistent People can and do break Federal Laws all the time. My third question is why advertise the loopholes accessible for breaking these new Federal Laws with no recourse within the text of these new Federal Laws unless, of course, somebody at the SEC’s heart wasn’t quite in the right place all along but wanted the SEC to be PERCEIVED anyways as acting as a shareholder advocate that is following its mission statement of providing “Investor protection and market integrity” I think that you at the SEC can now get a pretty good idea of why the shareholder advocacy groups are critiquing the effectiveness of the new Reg SHO “Threshold Lists”.

One fact that “pre-doomed” the bulk of Reg SHO’s honorable intentions is the rule on the books of the DTC and the NSCC that states that mandated buy-ins need not be executed if their effect might be “Disruptive” to the markets. In layman’s terms this means that mandated buy-ins in the shares of an issuer that fell victim to a “Bear raid” that resulted in its share price falling from 5 to 2-cents need not be done because these buy-ins might result in a “Market Disruption” involving the share price skyrocketing to 4-cents, an enormous 100 gain. As you at the SEC are painfully aware, Section 19 C of the ’34 Exchange Act disallows the SEC from amending the rules and regulations of any “Registered Clearing Agency” like the DTCC. A quick review of some facts regarding naked short selling might help you to coordinate your battle plan against naked short selling IF THIS IS TRULY A HIGH PRIORITY OF THE SEC.


1 There are currently approximately 8,200 hedge funds managing approximately 1.05 trillion. About half of these fly under the regulatory radar due to some loopholes in the 1940 Investment Company Act.

2 In the post-decimalization era, market maker “Spreads” are now razor thin and many securities scholars contend that ethical market making firms cannot make an honest living in this environment. The downside of that notion is the resultant “Survival of the corruptest” form of natural selection we are now witnessing in regards to the naked short selling pandemic.

3 Unethical market makers will bend or break any rule to attract the business of these hedge funds. They have to in order to survive. The money from primarily unregulated hedge funds drives this entire naked short selling “Industry within an industry”.

4 In-house proprietary trading activity has skyrocketed recently among market making firms.

5 Our OTC markets are trying to “Evolve” and eliminate human intermediaries market makers subject to human greed and in possession of a vastly superior “KAV” factor Knowledge of, Access to and Visibility of the clearing and settlement system run by the DTCC and replace them with unbiased computers ECNs to match up buyers and sellers. The current Wall Street power and influence structure will not allow this evolution to occur.

6 Unethical hedge funds will feed their massive order and commission flow generating abilities to any market making and clearing firm that prove to be the most “Accommodative” to these behemoths and their desires. They expect rules to be bent and broken on their behalf. Access to illegally working out of a MM’s “in-house proprietary account” is especially deserving of certain “Concessions” as we have seen in several recent cases involving certain hedge funds and certain market makers.

7 Hedge fund managers are under a lot of pressure to perform or their wealthy clients will move their money elsewhere. These clients expect their hedge fund managers to seek out “Accommodative” market making and clearing firms even if there is criminal risk incurred by the hedge fund manager.

8 Bona fide market makers are legally allowed to naked short sell securities but only while acting in the capacity of a “Bona fide” market maker.

9 A bona fide market maker is expected to naked short sell nonexistent “shares” at the 5 level when an imbalance of buy orders over sell orders is present at that level and he has no inventory at the time.

10 Should the share price drop to perhaps 4.80 then a bona fide market maker uses the proceeds from the sale of the nonexistent shares he legally naked short sold at 5 to buy back these shares and pocket this 20-cent “Spread”. A bona fide MM is happy making “The spread”.

11 A bona fide market maker injects liquidity by buying shares when sell orders outnumber buy orders with the same zeal that he shows while selling shares when buy orders outnumber sell orders. The problem is that buying shares consumes money while selling shares, even if you don’t own nor intend to ever purchase shares, makes money because of how the DTCC is “Wired”.

12 A bona fide market maker does not direct or restrict share price movement he buffers the intensity of the swings in share price. The two main roles for short selling in general are to inject liquidity and to create “Pricing efficiency”. To create “Pricing efficiency” all negative votes short sales as well as positive votes buy orders need to be tallied as long as the short sales were preceded by a legitimate “borrow” i.e. not a “Borrow” from a “Self-replenishing” source like the DTCC’s “Automated Stock Borrow Program” or “SBP”. Legal short selling is a very good thing that is crucial to the markets. Abusive naked short selling is a form of market manipulation which is a 10b-5 securities fraud usually involving criminal enterprises.

13 A bona fide MM, when faced with a large amount of buy-side activity, will allow the share price to find an equilibrium level above the current price after selling a MODERATE amount of shares at the lower price.


15 Bona fide market makers don’t get caught in this trap as they are more than willing to increase the price level of their offers if the buy-side pressure remains. This is referred to as “Averaging up”. Not so bona fide market makers don’t have this luxury if they were guilty of greedily selling nonexistent shares in a non-stop fashion just to get their hands on the buyer’s money before a competing MM was able to.

16 The ability TO APPEAR to be legally naked short selling securities while acting in a bona fide market making capacity is something the unethical hedge funds desire very badly but cannot legally attain.

17 There are many unethical market makers that have been so decimated by decimalization that they allow unethical hedge funds space under their “Umbrella of immunity” from borrowing before short selling which is supposed to be only accorded to bona fide MMs acting in a bona fide market making capacity at the time. The rental fees for this “Space” is paid in fees and commissions via order flow.

18 There are very few regulatory policemen monitoring market making activity in regards to whether naked short selling is truly “bona fide” or not.

19 When presented with trading evidence in a court of law, it would be extremely difficult for an unethical MM to claim that he was indeed acting in a bona fide market making capacity while constantly naked short selling into buy orders that dwarfed sell orders as a stock’s share price plummets from 5 to 2-cents. When buy orders overwhelm sell orders for prolonged periods of time share prices go up not down. Naked short selling by theoretically bona fide MMs is only legal when buy orders overwhelm sell orders.

20 The supporting bids of unethical MMs taking part in “Predatory trading strategies” are conspicuously absent as share prices fall despite their having the money from investors buying at higher levels in their coffers. THE SEC, NASD, AND DTCC CAN EASILY DETECT THESE PREDATORY TRADING STRATEGIES BY UNETHICAL MMs WHILE STUDYING TRADING DATA. THE EVIDENCE JUMPS OFF THE PAGE AT YOU.

21 The “Continuous Net Settlement” system CNS in use at the DTCC “Nets out” on a daily basis buy and sell orders which is extremely efficient BUT has a “Masking” effect on delivery failures which is an unwanted side-effect UNLESS YOU WANT TO HIDE THE EXISTENCE OF A PLETHORA OF UNDADDRESSED DELIVERY FAILURES. THEN IT’S JUST WHAT THE DR. ORDERED. DR. LESLIE BONI RECENTLY PUBLISHED AN EXCELLENT RESEARCH PAPER OUTLINING THE “PERVASIVENESS” OF DELIVERY FAILURES RESULTING FROM NOT SO BONA FIDE MARKET MAKING ACTIVITY.

22 At the DTCC, it is extremely easy for fraudsters to illegally sell nonexistent shares and actually get their hands on the proceeds without ever covering. PARDON US IF WE INVESTORS FIND THIS CONCEPT TO BE NOT ONLY HEINOUS BUT UNCONSCIONABLE. All these fraudsters need to do is to collateralize the naked short position in a “Marked to market” manner on a daily basis such that the depressant effect on the share price from yet further naked short selling allows the proceeds from previous naked short sales to fall into the lap of the perpetrators of these frauds. The key is to never stop naked short selling which might have the untoward effect of allowing the share price to increase to find its own unmanipulated equilibrium level. The current clearance and settlement system in use at the DTCC allows naked short positions to be run up so rapidly that if the victimized issuer fails to die on cue then the perpetrators of this fraud cannot only not cover these positions without financial collapse but they can’t even stop the daily onslaught without risking the share price going up. The allure of free investor money is so overwhelming that prudent short selling practices fall by the wayside.

23 For the most part, naked short sellers don’t ever cover they don’t have to. They can always fall back on their ace in the hole as a “Participant” of the DTCC by refusing to execute even buy-ins mandated by the old NASD Rule 11830 as well as the new Reg SHO because of possible market “Disruptions”. The financial critical mass of these hedge funds and co-conspiring Wall Street behemoths will outmuscle even the most formidable preyed upon targets. If they meet resistance then there are available “Internet bashers” to employ and financial “Journalists” for hire to produce “Hatchet jobs” to propagate any negative stories whether of merit or not. First Amendment freedom of speech issues as well as Internet anonymity are utilized to delivery any unfavorable opinions.

24 The key to naked short selling fraudsters is to get these trades involving the sale of nonexistent shares to “Clear” even though “Settlement” Which involves the “delivery” of that which was thought to be being bought i.e. genuine “shares” or “packages of rights” attached to a specific U.S. Corporation may never occur. The “Automated Stock Borrow Program” at the DTCC allows shares held in “Street name” at the DTCC to be borrowed from an anonymous “Lending Pool” of shares. This allows the firm of the buyer of these nonexistent shares to receive delivery of “something” that at least resembles a legitimate share at first glance. The problem is that the buying firm is allowed to immediately place these “Shares or share facsimiles” right back into this same anonymous “Lending pool” of shares AS IF THEY NEVER LEFT IN THE FIRST PLACE. THE BUYING FIRM IS THEN HANDSOMELY REWARDED BY THE DTCC WITH THE CASH EQUIVALENT OF THE SHARES DEPOSITED INTO THE POOL AND CHOSEN TO CLEAR THE NEXT FAILED DELIVERY. THIS WONDERFUL ABILITY TO CONVERT A CLIENT’S PURCHASES OF REAL SHARES OR “PSEUDOSHARES” INTO CASH FOR THE USE OF THE BROKERDEALER PROVIDES PLENTY OF INCENTIVE TO KEEP THE “LENDING POOL” FULL TO CAPACITY. THE SELF-REPLENISHING ASPECT ALSO HELPS KEEP IT FULL TO ADDRESS AS MANY “FAILED DELIVERIES” AS THE SYSTEM WILL GENERATE WHICH IS AN INFINITE AMOUNT IF NO REGULATOR MONITORS FOR THE APPROPRIATENESS OF THE USE OF THE “BONA FIDE” MM EXEMPTION FROM BORROWING BEFORE SHORT SELLING.

25 The “Counterfeit Electronic Book Entries” “CEBEs”-electronic book entries at the DTCC without a certificated share in a DTCC vault to justify its existence that result from the lack of buying-in these failed deliveries then appear on investors’ monthly statements as readily-sellable “Pseudo-shares” despite the fact that there is no paper certificate in a DTCC vault to justify its existence. Keep in mind that the DTCC at all times has full visibility of the number of “CEBEs” as well as genuine shares held in their vaults.

26 The “Supply” variable that interacts with the “Demand” variable to determine share price then becomes the arithmetic sum of all genuine paper-backed electronic book entries at the DTCC plus the number of “Counterfeit Electronic Book Entries”. This greatly enhanced “Supply of readily-sellable shares” then interacts with a greatly diminished “Effective Demand” for shares due to buy orders for shares being effectively neutralized by the sale of nonexistent shares into these buy orders resulting in the typical precipitous drop in the share price of the preyed upon U.S. Corporation. This allows the unknowing investors’ funds to flow into the lap of those that sold nonexistent “Entities” but still refuse to cover.

27 The 2 main repositories for these unaddressed delivery failures are the DTCC “D” sub accounts and the “Non-CNS delivery arrangements” shunted to “Exclearing” hiding places. The “Ex-clearing” hiding places involve DTCC participants “Pairing off” and allegedly informally agreeing to not buy-in each other’s failed deliveries. Bd “A” agrees to not demand delivery of the 5 billion worth of securities owed to it by Bd “B” in exchange for Bd “B” doing likewise with the 5 billion worth of failed deliveries owed to it. The DTCC holds that these are “Contractual” arrangements between its participants and that it has no business in monitoring. Victimized issuers and investors might beg to differ as any “Self-Regulatory Organization” might be expected to do a little “Selfregulating” of the activity of its participants which unfortunately at the DTCC own the DTCC. The DTCC management aggressively regulating the behavior of those that sign their paychecks is a bit of a design flaw creating yet another conflict of interest.

28 Section 17 A of the ’34 Act set up the DTC which later merged with the NSCC to form the DTCC. It mandated “The prompt and accurate clearance AND SETTLEMENT of transactions involving the transference of ownership”. Even in the Reg SHO environment the trades done by naked short selling fraudsters still aren’t “settling”. “Settlement” mandates “Good form delivery” of that which was intended to be purchased by the buyer-a “Package of rights” attached to a specific U.S. corporation domiciled in a specific U.S. state. You cannot have “Good form delivery” if that which is being “Delivered” comes from a self-replenishing “Lending pool” of shares provided by the DTCC’s “Automated Stock Borrow Program” the SBP especially when that which is delivered to the new buyers brokerdealer can immediately be replaced right back into the same “Lending pool” from whence it just came as if it never left at all. In order for a system like this to have one scintilla of integrity, the “Sharespseudo-shares” delivered to the new buyer’s brokerage firm would be sequestered or escrowed off to the side and not allowed to be replaced into the “Lending pool” UNTIL the original loan was repaid.

29 What our current system does is to allow trades to “Clear” at warp speed without legally “Settling”. Dr. Boni’s research clearly showed the “Pervasiveness” and extreme age of the failed deliveries stacking up at the DTCC. This vastly dilutes the “Readily-sellable” share structure of targeted corporations causing their share price to plummet which allows the proceeds from the sale of bogus shares to actually flow into the laps of the fraudsters despite their having absolutely no intent of ever buying or replacing that which they have already sold. Recall that all the fraudsters have to do is to collateralize this ever-diminishing debt on a daily “Market-to-market” basis.

30 If the SEC is sincere about addressing this problem, I would suggest they start with legislation to rescind Section 19 C of the ’34 Act which currently forbids the SEC from altering the rules and regulations of the DTCC. The combined 800-pages of rules and regulations of the DTC and NSCC, in my humble opinion, is the most conflict of interest-ridden set of rules on the planet. The lack of necessity to execute buy-ins mandated by the old NASD Rule 11830 and the new Federally mandated Reg SHO threshold securities buy-ins due to the pretense of avoiding “Market disruptions” is in the opinion of most securities scholars nothing short of criminal as by definition there has to be a “Market disruption” involved when leveling the playing field of a victimized issuer that has lost 99 of its market capitalization due to abusive naked short selling by DTCC participants hiding behind their rulebook that is untouchable by the SEC.

In summary, this NASD Rule 3360 proposed rule change represents a step in the right direction especially if made a part of a more comprehensive plan that addresses the loopholes inadvertently left in Reg SHO. The systemic risk levels currently being incurred by all U.S. citizens due to the greed of abusive DTCC participants and coconspiring hedge funds and naked short selling cartels is intolerable. The inability for Reg SHO to address the preexisting delivery failure problem hints at just how serious and pandemic this problem is. The voluntary “Grandfathering in” of previous acts of securities fraud sets a very scary precedent. As I see it, you at the SEC have run out of comfortable middle ground to occupy in this dilemma. You now see the absolute numbers of delivery failures of a given issuer on a daily basis. You either have to warn prospective buyers, as per the ’33 “Disclosure Act”, of these levels of “Readily sellable share facsimiles” unaddressed delivery failures being held at the DTCC or in “Exclearing arrangements” IN ALL OTC SECURITIES or order their being bought-in.

There is no third choice. These prospective investors need to be warned that they’re buying shares of corporations with astronomic levels of unaddressed delivery failures which have basically pre-ordained their investment to an early death as statistics will readily bear out. The 1933 Securities Act mandates that investors be made aware of all information pertinent to the “Character” of the securities being sold in our markets. In a prospectus you at the SEC appropriately make a new issuer reveal every possible tiny grain of sand of risk to the investing public yet you at the SEC, the NASD, and the DTCC possess information about a gigantic “Boulder of risk” present in investing in especially nonreporting issuers with a plethora of unaddressed delivery failures, yet you keep silent.

Note that the Reg SHO “Threshold lists” don’t even discriminate between a corporation with a 0.6 delivery failure rate from a corporation with a 66 delivery failure rate. There really is no middle ground left on this landscape strewn with corporate carcasses for the SEC to safely stand on any longer. Either tell us about these positions as the amended 3360 would partially address or buy-in the failed deliveries. If mandated buyins result in the weeding out of the most abusive market making and clearing firms then so be it. This might allow our markets to evolve into more efficient computerized markets not subject to human greed and massive conflicts of interest between DTCC participants and the investors they owe a fiduciary duty of care to. Thank you for your interest in this subject.

Dr. Jim DeCosta
Tualatin, Oregon
Posted by BuyTex on :
Newb DD thread, compiled by LilPenny:

Topic: Noobies

Member Rated:
posted February 27, 2006 01:58 PM
I have gotten some PM's from some great new newbies.....(you know who you are)....Asking lots of questions.
I will continue to help as much as I can but, wanted to post this to get out some info.
Posting it here as this seems to be where they are looking.

This is going to be very long but the best read you'll find on this board!

These are Post's on how to make money in this market by three of the greatest people I have had the pleasure of trading with!

Learn ALL(LOL) of the tips and you'll do fine.
And.........Yes, I do make money.

Make money and sell....If it goes up more, Good for the other guy holding it, You've made money. MOVE ON!

First great info from Ric...(((HUGS)))

I updated my dd for all so here it is. I am writing a more detailed things you need to know section and will post when I finish.

Things you need to know

Best two pieces of advice for pennies. 1) Don't let people convince you that a penny is a long hold. You will get burnt. Buy low, sell high, and never look back. 2) Due Diligence.

There is two ways to lose money in the penny market that a lot refuse to listen to.

1) Never hold a penny stock after a run. Sell it and if it does run again you can still buy it back but 90% of the time it will fall back to where it was and sometimes lower. Penny's are manipulated on too many levels and holding long will only lose you money and give you a ulcer. Take profits and walk away. If anyone tells you to hold a penny long they are holding that stock at a lose.

2) Don't play group plays and if you can't help yourself take profit as quickly as possible. When the group leaves the stock will drop faster then you can leave.

Worry about a stock that people refuse to hear negative comment on. They are hiding valuable information from you. You can't make a honest choice without all the facts. And all penny's have bad news or they wouldn't be here. If a stock is being pumped to hard then there is a reason for that. Its losing them money.

There is some excitement in runs too that may conflict with what I just said but it's still risky. Because of the manipulation in this market either through groups, boards, MM's or the company a uptrend can turn on you quickly. Find your risk level and move on when it is met. Never look back on profit and wonder if I stayed longer that I could have made more because the next one will burn you if you don't obey your own rules. If you really think it can move further, sell enough to get your money back and ride the rest. A whole lot less risk.

Two things that you must learn about charts immediately is RSI and Bollinger Bands. They are so important. Now there is so much you can learn in charts that will help you make choices but I consider the above the most important things to learn for any investors. RSI will let you know if there is buying pressure or selling pressure. It will also confirm a run. Bollinger Bands also show price pressures and are used to support other indicators. There are links below under TA for education on understanding charts.

Relative Strength Index


Relative Strength Index (RSI), an oscillator introduced by J. Welles Wilder, Jr., could be more appropriately called the internal strength index, for it compares the price of a security relative to itself. The RSI is based upon the difference between the average of the closing price on up days vs. the average closing price on the down days over a given period, and is plotted on a vertical scale of 0 to 100. An oscillator refers to a momentum or rate-of-change indicator that is usually valued from -1 to +1 or 0% to %100.

Wilder advocated a 14-day RSI, although shorter and longer periods have gained popularity when the market exhibits certain characteristics. Generally, RSI is measured in a period between 5 and 25.


There are several possible interpretations for the Relative Strength Index, any of which can be very powerful depending on the market conditions and trading/investment approach: One interpretation is that buy signals are triggered when RSI is in oversold (20-30) area, potentially meaning that the stock is about to reach its low for this trend, and sell signals are triggered when RSI is in overbought (70-80) area, potentially signaling a market top.

A second mode of interpretation is to look for support and resistance lines or common chart formations such as head and shoulders in the RSI itself, indicating potential reversals that the stock chart may not.

A third mode of interpretation is to recognize divergences in the RSI, such as when the price is moving up when the RSI is moving down or vice versa. This can mean that the price is going to "correct" and move in the direction of the RSI.

A fourth mode of interpretation for the RSI is to view it as a bullish or bearish signal when it crosses 50. When the RSI crosses above 50 it can be considered bullish, and when it crosses below 50 it can be considered bearish.

Bollinger Bands


Investors use trading bands, lines drawn above and below the moving average, to isolate a range of prices for a given security, based on the concept that a stock generally trades within a predictable range on either side of the moving average. When a stock is near the upper or lower limits of the trading bands is when an investor should pay closest attention, according to conventional wisdom.

Bollinger Bands are considered some of the most useful bands in technical analysis, for they vary in distance from the moving average of a security's price based on the security's volatility. During periods of increased fluctuation, the bands widen to take this into account, and when the fluctuation decreases, the bands are tapered for a narrower focus to the price range. The upper band is the standard deviation multiplied by a given factor above the simple moving average, and the lower band is the standard deviation multiplied by the same given factor below the simple moving average.


The standard interpretation is that Bollinger Bands do not give absolute buy and sell signals, but instead indicate whether the price is relatively high or low, allowing for more informed confirmation with other technical indicators.

Bollinger Bands are typically drawn two standard deviations from a twenty day simple moving average for intermediate-term analysis, ten day for short term with 1.5 standard deviations, and fifty for long-term studies with 2.5 standard deviations. According to John Bollinger, for the most accurate average "choose one that provides support to the correction of the first move up off a bottom. If the average is penetrated by the correction, then the average is too short. If, in turn, the correction falls short of the average, then the average is too long. An average that is correctly chosen will provide support far more often than it is broken."

Mr. Bollinger also contends that:

Sharp moves tend to occur after the bands tighten to the average, when a stock is less volatile. The greater the period of less volatility, the higher the propensity for a price breakout.

When the price hits the upper or lower bands, it is suggested to confirm with other indicators whether that price movement shows strength or weakness, respectively, which could indicate a continuation. If indicators do not confirm this movement, it can suggest a reversal.

Tops or bottoms made outside the bands, followed by the same inside the bands, indicate a trend reversal.

A move originating at one band tends to go to the other band.

"Resource from IQCharts"

DD for otcbb and pinksheets

Try these two DD tools to be quick and good with your facts. At pinksheets in a matter of seconds under Company Info I can give you o/s, any r/s, company name changes, or planned changes and more. Quotetracker is a program you install on your computer. I wouldn't survive without it in a quick paced market. Tons of TA and FA with dd. Shoot pinksheets is my homepage on Firefox browser for quick reference. This is the first two places I go for fast due diligence. {Company Info tab is loaded with information} {SEC Filing Tab - wow} {News Tab - Pr's at your finger tips} - after you set it up add a symbol quickly then charts, news, research, and raw data at your finger tips. Great charts.

DD is mainly knowing where to go.

FA – Fundamental Analysis - first place to look!!!! Go to Company info for o/s. r/s, name changes, and many other facts. Go to SEC tab to look for filings. News tabs for latest news that may not show up through normal wire service. - after you enter stock symbol select opinion to see trend spotter – otcbb loser/winner by volume, price, shares, transaction, and more - otcbb market recap on otcbb and pinksheet market for the day - DD site that is great. – otcbb news – most popular stock search – otcbb resources - free filter - stock filter - SEC Edgar filings

TA – Technical Analysis – charting web site – charting web site - TA, candlesticks, chart patterns education - teaches chart analysis - teaching about charts

General DD - Research links - Free level II (not pink)/Delayed - “Sho” list – Tons of information (insider trading/IPO’s/Most active/much more) - General but with 5 day and 6 month forecasts – Free real time insider trader monitor - Market Data – search tool – Some good advise here – Edgar form types and descriptions - Shell companies - trading tips, education, quotes and charts - dictionary of stock terms, tutorials - theory of market movement - well known trading strategies - list of scam companies – latest filings, litigations, proceedings, or suspensions

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Phone Numbers provided by HitMe101

Knight Equity Markets, L.P.











NITE UBS Capital Markets L.P.





TD Waterhouse Capital Markets, Inc.




















JEFF Tradition Asiel Securities Inc.



CloseVNDM 07:30
0.015 50 Oppenheimer & Co., Inc.





Hudson Securities, Inc.

















Hill Thompson Magid and Co., Inc.








Maxim Group LLC




INTL Trading, Inc.





Bear, Stearns & Co. Inc.





















Fulcrum Global Partners LLC



Sterne Agee Capital Markets, Inc.









Recovering a Loss

Loss - Gain Needed to Recover Loss

10% -- 11.1%

20% -- 25.0%

30% -- 42.9%

40% -- 66.7%

50% - 100.0%

60% - 150.0%

75% - 300.0%

90% - 1000.0%

Timing your entry and exit from the market is critical to making money and controlling losses.

These are MM signals.
100 > I need shares
200 > I need shares badly but dont take it down to get them.
300 > Take the price down to get shares....
400 > Trade it sideways based on Supply and Demand
500 > Gap one way or the other, usually to the direction of the 500 trade. Sometimes -if in the middle -keep the price right where it is.

Pennies are all about volatility and trends. The only reason to look at a 6 month chart or longer is to see the overall trend of the stock. Is it going up, down, or staying the same with little bumps in the road. Look for peaks and valleys and do they happen on a regular basis. If so then look for a bottom and buy then sell at the top and wait for the next valley.

Never let people tell you after a run that it will run again. That rarely happens. Usually after a run it slowly drops back down. Never average down. Sell and buy back at bottom. Holding until bottom never makes you money, it only makes your loses harder to bare.

Longs in a penny stock want you in so they give you the pretty picture. They hope they can get enough new investors to make their stock move and it won't until the stock is ready. Learn to follow trends and how to find the bottom plays. Usually if a stock has more then a couple pages then the stocks has already done something and hope is what keeps the thread going of it moving again.

Be smart, think, learn, and research.

Next our wonderful and lovely Queen of daytrading...Diana! I miss you girl!!!!!and Hello Sunny, If you are still reading!



Stage 1 - Accumulation. Stock is quiet, trading sideways and without a lot of volatility. Most everyone ignores the stock because it has no sizzle. Insiders hold large blocks of stock and quietly gear up for the distribution.
Stage 2 - Breakout. Volume jumps up, psychological barriers are broken. Insiders begin to tell their friends of upcoming significant fundamental change. Pros take notice and buy the stock on the coat tails of the well informed. The public ignores it because they have not read about the company in the paper yet. It must be a scam.
Stage 3 - Uptrend. As a larger audience learns of the company and its promise, more buying comes in to the stock and it begins to climb. Pros begin to sell, but slowly. Average investor begins to buy.
Stage 4 - Pullback. The stock has gone up too fast, and some profit taking arrives. The jumpy investor who got the entry timing right but lacks confidence in his or her decision sells the stock with a small profit, and smiles in the mirror. The Pro holds on, Average Investor looks through the newspaper to find justification for ownership of the shares.
Stage 5 - Resumption of the Uptrend. The pull back is short lived, and the stock bounces and continues higher. The wannabe regrets the sell, but provides self counsel on the merit of making a profit, albeit a small one. The Pro might sell a little bit more, but still holds the majority of the original position. The Average Investor is getting excited now, and thinks about what could have been if only he had bought when he first noticed the stock.
Stage 6 - Exhaustion of the Uptrend. The media takes notice, and communicates the company's merits to the masses. The masses buy the stock, and it goes up sharply with strong volume. The Pros sell with enthusiasm. The Average Investor owns it now, and is telling everyone who will listen. The wannabe Pro jumps back on, after all, he was smart enough to buy it when the trend started, so he knows the stock well. Will hope make it go higher?
Stage 7 - Gravity Works. Pro selling begins to weigh on the uptrend, and the stock fails to go higher despite high volumes. The stock starts to go down instead of up, and the Pro is almost sold out. The Average Investor continues to cheer lead, hoping to rally support. The wannabe ignores what the market is telling him, taking a loss is too painful to consider. The company is featured on the cover of a magazine.
Stage 8 - The Second Guess. The stock bounces and starts to go back up. The wannabe Pro averages down while the Average Investor gets back to advising friends of his stock picking acumen. Pros sell their remaining holdings and begin to look for another deal to play, or perhaps start short selling the stock.
Stage 9 - Out of Gas. The bounce is a fake out, and the stock moves lower again. The public own this stock, and they have no more power to buy. The Pro are making money on the short sales now, but are despised by the masses. Calls for short selling to be made illegal are made by the Average Investor, after all, the short sellers are the demons causing the sell off.
Stage 10 - Dead Cat Bounce. The Average Investor and the wannabe Pro have no pain tolerance left, and finally sell for a big loss. The short selling Pros are the only buyers to take the share off their hands, and provide the needed liquidity. The stock bounces, and some short term traders make a quick profit. The Average Investor either swears to never buy a stock again, or tells lively stories over drinks about the one that could have been.
Stage 11 - Post Mortem. Pros have forgot about the stock and are considering carpet samples for their new home in Florida. Average Investor continues to follow the company and buys loads of cheap stock to try and overcome the regrettable loss.

The stock market is mean. You can be a good analyst, but if you can't overcome the psychological traps of trading, you will do what the crowd does. To be successful, you have be one step ahead of the crowd, and trade with unemotional discipline. There are strategies to take advantage of each stage of the market cycle that can be applied just by looking at a stock chart. They just require a bit of knowledge.





1. I never buy on impulse or get emotionally attached to a penny stock--think LOGIC--I buy it, I sell it, I make money and I rarely look back.
2. I never buy a stock JUST because I like it or worse someone else likes it.
3. I rarely buy a micro penny stock trading under a volume of 50,000 mil--80 to 100 mil is better (always remember there has to be buyer for every stock you buy)..
4. I rarely hold a micro penny stock over night...My definition of micro penny is under .10 cents ..Rarely over a weekend..NOTICE I SAID RARELY. THERE ARE SOME STOCKS THAT HAVE A BUILD UP AND IF THE VOLUME IS GOOD AND I FEEL CONFIDENT ABOUT MY DD I WILL HOLD IT FOR THE RUN. At $7.00 to $10.00 a trade I can buy and sell it every day on news or hype or earning whatever. .(THAT'S WHY IT'S CALLED DAYTRADING)
5. I never buy a penny stock on the way up. IE CHASING I watch the pre market trading and set a buy price and a sell price and stick to it (missed out on NEOM by sticking to my rules--I noticed it at .11 and refused to buy to high) UPSIDE IS I DO NOT HOLD 500,000 SHARES OF NEOM AT.43 CENTS---DOWNSIDE I DID NOT MAKE 50,000 DOLLARS. I DID MAKE A COUPLE OF GRAND BY PLAYING THE GAP AFTER THE RUN. IF YOU MISS THE RUN PLAY THE GAP. LIKE THE MAN SAID--THERE IS ANOTHER STOCK JUST WAITING TO BE BOUGHT.
6. I never think about GETTING RICH OR RETIRING on penny stocks..My goal is to make $200.00 a day and not lose my original investment. Most often I exceed my goal. (When I lose money it is usually because I have not followed my own rules)
8. I never insult or bash another fellow trader..I respect other people's trading methods. I LEARN FROM THEM. What the hell--It's not my money.....( It's not like they are setting on third base at a black jack table and take a hit on 15 and the dealer has a 6 showing and I have $500.00 dollars riding on that hand). I DO LISTEN AND LEARN AND BENIFIT FROM THEM.
9. I never trade with MONEY that I am not willing to lose.
10. I follow the market and market trends (not just the stocks)
11. I never buy a stock without reviewing, analyzing and understanding the charts. I learned how to read charts and believe in them...They do not lie..I MAY NOT KNOW WHAT THEY MAKE OR PRODUCE OR SELL WHEN I BUY IT BUT I DO REVIEW THE CHARTS ON THE FLY AND PUT IN A BUY ORDER FOR SMALL AMOUNT TO GET IN THE DOOR. MOST TRADERS KNOW WHEN A RUN IS COMING AND HAVE ALREADY DONE THE DUE.

And From dardadog! The master of getting it done FAST! WOOF dog!

There seems to be a large amount of "newer" inexperienced traders here on Allstocks these days. Glad to see so many new, and what appears to be, younger traders out there. I wish I had been smart enough in my late teens and early twenties to invest in my future. I don't consider myself "old" at 43, but when I was that age I considered my future to be next week rather than next decade.
On to the point here. Many of the investors here follow my "flyin fast" leads and do in deed make good quick returns on their investments. But I want to bring attention to a very important rule that I'm afraid many may be overlooking. Particularly in the case of "QBID". The rule I am refering to is "Cover Thy Ass". It's fun (and profitable) to latch onto a microcap that takes off like a rocket. But gains on "paper" don't impress the finance officer, and they don't pay off or save for college tuitions. Microcaps are just that for a reason. Something in the companies past has dictated that they are worthless. When they stir, everyone aware becomes excited and begins accumulating shares with the "Beverly Hillbilly's" theme song stuck in their head. Dreamin' and making extravagant shopping lists, walking around with a stupid grin on their face, thinkin' EZ street is the next block up from here. "Danger Will Robinson - Danger"!!!!! Guys.....if it were really this easy, nobody on the planet would work!!!
I make this point, and hope many take to heart, because paper gains are just that..."paper". You see how fast the portfolio can increase on one of these wild rides, but believe me, it can shrink faster. The smart investor always, and I mean ALWAYS, keeps this first and foremost in mind. Front And Center. While these microcaps are great to play, a smart investor will always "Play Free". Pick a price at which the stock reaches where you can sell partial holdings and keep a block of shares for free. You then have your initial capital back to re-invest in "new" up and comers, and if the free gem you are riding tanks, you can still get some use out of the shares you own for free. .0001 Certs can be used in place of Charmin next time you are at the grocery store. Chafes a bit, but not as much as it does if your ass is raw from the ol' back door screwin' you just took by having your whole wallet tied up on the dream. I want all to really think about this. More people in the penny game have had this experience become a realization, than have had the "Beverly Hillbilly's" dream come true, I assure you. Just remember, although this seems like a game, the only real game in life belongs to Milton Bradley. Good Luck out there.


Dont LOSE more than you can afford to invest....LOL

I'm buying low and selling into the run...
Posted by BuyTex on :
scam-alert link:
Posted by BuyTex on :
chart patterns, formations:
Posted by will on :
Posted by BuyTex on :

Originally posted by will:

you're the *first* one here to help me build this...

'ppreciate ya...
Posted by BuyTex on :

Jim Bishop, re ex-dates:
Posted by BuyTex on :
Jim Bishop, re ex-dates, Part 2:

[ March 20, 2006, 02:02: Message edited by: BuyTex ]
Posted by BuyTex on :
background, for me...
Posted by BuyTex on :
shorting & dividends: 5C86BUJ1.DTL&type=business
Posted by BuyTex on :
SEC suspensions:
Posted by BuyTex on :
from purlie re company fighting for SEC to enforce reporting requirements:

Blue, Dustoff, unrelated to this thread and
a rather lengthy article. This is a good
article for learning about little known
SEC rules. This is fascinating.

From PGLD stock, sorry about the length but
certainly worth reading; good learning.


Wynnefield Demands SEC Action against Phoenix Gold International

April 24, 2006 07:00:08 (ET)

NEW YORK, Apr 24, 2006 (BUSINESS WIRE) -- Wynnefield Capital, Inc. today announced that it has filed a formal complaint with the Enforcement Division of the Securities and Exchange Commission (SEC) and an application with the SEC under the Administrative Procedure Act demanding that the SEC commence enforcement action against Phoenix Gold International, Inc. (OTC: PGLD.PK).

According to Wynnefield's complaint, for nearly two years Phoenix Gold has flagrantly disregarded its obligation to file public reports under Sections 13 and 15(d) of the Securities Exchange Act of 1934. Wynnefield first advised the SEC of Phoenix Gold's reporting duties in September 2004. Since then, Wynnefield has repeatedly asked the SEC to intervene, but to date the SEC has taken no action to enforce its own reporting requirements. Nelson Obus, a general partner of Wynnefield, observed that SEC action is necessary to protect the interests of Wynnefield and other outside shareholders because shareholders cannot privately enforce the SEC's reporting requirements.

Phoenix Gold made a Form 15 deregistration filing, an extremely detrimental action against outside shareholders (those who are not part of management or the Board of Directors), on February 6, 2004. As a result of the filing, the share price has fallen substantially and the stock has lost liquidity. When Phoenix Gold refused to reconsider the deregistration decision, Wynnefield transferred shares of stock directly to its partners and other interested third parties to ensure that the number of record holders was above the level necessary to require the Company to fulfill its reporting obligations. This distribution was necessary because the archaic Exchange Act definition of record holder does not count individual beneficial owners who hold stock in a brokerage account for purposes of determining an issuer's reporting obligations. The Company therefore became obligated to resume Exchange Act filings because it had more than 300 shareholders of record at the beginning of its next fiscal year. Companies that deregister ordinarily are no longer required to provide annual, quarterly or periodic reports to investors, known as 10Ks, 10Qs and 8Ks. However, section 15(d) of the Exchange Act requires any company that has made a registered securities offering (in the case of Phoenix Gold, an IPO) to resume reporting whenever it has 300 or more shareholders of record at the beginning of its fiscal year. Wynnefield's limited partners and other interested parties alone account for more than the minimum number required for filing. According to Wynnefield's complaint, in addition to previous shareholder lists, Phoenix Gold's most recent shareholder list, dated December 31, 2005, showed 473 shareholders of record, which would continue to subject it to SEC reporting requirements.

Wynnefield General Partner Nelson Obus stated, "Phoenix Gold has repeatedly ignored the SEC's reporting requirements and violated its own promises to provide shareholders with the financial information they need to make informed investment decisions. Shareholders have received no financial or other information for 2005, seven months after the end of Phoenix Gold's fiscal year, and the deadline has passed for the annual shareholders' meeting for 2006. For the last two years, Wynnefield has expended considerable effort and resources communicating with Phoenix Gold and working through appropriate channels at the SEC's Division of Corporation Finance to get this company to comply with its legal obligations to shareholders. We have discussed this matter on numerous occasions with officials from the SEC's Division of Corporation Finance, but have received no indication that they are going to recommend action against this flagrant example of non-compliance or are even particularly sympathetic with the plight of this Company's outside shareholders. We have no choice but to take our cause directly to Enforcement and the Commission. The SEC is supposed to be the investors' advocate, and we believe that the SEC's investor protection efforts should start with enforcement of its own reporting rules. SEC action against this issuer is long overdue."

Mr. Obus continued, "The SEC's reporting rules are the primary instrument of investor protection under our securities laws. Self-interested corporate managers will always look for some excuse to hide the ball from shareholders, but if the SEC's rules are enforced, investors should get the information they need to make informed investment decisions.

"We call upon the SEC to enforce its own rules and insist that companies comply with the law. It is bad enough that the SEC continues to allow companies the unilateral ability to deregister when they may in reality have thousands of shareholders holding stock through brokerage firm accounts. In this case, however, we know as an absolute fact that Phoenix Gold has more than the required 300 shareholders of record, and the SEC still is not requiring it to satisfy the reporting rules. Unless the SEC enforces reporting obligations, investors may be at the mercy of self-interested managements," Mr. Obus concluded.

Wynnefield has been a leader in the effort to change the deregistration rules to count the number of shareholders holding in "street names" or through brokerage firm accounts. This common sense rule change would align investors' true economic interests with an issuer's reporting obligations. A petition by institutional investors to change the rule was filed with the SEC in July 2003 (Rule-Making Petition No. 483) and is still under consideration by the SEC.

About Wynnefield Capital

Wynnefield Capital, Inc. is a value investor, specializing in U.S. small cap situations that have company- or industry-specific catalysts. Established in 1992, Wynnefield's founding partners, Nelson Obus and Joshua Landes, held senior research and institutional equity positions at Lazard Freres & Co. during the 1980s, and its initial investors included many of their colleagues at Lazard. Wynnefield has over $400 million under management.

SOURCE: Wynnefield Capital, Inc.

Posted by T e x on :
"Bell Curve"
Posted by Ztiger on :
this is alot of good info.
alot of the question all new member have?
you already have the anwser posted. I guest I got alot old postings to read.

go xkem

Thanks for sharing your penny stock rules.
Posted by T e x on :

Get outta my files...

just kidding--I started this as sort of an archive for everbody, but wound up, well, as you found it...

Thanks, enjoy...
Posted by T e x on :
"archive thread" re previous NSS rule and discussion, from 2004: f/2/t/002842.html?#000001
Posted by T e x on :
thread re charting: t/001656/p/1.html#000005
Posted by A.J. on :
One last piece of info from me on this:
TDAMERITRADE did allow short selling on pink sheets = Their MM's do short sell them.
This IS the PROBLEM.They started this almost a year ago.
Posted by T e x on :

had heard/seen least that it was proposed...since then (months ago), have never seen nor heard of anyone actually doing it... by that I mean, Joe Retail with Ameritrade account
Posted by Peaser on :
Understanding What the Regulation Sho List is for and Why it was created:

Regulation Sho Lists:

Nasdaq (+OTC:BB):

American Stock Exchange (AMEX): jsp

New York Stock Exchange (NYSE): shold/
Posted by T e x on :
10 updates "newbie thread" t/001719/p/1.html#000000
Posted by T e x on :
short-selling techniques:

Short Selling Strategies: Two Dozen Types of Short Sales

By William Cate

There are dozens of ways to sell short a stock.

1. Traditional Short Sale: Borrow the stock against a fifty percent margin.

This is the only type of short sale that can be squeezed when the share price moves up because the short seller must add money to their margin account.

2. A Market Maker Short Sale: U. S. Market Makers are not required to make physical delivery of stock certificates when they sell it. They are assumed to be a repository of the company's shares.

3. A Brokerage House Short Sale: This is a decision not to execute a buy order from a client, but show the stock as owned by the client on their monthly brokerage firm account statement.

4. A Clearing House Short Sale: The Clearing House doesn't execute the buy order, but credits it to the brokerage firm client's account.

5. A Naked Short Sale: This is where two brokerage firms agree to trade stock in a company with neither brokerage firm requesting physical delivery of the share certificates.

6. An Insider Short Sale: This is when insiders with restricted stock use it to sell short their company. It's illegal. It was a common practice when the Regulation S Hold Period was 40 days.

7. A Ferrari Short Sale: This is where a bloc of stock is purchased. The stock is converted to derivatives, thus factoring the stock one hundred fold or more. The short sale doesn't occur in the Stock Market, but the derivative owners are holding a short position.

8. The DTC Short Sale: This is when Depository Trust Companies use the stock they hold to sell short that stock.

9. The International Short Sale: Stock's created offshore. The company is listed to trade outside the United States (usually Canada). However the company is trading in the States. The shares are sold into the States. The Short Sale is moved to the Primary Country, where the local brokers can ensure that the short position will be covered by the listed company, if there is ever a successful short squeeze.

10. The Arbitrage Short Sale: LTV - Scattered Securities is an example of this short play. The Court in the LTV reorganization determined the exchange rate for new shares for old shares at three cents. The Market didn't read the Court decision. The old shares traded far higher than the Court Ordered exchange rate. The short sale was done by selling old shares and buying new shares before the Court mandated exchange of share certificates.

11. The Street Stock Short Sale: Sellers who are insiders or who allege to be insiders sell counterfeit stock to buyers outside regular market channels.

12. The MIDI Short Sale: Brokers sell stock at prices well above the actual trading price of the stock. This has been popular with German OTC stocks sold into the Middle East. The gap between the sale price and the trading price is an effective short sale.

13. The Depository Receipt Short Sale: Using counterfeit stock, the seller deposits it into an overseas bank. They then sell Depository Receipts against the counterfeit shares held by the bank. I've seen this done in Asia.

14. The Rockford Short Sale: An investment firm buys shares and takes physical delivery of the stock certificates. They replace the real share certificates with counterfeit share certificates. Next they sell the real shares back into the Market and repeat the process. This practice does wonders for their balance sheet. The tactic was popularized in the Rockford TV Series. It's been done in Asia with NYSE shares.

15. The Tax Haven Bank Short Sale: Small (usually Caribbean) banks act as agents for their clients unwilling to reveal their identity. The client wants to buy stock. The bank doesn't buy the stock on behalf of the client. They simply show the sale within the bank's accounting system. This practice extends to gold etc.

16. The Lost Certificate Short Sale: Client requests share certificate.

Broker sends it certified to the slightly wrong address. It's returned to broker. Using the certified receipt broker claims the client has the share certificate. A year is spent in proving it never arrived. Meanwhile the broker has the share certificate and can use it to cover other short sales. This happened to me in Vancouver.

17. The Margined Short Sale: Buyer buys stock on margin. They can't take physical delivery of their share certificates. The broker sells the margined account non-existent stock (a short sale).

18. The Takeover Short Sale: Brokers add non-existent stock into a takeover with stock transaction. The buyer pays for the non-existent shares. The short seller gets cash or stock in the buyers company.

19. The Attrition Short Sale: For OTC stocks about 3% of the beneficial owners of the stock disappear each year. They die, forget they own the stock, etc. Brokers can safely sell short 3% of the float each year relying on the fact that the beneficial owners will never claim their stock.

20. Counterfeit Stock: Professionals regularly send counterfeit share certificates to Transfer Agents. A surprising percentage are accepted as real share certificates. The result is the professional effectively has sold short the shares involved in the certificate.

21. Issue Depository Receipts without holding the stock and sell the Depository Receipts.

22. The Warrant or Option Short Sale. Buyer holds the right to exercise warrants or options, but doesn't do so. Instead, they sell short the stock and use the options or warrants as insurance. This was popular among VSE underwriters in the 1980s-1990s

23. Reg S Short Sale. Same format as the Warrant or Option Short sale, but using cheap Reg S stock. The short seller is exposed for one year.

24. The Lending Short Sale. This was used by the guy who introduced me to the business. You offer to lend 90% of the face value of the stock to the borrower for a long period of time. Your interest rate is better than that of a bank. You take in the stock and sell it. You lend 90% of the proceeds from the sale. You are now short the stock. You collect your interest payments until the borrower defaults on the loan.

About the Author

William Cate has been the Managing Director of Beowulf Investments since 1981 and is the Executive Director of the Global Village Investment Club.

from: geb post, p. 185, t/012891/p/185.html#007415
Posted by Livinonklendathu on :
Financing links (some refer to as being "toxic"):



Laurus Funds

Cornell Capital 3,0,0
Posted by T e x on :
Fordham prof's paper on shorts, death spirals:
Posted by T e x on :
Posted by BooDog on :
Excellent Tex Thanks! ohh ... delete this after you read it. LOL
Posted by T e x on :

will *not* delete, but would ask that this thread be for DD, reference, archival only. Plenty of threads for banter...

make sense?
Posted by T e x on :
shells, shares, mergers:
Posted by T e x on :
good info re OTCBB listing, differences from a real exchange:


General Questions

1. How do I buy or sell stock in a company that is quoted on the OTC Bulletin Board ® (OTCBB)?

The process of buying or selling OTCBB stock is the same as buying or selling any other stock. You must open an account with a broker (a party that executes buy and sell orders). You cannot buy OTCBB stock directly from the OTCBB or the

2. Can a security be traded on the OTCBB and NASDAQ ® at the same time?

No. The OTCBB is a quotation service for securities which are not listed or traded on NASDAQ or a national securities exchange.

3. What are some of the differences between companies quoted by an OTC quotation service and companies listed on a stock market?

Stock markets (including NASDAQ and the registered exchanges, such as NYSE or AMEX) have specific quantitative and qualitative listing and maintenance standards, which are stringently monitored and enforced. Companies listed on a stock market have reporting obligations to the market, and an on-going regulatory relationship exists between the market and its listed companies. OTC quotation services (OTCBB, Pink Sheets) facilitate quotation of unlisted securities. As such, any regulatory relationship between an OTC quotation service and the issuers may be relatively limited or non-existent.

4. What is the difference between OTC, other-OTC and OTC Bulletin Board (OTCBB)? And where do the Pink Sheets fit in?

An over-the-counter (OTC) security is generally considered to be any equity security that is not listed on NASDAQ, NYSE or AMEX. The OTCBB and the Pink Sheets are both quotation services for OTC securities. NASDAQ operates the OTCBB service and permits NASD members to quote any OTC security that is current in certain required regulatory filings (see Listing requirements ). The Pink Sheets is a privately owned company that permits NASD members to quote any OTC security and does not maintain regulatory filing requirements. An OTC security can be dually quoted on both the OTCBB and the Pink Sheets. As well, there are many OTC securities that are not quoted on either the OTCBB or the Pink Sheets; however, they have trading symbols assigned to them so NASD members can comply with trade reporting obligations and report transactions in these securities. These securities are sometimes said to be on the "grey market".

Other-OTC/NBB . Any OTC security that is not quoted on the OTCBB but is eligible for trade reporting on the Automated Confirmation Transaction Service (ACT) is categorized as "other-OTC" or non-Bulletin Board (NBB). You will see both of these terms throughout the website. This includes, but is not limited to, securities quoted on the Pink Sheets. Because other-OTC securities are not quoted on the OTCBB, you will not be able to access quotes on these stocks through the website, the NASDAQ Workstation II, or any other NASDAQ product. If they are quoted on the Pink Sheets, you may be able to obtain quotes for other-OTC securities on the Pink Sheets website at

5. What is the correct way to refer to the OTCBB or securities quoted on the OTCBB?

Correct and accurate terminology when referencing the OTC Bulletin Board are as follows:

OTC Bulletin Board
Quoted on the OTC Bulletin Board

Listing and Eligibility Requirements

6. What are the "listing" requirements for the OTCBB?

Because the OTCBB is a quotation service for NASD Market Makers, not an issuer listing service or securities market, there are no listing requirements that must be met by an OTCBB issuer. Accordingly, there are no financial requirements and there is no minimum bid price requirement.

7. Are OTCBB companies considered to be "listed"?

No, the OTCBB is not an issuer listing service, and there is no listing agreement between either the OTCBB or NASDAQ and the issuer. There are, however, certain requirements an issuer must meet in order for its securities to be eligible for a market maker to enter a quotation on the OTCBB.

8. What are the eligibility requirements for the OTCBB?

In order for a security to be eligible for quotation by a market maker on the OTCBB, the security must be registered with the Securities and Exchange Commission (SEC) or other federal regulatory authority that has proper jurisdiction (see below) and the issuer must be current in its required filings with such federal authority.

Domestic issues quoted on the OTCBB are limited to the following securities:

securities of issuers that make current filings pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ("Act");
securities of depository institutions that are not required to make filings under the Act, but file publicly available reports with their appropriate regulatory authorities;
securities of registered closed-end investment companies; and
securities of insurance companies that are exempt from registration under Section 12(g)(2)(G) of the Act.
Foreign issues and ADRs must be registered with the Securities & Exchange Commission (SEC) pursuant to Section 12 of the Securities Exchange Act of 1934.

9. How many market makers are required for a security to be on the OTCBB?

A minimum of one market maker is needed.

10. What are the listing fees for the OTCBB?

There are no listing fees for the OTCBB. Market makers do pay a fee for participating in the OTCBB of $6 per security per month.

11. Does the OTCBB have shareholder approval rules?

No. The OTCBB does not have shareholder approval rules.

12. Is an OTCBB issuer required to have an audit committee?

OTCBB issuers may choose to have an audit committee, and certain OTCBB issuers may be required to have an audit committee by virtue of an applicable law or rule. However, the OTCBB rules do not separately require OTCBB issuers to establish or maintain an audit committee.

13. How does a company get on the OTCBB?

An issuer may not submit an application directly to be quoted on the OTCBB. A market maker must sponsor the security and demonstrate compliance with SEC Rule 15c211 before it can initiate a quote in a specific security on the OTCBB.

14. How does a security delisted from NASDAQ or an exchange get on the OTCBB?

For a security being delisted from NASDAQ, NYSE, or AMEX, a Market Maker must file a Form 211 and a Form 211 Addendum.

15. Can a company be "delisted" or removed from the OTCBB?

OTCBB issuers that become delinquent in their required regulatory filings will have their securities removed from the OTC Bulletin Board. Further, all OTCBB issues must maintain at least one registered Market Maker to remain on the OTCBB. When the last Market Maker in a security withdraws from the stock, the issue is removed from the OTCBB after 4 days pursuant to Rule 15c2-11. An issuer cannot voluntarily withdraw from the OTCBB; only a market maker can voluntarily withdraw it's quote from the OTCBB. If an OTCBB security becomes listed on NASDAQ or an exchange, it will no longer be eligible and will be removed from the OTCBB.

16. Can a company appeal the removal of its securities?

The issuer of a security quoted on the OTCBB may appeal the removal of its securities to a Hearings Panel that consists of independent persons appointed by the NASD board. The pool of panellists includes accountants, investment bankers, corporate officers and securities lawyers. A request for a hearing will stay the determination to remove the securities pending a determination by the Hearing Panel. Such requests should be faxed to the Hearings Department at 301.978.8080 no later than 4:00 pm , two business days prior to the scheduled removal date. All hearings will be governed by the Rule 9700 Series of the NASD Rules. Hearings are limited to the question of whether the issuer is current in its required filings.

17. May a company appeal the Panel's decision?

Yes. The issuer may appeal the Panel's decision to the NASDAQ Listing and Hearing Review Council ("NLHRC"). The NLHRC may also decide to call the decision for review. The appeal to the NLHRC does not stay the Panel's determination; consequently, a company that has been removed by the Panel will not be reinstated prior to a final determination by the NLHRC. If the NLHRC overturns the Panel, then the company's securities may be reinstated on the OTCBB. After a determination by the NLHRC, the company may appeal to the SEC, and, from there, it may proceed to the Federal court system.

Form 211 (SEC Rule 15c2-11)

18. What is a Form 211?

The Form 211 is the form which must be completed and submitted to NASD OTC Compliance Unit to initiate or resume quotations in the OTCBB, the "Pink Sheets", or any other comparable quotation medium pursuant to SEC Rule 15c2-11

19. After a Form 211 is filed, how long until the security can begin quotation on the OTCBB?

There is no standard time to process a 211 and clear the market maker to begin quoting a security on the OTCBB. The time it takes to review a 211 may vary significantly depending on many factors including whether or not NASD has to request additional information from the market maker that submitted the form and upon how long it takes the market maker to respond to requests for additional information.

20. How do I check the status of a Form 211 filing?

Contact the. NASD OTC Compliance Unit Please note that the Form 211 review process is proprietary and, thus, NASD will only discuss details of the filing or review directly with the firm that submitted the Form 211.

21. Do financials submitted with the Form 211 have to be audited?

Yes, the periodic reporting requirements under NASD Rule 6530 require annual audits of an OTCBB issuer's financial statements. However, current NASD rules do not require the financial statements of Pink Sheet issuers to be audited, but they should be prepared in accordance with GAAP or, for foreign issuers, in accordance with their home country's accounting standards.

22. Do I have to file a Form 211 for a security delisted from NASDAQ?

A delisted Nasdaq Issuer that wishes to be quoted on the OTCBB should contact their market makers to request that they complete a Form 211 for review and processing

23. Do I have to file a Form 211 for a New York Stock Exchange or American Stock Exchange delisted security?

Yes. Prior listing on NYSE or AMEX does not exempt a Market Maker from the Form 211 filing requirement."
Posted by T e x on :
Supreme Court, reining in SEC, late 70s:
Posted by T e x on :
more insight re ex-date, from Jim Bishop:
Posted by T e x on :
and again, re shorting:

close window

U.S. Stocks and Options Easy to borrow
InstaQuote The following stocks are listed as 'easy to borrow' for short selling.
This list is updated only once every morning on market days.
DETAILS Please contact us if you have questions. Email: info*ecnbroker.comm
Commissions & rebates

[gotta see the site, to see the window with latest tickers -- tex]
Posted by Youngmoney on :
Posted by T e x on :
2007 Trading Holidays:

Holiday Calendar and Events


NASD hosts a number of conferences and events focusing on regulatory securities issues of interest to legal and compliance personnel and others.

2007 Holiday Schedule

NASD will be closed in observance of these holidays:

January 1 New Year's Day (Observed)
January 15 Martin Luther King, Jr. Day
February 19 Presidents' Day (Observed)
April 6 Good Friday
May 28 Memorial Day
July 4 Independence Day
September 3 Labor Day
November 22 Thanksgiving Day
December 25 Christmas Day

NASD and financial markets may close early the day before a holiday.

Holiday Calendar and Events


NASD hosts a number of conferences and events focusing on regulatory securities issues of interest to legal and compliance personnel and others.

2007 Holiday Schedule

NASD will be closed in observance of these holidays:

January 1 New Year's Day (Observed)
January 15 Martin Luther King, Jr. Day
February 19 Presidents' Day (Observed)
April 6 Good Friday
May 28 Memorial Day
July 4 Independence Day
September 3 Labor Day
November 22 Thanksgiving Day
December 25 Christmas Day

NASD and financial markets may close early the day before a holiday.
Posted by T e x on :
NASD 2007 Settlement/Holidays:

The 2007 holiday schedule for NASDAQ is as follows:

January 1 New Year's Day
January 15 Martin Luther King Jr.'s Birthday (Observed)
February 19 Presidents' Day
April 6 Good Friday
May 28 Memorial Day
July 4 Independence Day
September 3 Labor Day
November 22 Thanksgiving Day
December 25 Christmas Day

Trade Date—Settlement Date Schedule for 2007© 2003, National Association of Securities Dealers, Inc. (NASD). All rights reserved.
* Pursuant to Sections 220.8(b)(1) and (4) of Regulation T of the Federal Reserve Board, a broker/dealer must promptly cancel or otherwise liquidate a customer purchase transaction in a cash account if full payment is not received within five business days of the date of purchase or, pursuant to Section 220.8(d)(1), make application to extend the time period specified. The date by which members must take such action is shown in the column titled "Reg. T Date."
Brokers, dealers, and municipal securities dealers should use the foregoing settlement dates for purposes of clearing and settling transactions pursuant to the National Association of Securities Dealers, Inc. (NASD®) Uniform Practice Code.

The NASDAQ Stock Market and the securities exchanges will be closed on Monday, January 1, 2007, in observance of New Year's Day. "Regular way" transactions made on the business days noted below will be subject to the following schedule:

Trade Date Settlement Date Reg. T Date*
22 28 Jan. 2, 2007
25 Markets Closed --
26 29 3
27 Jan. 2, 2007 4
28 3 5
29 4 8
Jan. 1 2007 Markets Closed --
2 5 9

Martin Luther King, Jr., Day 2007
The NASDAQ Stock Market and the securities exchanges will be closed on Monday, January 15, 2007, in observance of Martin Luther King, Jr., Day. "Regular way" transactions made on the business days noted below will be subject to the following schedule:

Trade Date Settlement Date Reg. T Date*
Jan. 9 Jan. 12 Jan. 17
10 16 18
11 17 19
12 18 22
15 Markets Closed --
16 19 23

Presidents' Day 2007
The NASDAQ Stock Market and the securities exchanges will be closed on Monday, February 19, 2007, in observance of Presidents' Day. "Regular way" transactions made on the business days noted below will be subject to the following schedule:

Trade Date Settlement Date Reg. T Date*
Feb. 13 Feb. 16 Feb. 21
14 20 22
15 21 23
16 22 26
19 Markets Closed --
20 23 27

Good Friday 2007
The NASDAQ Stock Market and the securities exchanges will be closed on Good Friday, April 6, 2007. "Regular way" transactions made on the business days noted below will be subject to the following schedule:

Trade Date Settlement Date Reg. T Date*
April 2 April 5 April 10
3 9 11
4 10 12
5 11 13
6 Markets Closed --
9 12 16

Memorial Day 2007
The NASDAQ Stock Market and the securities exchanges will be closed on Monday, May 28, 2007, in observance of Memorial Day. "Regular way" transactions made on the business days noted below will be subject to the following schedule:

Trade Date Settlement Date Reg. T Date*
May 22 May 25 May 30
23 29 31
24 30 June 1
25 31 4
28 Markets Closed --
29 June 1 5

Independence Day 2007
The NASDAQ Stock Market and the securities exchanges will be closed on Wednesday, July 4, 2007, in observance of Independence Day. "Regular way" transactions made on the business days noted below will be subject to the following schedule:

Trade Date Settlement Date Reg. T Date*
June 28 July 3 July 6
29 5 5
July 2 6 10
3 9 11
4 Markets Closed --
5 10 12

Labor Day 2007
The NASDAQ Stock Market and the securities exchanges will be closed on Monday, September 3, 2007, in observance of Labor Day. "Regular way" transactions made on the business days noted below will be subject to the following schedule:

Trade Date Settlement Date Reg. T Date*
Aug. 28 Aug. 31 Sept. 5
29 Sept. 4 6
30 5 7
31 6 10
Sept. 3 Markets Closed --
5 7 11

Columbus Day 2007
The schedule of trade dates-settlement dates below reflects the observance by the financial community of Columbus Day, Monday, October 8, 2007. On this day, The NASDAQ Stock Market and the securities exchanges will be open for trading. However, it will not be a settlement date because many of the nation's banking institutions will be closed.

Trade Date Settlement Date Reg. T Date*
Oct. 2 Oct. 5 Oct. 9
3 9 10
4 9 11
5 10 12
8 11 15
9 12 16

Note: October 8, 2007, is considered a business day for receiving customers' payments under Regulation T of the Federal Reserve Board.
Transactions made on Wednesday, October 3, will be combined with transactions made on Thursday, October 4, for settlement on October 9. Securities will not be quoted ex-dividend, and settlements, marks to the market, reclamations, and buy-ins and sell-outs, as provided in the Uniform Practice Code, will not be made and/or exercised on October 8.

Thanksgiving Day 2007

The schedule of trade dates-settlement dates below reflects the observance of the financial community of Thanksgiving Day, Thursday, November 22, 2007. All securities markets will be closed on Thursday, November 22, 2007, in observance of Thanksgiving Day.

Trade Date Settlement Date Reg. T Date*
Nov. 16 Nov. 21 Nov. 26
19 23 27
20 26 28
21 27 29
22 Markets Closed --
23 28 30

Christmas Day 2007 and New Year's Day 2008

The NASDAQ Stock Market and the securities exchanges will be closed on Tuesday, December 25, 2007, in observance of Christmas Day and Tuesday, January 1, 2008, in observance of New Year's Day. "Regular way" transactions made on the business days noted below will be subject to the following schedule:

Trade Date Settlement Date Reg. T Date*
Dec. 19 Dec. 24 Dec. 27
20 26 28
21 27 31
24 28 Jan. 2
25 Markets Closed --
26 31 3
27 Jan. 2 4
28 3 7
31 4 8
Jan. 1, 2008 Markets Closed --
2 7 9

Contact Information
Questions regarding the application of those settlement dates to a particular situation may be directed to the Corporate Data Integrity Department at 203.375.9609.
Posted by T e x on :
Phantom Shares, the Bloomberg TV 1/2-hour show on naked shorts...from youtube:
Posted by T e x on :
unsolicited pinks:
Posted by T e x on :
market maker behavior/theory/scholarly paper:
Posted by T e x on :
market players, 2007:
Posted by T e x on :
Going long on a pennystock? cuz it's a "real company," right?

Posted by: cws9
In reply to: None Date:9/20/2005 9:46:20 PM
Post #of 11736

Copied from another board. I don't have a link but it is interesting anyways.....


There are several key areas to look at when doing DD on an Over-the-counter pennystock. And it doesn't even include looking at the financial information.. . that is the least important thing to look at.

Share structure and distribution is the FIRST place our eyes should go when looking at an OTC stock. Don't even READ the news until you know whether or not 5 million shares were sold at .005 to a company in the Cayman Islands.

If so, you can rest assured that there will be heavy selling on any run up, as each new buy is met with an insider sell. And the stock will probably then get heavily shorted near the top. . and driven down to nothing. . and I do mean NOTHING.

And if the company does not report their financials to the SEC. . .RUN AWAY. Don't even consider them, because they will surely rip you off any way that they can. And if they SAY that they will soon be reporting their "audited" financials. . .run even faster. . .this means they have NO INTENTION of filing with the SEC. And even if they say "we will be filing with the SEC" or even "we HAVE submitted our financials to the SEC." DON'T BELIEVE THEM.

MDCE put out a half dozen press releases telling shareholders that they filed their financials with the SEC. . .but somehow. . .as if by magic. . .they have never appeared on the Edgars.

This stuff is the BASICS of penny trading.

SECOND, look at the HISTORY of the stock. . .was there a reverse split or reverse merger in its past? If so, there will probably be more problems or more reverse splits in the future. How long has the company been in business? It is one thing for a company to come up with an idea. . .it is CLEARLY another for same company to figure out a way to successfully market that product or service. . . and it is another thing yet, for the company to properly manage their money.

Take down the names of the officers of the companies, the investor relations people or firm and any other important parties. . .and do a "entire website" search at the SEC. This is not an Edgar search. . and can be found on the main page of the SEC, which EVERY penny trader should know very well. If your party comes up in the search, you can know their history. . if not, it does not mean they are "clear". . .they still could be under investigation or have played a smaller role in other scams, etc. . . .or just have never been caught. Be UN-trusting as a defense to loss and you will increase your chance at gains.

The easy way to do searches on SEC is to use "adj" between names like
John Smith. . ."john adj smith" . . if it is an odd last name, it should be fine by itself. . "stephanapolous" or "gianapolitana" or "santodominguez" etc. . .otherwise use adj on firm names like "La Jolla adj Capital" or "La adj Jolla adj Capital" . . this will keep the thousands of uses of "capital" or the city "La Jolla" from coming up in the search. It means literally adjacent" words.

THIRD, read the press releases with a cynical eye. . . if they say that the industry is reported to generate 14 billion in revenues each year and we estimate that our revenues in the coming year will be between 40 million and 60 million dollars. . .. RUN away.

If there is no LOGICAL and detailed explanation of HOW the company plans to make ANY money. . .then they don't. . . they just plan to sell shares. . to you? . . hopefully NO. . to the suckers that don't have a clue what they are doing. ANY reports of "projected" revenues should be based on PRIOR performance. . .if not, it is just a pie-in-the-sky arbitrary number picked out to make them look good to prospective penny traders.

If the company headquarters is in Vancouver, Boca Raton, La Jolla, Denver or Las Vegas. . . . RUN AWAY. There is an old saying in the record biz, where thousands of demo tapes are sent every week. . . "if we reject 100 percent of those wanting a record deal, we will be correct in our decision 99 percent of the time. . .and that ain't bad"

By catagorically denying ANY company hailing from these cities, thus rejecting 100 percent of them. . .we will be correct in our decision 99 percent of the time. And that is not bad.

Other suspect cities, which would require EXTENSIVE DD to justify,include New York City, Dallas, Houston, Palm Springs or other cities of the Coachella Valley, Ft. Lauderdale or other cities in South Florida, any city in Nevada, ANY city in Canada where everyone can short-sell penny stocks, any other "resort" city. . .

If Gucci has a store there. . .then chances are your company does not operate a 50,000 square foot building in the same town. . but rather is just one of many operations out of a small office there.

FOURTH. .INVESTIGATE. . . A good way to find out about the company? CALL THEM. NO, I don't mean to call the number they provide you. . .I mean call the local area directory assistance and ask for the company name. . . I have even gone as far as asked for the numbers of each of the officers of suspect companies, only to find that NOBODY had a listed number. . not even the company.

If the company has an unlisted number. . .think about it. . their customers or clients will not be able to find them. . they are absolutely bogus. If the CEO or his wife answers. .or there is a baby crying in the background. . .guess what? The company is being run out of the kitchen table of a house, and they want your money. . .why?
There are bills that need paid, that's why.

Another good trick, is to offer to visit the company headquarters on
short notice. . .say something like I will be in town first thing in the morning and would like directions to the company headquarters, so you can report back to your thread on Silicon Investor. . .yes they all read our threads.

If they say the company is moving, under construction or give ANY reason whatsoever for not allowing you there. . . you have your answer. . they are bogus. .don't believe them. . .if they offer to meet you elsewhere or to guide you in. . . decline and say, you may be late and insist on getting precise directions to the company headquarters. You will be amazed at the number of companies that will refuse to tell you.

If you are still interested in the company at this point. . .then you must ask yourself how much you are willing to lose. . . if you are "investing" 2,000 or more dollars, then go to Southwest Airlines website on a Tuesday thru Thursday and book a 33 to 99 dollar "internet special" flight there and go and see them for yourself. For just a same day trip. . or overnight if you feel adventurous. . .for just a few hundred bucks. . you can get a first hand account of where your money is going.

If they sell goods. . .you want to see the warehouse, shipping, receiving department. . .it should be impressive. . even if it is tiny. . if they sell services. . you want to see the laborers performing these services. . .if the company is nothing more than a small office with no laborers, because they "farm out" or their workers work "out of their homes" . . .RUN away. That is a lie. . the company is in business just to sell shares. In which case, be sure to note the leather interior of the CEO's car. . because that is what your 2,000 bucks bought.

Note the name or names on the door. Instead of the company name, does it say "capital.. .equity. . .investor. . .relations. . .financial". . etc??? Do
you know why? Because they operate NUMEROUS companies from the same office. . . in which case, your presence is not only NOT WANTED. . .it is threatening to their livelyhood.

If that is the case, I would not bother to even enter, as it may be a potentially dangerous or threatening situation. . . I would turn around and never look back.

But here is the part of penny trading that is the most important of all.. .and what I expect from each of us here on the fishing thread. . . when you have information about these companies like that described above. . and someone else is getting suckered into the same company. . . have the decency to tell them.

You don't need to go on the thread and tell eveyone they are invested in a bogus company. . .chances are good that they have already figured that out. . . but in the course of daily discussion, when the name pops up. . and you can shed some light. . do not hold back.

If they were unlisted. . say so. . if they have convertible debentures from an offshore placement. . say so. . .if there was a 1 for 100 reverse split a year ago. . .say so . . etc etc etc.

Not every company on the OTC or the Nasdaq is bogus.. . . but as I said on the Scammy Awards:

Welcome to the Over-The-Counter market of Electronic Bulletin Board and Pink Sheet stocks.

Out of 100,000 issues,
90,000 are scammys
9,000 are clueless
900 are really trying
Leaving 100 that are worth buying.
Posted by BooDog on :
Bobs' Books reference page
Posted by J_U_ICE on :
Illegal Trading ...naked short selling. rfhgQPAJ1s.asf
Posted by T e x on :
JUICEY, got that one, but as a youtube link--sure won't hurt to have a coupla different links for that one...

Boo? that's a nice link...

btw, just read the first one on the list, ". . . Stock Operator" the other night; had heard of it of course, but had never read. Fascinating...what struck me was how well it stands it...very modern, in a sense. For example, once he set up an office, he had "wires", early online, he was...

anyway, that link on Bob's list didn't work for me, so here's one to a freebie, .pdf download. Well, can be read online, too, if download not wanted...

Thanks for the help, fellas...
Posted by T e x on :
"Stock issued as part of a bankruptcy reorganization..."

Posted by: matrix
In reply to: 2ligit2quit who wrote msg# 980 Date:4/2/2007 9:43:06 PM
Post #of 1002

When a company issues stock, the recipient is restricted from reselling it unless:
-- he's held the stock for a certain period of time (normally one year or more); OR
-- a registration statement is filed and deemed effective; OR
-- the issuance falls under an exemption to registration

Stock issued as part of a bankruptcy reorganization plan happens to fall under category #3. In other words, the stock can be immediately free-trading and sold into the float if they so desire. Since the filings say they want to do a merger, they'll probably retain enough to keep control. It's possible the BK order may restrict how much they can sell prior to the merger occurring.
Posted by T e x on :
NASD "notice to members" re determining ex-date, nice .pdf: 97.pdf

< ** remember, though: don't get confused when the rules aren't "strictly followed"; i.e., go by the ex-date regardless of record and payable dates. If you're considering a significant chunk of change, always CALL NASD for verification...although rare, dailylist screwups have been known.** -- tex >
Posted by T e x on :
short sales, short sell: SEC key points about regukation SHO:

Division of Market Regulation:
Key Points About Regulation SHO
Date: April 11, 2005
I. Short Sales
A. What is a short sale?
A short sale is generally the sale of a stock you do not own (or that you will borrow for delivery).1 Short sellers believe the price of the stock will fall, or are seeking to hedge against potential price volatility in securities that they own.

If the price of the stock drops, short sellers buy the stock at the lower price and make a profit. If the price of the stock rises, short sellers will incur a loss. Short selling is used for many purposes, including to profit from an expected downward price movement, to provide liquidity in response to unanticipated buyer demand, or to hedge the risk of a long position in the same security or a related security.

B. Example of a short sale.
For example, an investor believes that there will be a decline in the stock price of Company A. Company A is trading at $60 a share, so the investor borrows shares of Company A stock at $60 a share and immediately sells them in a short sale. Later, Company A's stock price declines to $40 a share, and the investor buys shares back on the open market to replace the borrowed shares. Since the price is lower, the investor profits on the difference -- in this case $20 a share (minus transaction costs such as commissions and fees). However, if the price goes up from the original price, the investor loses money. Unlike a traditional long position — when risk is limited to the amount invested — shorting a stock leaves an investor open to the possibility of unlimited losses, since a stock can theoretically keep rising indefinitely.

C. How does short selling work?
Typically, when you sell short, your brokerage firm loans you the stock. The stock you borrow comes from either the firm's own inventory, the margin account of other brokerage firm clients, or another lender. As with buying stock on margin,2 your brokerage firm will charge you interest on the loan, and you are subject to the margin rules. If the stock you borrow pays a dividend, you must pay the dividend to the person or firm making the loan.

D. Are short sales legal?
Although the vast majority of short sales are legal, abusive short sale practices are illegal. For example, it is prohibited for any person to engage in a series of transactions in order to create actual or apparent active trading in a security or to depress the price of a security for the purpose of inducing the purchase or sale of the security by others. Thus, short sales effected to manipulate the price of a stock are prohibited.

II. "Naked" Short Sales
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. 3 As a result, the seller fails to deliver securities to the buyer when delivery is due (known as a "failure to deliver" or "fail").

Failures to deliver may result from either a short or a long sale. There may be legitimate reasons for a failure to deliver. For example, human or mechanical errors or processing delays can result from transferring securities in physical certificate rather than book-entry form, thus causing a failure to deliver on a long sale within the normal three-day settlement period. A fail may also result from naked short selling. For example, market makers who sell short thinly traded, illiquid stock in response to customer demand may encounter difficulty in obtaining securities when the time for delivery arrives.

Naked short selling is not necessarily a violation of the federal securities laws or the Commission's rules. Indeed, in certain circumstances, naked short selling contributes to market liquidity. For example, broker-dealers that make a market in a security4 generally stand ready to buy and sell the security on a regular and continuous basis at a publicly quoted price, even when there are no other buyers or sellers. Thus, market makers must sell a security to a buyer even when there are temporary shortages of that security available in the market. This may occur, for example, if there is a sudden surge in buying interest in that security, or if few investors are selling the security at that time. Because it may take a market maker considerable time to purchase or arrange to borrow the security, a market maker engaged in bona fide market making, particularly in a fast-moving market, may need to sell the security short without having arranged to borrow shares. This is especially true for market makers in thinly traded, illiquid stocks such as securities quoted on the OTC Bulletin Board,5 as there may be few shares available to purchase or borrow at a given time.

III. Regulation SHO
Compliance with Regulation SHO began on January 3, 2005. Regulation SHO was adopted to update short sale regulation in light of numerous market developments since short sale regulation was first adopted in 1938. Some of the goals of Regulation SHO include:

Establishing uniform "locate" and "close-out" requirements in order to address problems associated with failures to deliver, including potentially abusive "naked" short selling.

Locate Requirement: Regulation SHO requires a broker-dealer to have reasonable grounds to believe that the security can be borrowed so that it can be delivered on the date delivery is due before effecting a short sale order in any equity security.6 This "locate" must be made and documented prior to effecting the short sale.

"Close-out" Requirement: Regulation SHO imposes additional delivery requirements on broker-dealers for securities in which there are a relatively substantial number of extended delivery failures at a registered clearing agency7 ("threshold securities"). For instance, with limited exception, Regulation SHO requires brokers and dealers that are participants of a registered clearing agency8 to take action to "close-out" failure-to-deliver positions ("open fails") in threshold securities that have persisted for 13 consecutive settlement days.9 Closing out requires the broker or dealer to purchase securities of like kind and quantity. Until the position is closed out, the broker or dealer and any broker or dealer for which it clears transactions (for example, an introducing broker)10 may not effect further short sales in that threshold security without borrowing or entering into a bona fide agreement to borrow the security (known as the "pre-borrowing" requirement).

Temporarily suspending Commission and SRO11 short sale price tests12 in a group of securities to evaluate the overall effectiveness and necessity of such restrictions. The Commission will study the impact of relaxing the price tests for a period of one year.13

Creating uniform order marking requirements for sales of all equity securities. This means that orders you place with your broker-dealer must be marked "long," "short," or "short exempt."14

IV. Threshold Securities
A. The Basics
1. What is a Threshold Security?

Threshold securities are equity securities that have an aggregate fail to deliver position for:

five consecutive settlement days at a registered clearing agency (e.g., National Securities Clearing Corporation (NSCC));15

totaling 10,000 shares or more; and

equal to at least 0.5% of the issuer's total shares outstanding.16

Threshold securities only include issuers registered or required to file reports with the Commission ("reporting companies").17 Therefore, securities of issuers that are not registered or required to file reports with the Commission, which includes the majority of issuers on the Pink Sheets,18 cannot be threshold securities. This is because the SROs need to look to the total outstanding shares of the issuer in order to calculate whether or not the securities meet the definition of a "threshold security." For non-reporting companies, reliable information on total outstanding shares is difficult to determine.

2. Who is Responsible for Identifying Threshold Securities?

Regulation SHO requires the SROs to disseminate a daily list of threshold securities where such SRO, or its market center,19 is the primary listing venue for any such security.

3. Where Can I Find Threshold Lists?

Each SRO is responsible for providing the threshold securities list for those securities for which the SRO is the primary market. You can obtain SRO threshold lists at the following websites:

Nasdaq: (includes Nasdaq issues, OTCBB, and other OTC issues)


AMEX: (Amex listed securities only)



The Boston Stock Exchange, Philadelphia Stock Exchange and National Stock Exchange are not the primary listing exchange for any securities at this time and, therefore, are currently not publishing threshold securities lists.

4. Inclusion on, and Removal from, Threshold Lists.

At the conclusion of each settlement day, NSCC provides the SROs with data on securities that have aggregate fails to deliver at NSCC of 10,000 shares or more. For the securities for which an SRO is the primary market, that SRO calculates whether the level of fails for each security is equal to, or greater than, 0.5% of the issuer's total shares outstanding of the security. If, for five consecutive settlement days, such security satisfies these criteria, then such security is a threshold security. Each SRO includes such security on its daily threshold list until the aggregate fails level for the security falls below these levels for five consecutive days. (See below for a discussion as to why a security may appear or remain on a threshold list.)

5. Implementation Dates for Threshold Lists.

The SROs disseminated the first threshold lists on January 10, 2005. Regulation SHO does not require a broker or dealer to close-out the open fail position until a security appears on a threshold list for 13 consecutive settlement days and an open fail position for such security exists for each of those days.. Therefore, the first day on which a close-out action could have been required for a threshold security was January 28, 2005.

6. Mandatory Close-Outs of Threshold Securities.

Regulation SHO requires broker-dealers to close-out all failures to deliver that exist in threshold securities for thirteen consecutive settlement days by purchasing securities of like kind and quantity ("close-out").20

Until the position is closed out, the broker or dealer and any broker or dealer for which it clears transactions (for example, an introducing broker),21 may not effect further short sales in that threshold security without borrowing or entering into a bona fide agreement to borrow the security (known as a "pre-borrowing" requirement).

7. Key Points to Remember.

Any equity security of an issuer that is registered or required to file reports with the Commission could qualify as a threshold security. Therefore, threshold securities may include equity securities:

listed on an exchange, 22

quoted on Nasdaq,23 or

quoted on the OTCBB.24

Whether or not a security is a threshold security does not affect the Commission's ability to prosecute manipulative or fraudulent activity that may have occurred before or after adoption of Regulation SHO.

B. Reasons Why A Security May Appear on a Threshold List
A security's appearance on a threshold list does not necessarily mean that any improper activity has occurred or is occurring. An equity security will appear on a threshold list if it meets the definition of a threshold security set forth in Regulation SHO, meaning that failures to deliver the stock (i.e. to the party on the other side of the trade) have reached an aggregate of 10,000 shares or greater at NSCC for five consecutive settlement days and are equal to 0.5% of total shares outstanding;

C. Reasons Why A Security May Stay on a Threshold List for Longer Than 13 Consecutive Settlement Days
Even when broker-dealers close-out delivery failures, a security may remain on an SRO's threshold securities list for longer than 13 days. Examples of why securities may remain on the threshold securities list:

after broker-dealers close-out all delivery failures, the security stays on the threshold list for five consecutive days;

new delivery failures resulting from long or short sales may have crossed the threshold, keeping the security on the SRO's threshold securities list; or

the delivery failures at NSCC may have been established prior to a security's appearance on the SRO's threshold securities list, and are grandfathered from the close-out requirement of Regulation SHO.

For information about specific securities, contact the appropriate SRO or its market center listed above.

D. Reasons Why A Security With a Large Short Position May Not Appear on a Threshold List
There are various reasons why an equity security with a large short position may not appear on an SRO's threshold securities list, 25 for example:

the aggregate delivery failures do not meet the definition of a threshold security in Regulation SHO;

the security's issuer is not registered or required to file reports with the Commission. For instance, the majority of issuers quoted on the Pink Sheets do not file reports or register with the Commission, and so would not appear on threshold lists.26

E. Who Do I Contact For More Information About Securities On a Threshold List?
If you have a question regarding a security on a particular SRO's threshold security list, contact that SRO directly. The following SROs are publishing threshold securities lists:

for a particular OTCBB or Pink Sheet security on the threshold list, you may call NASD Market Operations at (866) 776-0800 or send an email to nasdmarketoperations*;

for a particular NYSE listed security, you may contact NYSE at RegSHOQ*;

for a particular Amex listed security, you may e-mail regsho*;

for a particular ArcaEx security, you may call ArcaEx Clearing Hotline at (312) 442-7989 or send an e-mail to exchangesecop*;

for a particular CHX security, you may e-mail regshoinfo*

F. Grandfathering Under Regulation SHO
The requirement to close-out fail to deliver positions in threshold securities that remain for 13 consecutive settlement days does not apply to positions that were established prior to the security becoming a threshold security. This is known as "grandfathering." For example, open fail positions in securities that existed prior to the effective date of Regulation SHO on January 3, 2005 are not required to be closed out under Regulation SHO.

The grandfathering provisions of Regulation SHO were adopted because the Commission was concerned about creating volatility where there were large pre-existing open positions. The Commission will continue to monitor whether grandfathered open fail positions are being cleaned up under existing delivery and settlement guidelines or whether further action is warranted.

It is important to note that the "grandfathering" clause of the Regulation does not affect the Commission's ability to prosecute violations of law that may involve such securities or violations that may have occurred before the adoption of Regulation SHO or that occurred before the security became a threshold security.

V. Answers to Frequently-Asked Questions from Investors
1. Is all naked short selling abusive or illegal?
When considering naked short selling, it is important to know which activity is the focus of discussion.

Selling stock short without having located stock for delivery at settlement. This activity would violate Regulation SHO, except for short sales by market makers engaged in bona fide market making. Market makers do not have to locate stock before selling short, because they need to be able to provide liquidity. However, market makers are not excepted from Regulation SHO's close-out and pre-borrow requirements.

Selling stock short and failing to deliver shares at the time of settlement. This activity doesn't necessarily violate any rules. There are legitimate reasons why a seller may fail to deliver on the scheduled settlement date.

Selling stock short and failing to deliver shares at the time of settlement with the purpose of driving down the security's price. This manipulative activity, in general, would violate various securities laws, including Rule 10b-5 under the Exchange Act. Regulation SHO does not address this issue.

2. Is naked short selling the reason my stock has lost value?
Investors should always use caution before investing in high-risk, speculative stocks, especially with regard to their retirement portfolios, because all stocks may decline in value. There are many reasons why a stock may decline in value. The value of a stock is determined by the basic relationship between supply and demand. If many people want a stock (demand is high), then the price will rise. If a few people want a stock (demand is low), then the price will fall. The main factor determining the demand for a stock is the quality of the company itself. If the company is fundamentally strong, that is, if it is generating positive income, its stock is less likely to lose value.

Speculative stocks, such as microcap stocks, often have a high probability of declining in value and a low probability of experiencing above average gains.27 For example, investors should take extra care to thoroughly research any company quoted exclusively in the Pink Sheets.28 With the exception of a few foreign issuers, the companies quoted in the Pink Sheets tend to be closely held, extremely small or thinly traded. Most do not meet the minimum listing requirements for trading on a national securities exchange, such as the New York Stock Exchange or the Nasdaq Stock Market. Many of these companies do not file periodic reports or audited financial statements with the SEC, making it very difficult for investors to find reliable, unbiased information about those companies.

There also may be instances where a company insider or paid promoter provides false and misleading excuses for why a company's stock price has recently decreased. For instance, these individuals may claim that the price decrease is a temporary condition resulting from the activities of naked short sellers. The insiders or promoters may hope to use this misinformation to move the price back up so they can dump their own stock at higher prices. Often, the price decrease is a result of the company's poor financial situation rather than the reasons provided by the insiders or promoters.

Naked short selling, however, can have negative effects on the market. Fraudsters may use naked short selling as a tool to manipulate the market. Market manipulation is illegal.29 The SEC has toughened its rules and is vigilant about taking actions against wrongdoers.30 Fails to deliver that persist for an extended period of time may result in a significantly large unfulfilled delivery obligation at the clearing agency where trades are settled. Regulation SHO is intended to address these effects by reducing the number of potential failures to deliver, and by limiting the time in which a broker can permit a fail to deliver to persist. For instance, as explained above, Regulation SHO requires brokers and dealers to close-out the open fail-to-deliver positions in "threshold securities" (i.e., securities that have experienced a substantial number of extended delivery failures) that have persisted for 13 consecutive settlement days.

3. Do all failures to deliver reflect improper activity that should be closed out?
A "fail to deliver" occurs when a broker-dealer fails to deliver securities to the party on the other side of the transaction on settlement date. There are many justifiable reasons why broker-dealers do not or cannot deliver securities on settlement date. A broker-dealer may experience a problem that is either unanticipated or is out of its control, such as (1) delays in customers delivering their shares to a broker-dealer, (2) the inability to obtain borrowed shares in time for settlement, (3) issues related to the physical transfer of securities, or (4) the failure of a broker-dealer to receive shares it had purchased to fulfill its delivery obligations. Fails to deliver can result from both long and short sales.

Regulation SHO was designed to target potentially problematic failures to deliver. Prevention of fails is the goal of the locate requirement. Regulation SHO requires broker-dealers to identify a source of borrowable stock before executing a short sale in any equity security with the goal of reducing the number of situations where stock is unavailable for settlement. But, because the locate is usually done three days before settlement, the stock may not be available from the source at the time of settlement, possibly resulting in a fail.

Regulation SHO also requires some fail positions to be closed out. When a broker-dealer has a fail position in a "threshold security," and that fail position has persisted for 13 consecutive settlement days, the broker-dealer must take immediate steps to close-out the fail by purchasing securities of like kind and quantity. Even market makers that have such persistent fails in threshold securities must close-out their positions.

4. Is it a violation of law when trades do not settle on T+3?
Generally, investors must complete or "settle" their security transactions within three business days. This settlement cycle is known as "T+3," shorthand for "trade date plus three days."

T+3 means that when you buy a security, your payment must be received by your brokerage firm no later than three business days after the trade is executed. When you sell a security, you must deliver your securities, in certificated or electronic form, to your brokerage firm no later than three business days after the sale.

The three-day settlement date applies to most security transactions, including stocks, bonds, municipal securities, mutual funds traded through a brokerage firm, and limited partnerships that trade on an exchange. Government securities and stock options settle on the next business day following the trade.31

Because the Commission recognized that there are many reasons why broker-dealers may fail to deliver securities on settlement date, it designed and adopted Rule 15c6-1 to prohibit broker-dealers from contracting to settle transactions later than T+3. However, failure to deliver securities on T+3 does not violate the rule.

5. Does inclusion of a stock on the threshold list mean that improper trading is occurring in the stock?
The appearance of a security on a threshold list does not necessarily mean that there has been abusive naked short selling or any impermissible trading in the stock. Delivery failures can be caused by both long and short sales. In addition, notwithstanding actions by broker-dealers to close-out delivery failures, certain securities may remain on an SRO's threshold securities list for an extended period for a variety of legitimate reasons, such as:

Despite proper action to close-out fails, new delivery failures from long or short sales, at the same or other broker-dealers, result in the security staying on the threshold list;

One or more broker-dealers may have temporary but legitimate problems in obtaining the stock they borrowed in time for delivery;

Long sellers may have difficulty in producing stock in good deliverable form to their broker-dealer;

The delivery failures were established prior to a security's appearance on the SRO's threshold securities list, and thus are "grandfathered" from the close-out requirement.

6. Should all equity securities with high levels of fails appear on a threshold list?
Although Regulation SHO's locate provision applies to all equity securities, the close-out provisions and inclusion on a threshold securities list apply only to equity securities of companies required to register or file reports with the Commission ("reporting companies").32 As described above, reporting companies typically trade on an exchange or are quoted on the Nasdaq or OTCBB. Only some reporting companies are quoted on the Pink Sheets.33 Regulation SHO is limited to reporting companies because of the difficulty in obtaining accurate total shares outstanding data for non-reporting companies.

7. Does grandfathering permit illegal activity to go unaddressed?
Regulation SHO does not require close-outs of "grandfathered" fails. As noted above, "grandfathered" status applies where the fail position was established prior to the security becoming a threshold security. However, any new fails in a security on the threshold list are subject to the mandatory close-out provisions.

Any grandfathered position that resulted from illegal activity, such as manipulation, continues to be fully subject to redress by the Commission.34 The Commission will continue to monitor whether grandfathered open fail positions are being cleaned up under existing delivery and settlement guidelines or whether further action is warranted.

8. Do the issuers of threshold securities have "problems?"
Inclusion on the threshold list simply indicates that the aggregate failures to deliver in an issuer's equity securities have reached the level required to become a "threshold security" as defined in Regulation SHO. Inclusion on the list should not be interpreted as connoting anything negative about the particular issuer.

9. Will close-out purchases required by Regulation SHO drive up a security's price?
Close-out purchases of stock on threshold securities lists will not necessarily drive up prices of such stocks. One of the primary purposes of Regulation SHO is to clean up open fail positions in threshold securities when they reach a relatively low aggregate level, but not to cause short squeezes. The term "short squeeze" refers to the pressure on short sellers to cover their positions as a result of sharp price increases or difficulty in borrowing the security the sellers are short. The rush by short sellers to cover produces additional upward pressure on the price of the stock, which then can cause an even greater squeeze. Although some short squeezes may occur naturally in the market, a scheme to manipulate the price or availability of stock in order to cause a short squeeze is illegal.

To date, there has been little evidence of rapid and unusual upward price movement in threshold stocks.

10. Where can I obtain information on short sale positions?
The SROs publish monthly statistics on short interest in securities that trade on their markets.35 Short interest is the aggregate number of open short sale positions. Short interest does not address the number of fails to deliver that may have occurred or may occur in connection with these short sales.

Short interest for NYSE stocks can be found at: You also can learn the short interest for individual stocks that trade on the NYSE, American Stock Exchange, and Nasdaq at or by visiting the NasdaqTrader's website at

There also are many commercial websites and some newspapers that offer this information. If you enter the words "short interest" into most Internet search engines, you'll quickly find websites that can provide this information.

11. Can I obtain fails information?
Currently, threshold lists include the name and ticker symbol of securities that meet the threshold level on a particular settlement date. Some investors have requested that the SROs provide more detailed information for each threshold security, including the total number of fails, the total short interest position, the name of the broker-dealer firm responsible for the fails, and the names of the customers of responsible brokers and dealers responsible for the short sales. The fails statistics of individual firms and customers is proprietary information and may reflect firms' trading strategies. The release of this information could be used to engage in unlawful upward manipulation of the price of the securities in order to "squeeze" the firms improperly.

12. I read on an internet chat room or website that a specific security has a large number of fails; are these sources reliable?
Investors should always be cautious that issuers, promoters, or shareholders may be seeking to stimulate buying interest by making false, misleading or unfounded statements in internet chat rooms or other such forums about alleged large naked short positions in some smaller issuers, particularly those trading on the OTCBB or Pink Sheets. Some individuals may encourage other investors to buy these issuers' securities by claiming that there will be an imminent "short squeeze," in which the alleged naked short sellers will be forced to cover open short positions at increasing prices. These claims in fact may be false.

The Commission's Office of Investor Education and Assistance has made available publications on the Commission's Internet web site ( that provide helpful guidance on the securities markets and sales and trading practices, including short selling. Investors and prospective investors should be cautious of rumors on chat rooms where the intent of nameless and faceless computer users is in doubt.

13. Where can I find information on specific issuers or securities?
To find information on issuers and securities, see

14. Does NSCC's stock borrow program create "counterfeit shares?"
NSCC's stock borrow program, as approved by the Commission, permits NSCC to borrow securities from its participants for the purpose of completing settlements only if participants have made those securities available to NSCC for this purpose and those securities are on deposit in the participant's account at DTC.

15. Where can I submit information on potential violations of the federal securities laws?
If you have specific enforcement-related information, please see for information on how to submit a complaint. You may also call 1-800-SEC-0330.

16. Where can I find information on investigations or enforcement actions pending against specific issuers or regarding specific securities?
As a policy, the SEC will neither confirm nor deny the existence of an investigation unless, and until, it becomes a matter of public record as the result of a court action or administrative proceeding. SEC investigations are conducted on a non-public and confidential basis to help assure the integrity of the investigative process. See for more information on how the Commission handles complaints.

To view enforcement actions that the Commission has taken, see

VI. Reporting Alleged Abusive Naked Short Selling Activity
The markets and the SROs are primarily responsible for the surveillance and enforcement of trading activity pursuant to their rules. The SEC, however, independently or in conjunction with the SROs and other regulatory authorities, actively investigates and prosecutes violations of the federal securities laws.

The SEC takes information alleging violations of the federal securities laws very seriously. If you have specific enforcement-related information, please send it in an email to enforcement* Please note, however, the SEC will neither confirm nor deny the existence of an investigation unless, and until, it becomes a matter of public record as the result of a court action or administrative proceeding. As you may also be aware, SEC investigations are conducted on a non-public and confidential basis to help assure the integrity of the investigative process. See for more information on how the Commission handles complaints.

VII. Regulation SHO – Releases and Other Guidance
The final adopting release for Regulation SHO and other key documents relating to short sale regulation, such as the "Frequently Asked Questions Regarding Regulation SHO" published by the Staff of the Division of Market Regulation, are available on the Commission's website at:

The NasdaqTrader has also issued guidance on Regulation SHO through a Frequently Asked Questions release on its website at:

VIII. Who Do I Contact If I Have Questions about Regulation SHO?
Individual investors who have comments or information should feel free to contact the SEC's Office of Investor Education and Assistance at 1-800-SEC-0330 or (202) 942-7040. Investors can also file complaints at

_______________________ 1 For more information on short sales, see
2 For information regarding margin, please see
3 For more information on the three-day settlement period, also known as "T+3," see and
4 For more information about market making, see and
5 For more information on the OCTBB, see
6 Broker-dealers engaged in bona-fide market making are excepted from having to borrow or arrange to borrow shares due to their potential need to facilitate customer orders in fast-moving markets without possible delays associated with complying with Regulation SHO. For instance, as explained above, they may be required by their market making obligations to sell short in situations where it may be difficult to quickly locate and borrow securities. However, this exception is limited. For example, bona-fide market making does not include activity that is related to speculative selling strategies or investment purposes of the broker-dealer or that is disproportionate to the usual market making patterns or practices of the broker-dealer in that security. Further, bona-fide market making does not include transactions whereby a market maker enters into an arrangement with another broker-dealer or customer in an attempt to use the market maker's exception for the purpose of avoiding compliance with Regulation SHO by the other broker-dealer or customer.
7 Clearing Agencies are self-regulatory organizations that are required to register with the Commission. There are two types of clearing agencies -- clearing corporations and depositories. Clearing corporations compare member transactions (or report to members the results of exchange comparison operations), clear those trades and prepare instructions for automated settlement of those trades, and often act as intermediaries in making those settlements. Depositories hold securities certificates in bulk form for their participants and maintain ownership records of the securities on their own books. Clearing corporations generally instruct depositories to make securities deliveries that result from settlement of securities transactions. In addition, depositories receive instructions from participants to move securities from one participant's account to another participant's account, either for free or in exchange for a payment of money. See and for more information about the clearance and settlement process and DTCC.
8 A participant of a clearing agency means any person or firm, such as a broker-dealer, that uses a clearing agency to clear and settle securities transactions or to transfer, pledge, lend, or hypothecate securities. It does not include a person or firm whose only use of a clearing agency is (a) through another person or firm that is a participant or (b) as a pledge of securities. Section 3(a)(24) of the Exchange Act, 15 U.S.C. 78c(a)(24).
9 Settlement day means any business day on which deliveries of securities and payments of money may be made through the facilities of a registered clearing agency.
10 Introducing brokers are typically brokers that perform all the functions of a broker except for the ability to accept money, securities, or property from a customer. They are usually not participants of registered clearing agencies and do not perform clearance and settlement functions. See Footnote 9 for more information about participants of a clearing agency.
11 A self-regulatory organization is a membership-based organization that creates and enforces rules for its members based on the federal securities laws. SROs, which are overseen by the SEC, are the front line in regulating broker-dealers. See for more information.
12 For example, the tick test of Rule 10a-1 of the Securities Exchange Act of 1934 provides that, subject to certain exceptions, an exchange-listed security may only be sold short: (i) at a price above the immediately preceding reported price ("plus tick"), or (ii) at the last sale price if it is higher than the last different reported price ("zero-plus tick"). The New York Stock Exchange has a similar tick test under NYSE Rule 440B, and NASD has a bid test under NASD Rule 3350.
13 Specifically, the price tests will be relaxed for securities included on a list of approximately 1,000 actively-traded securities, and after-hours trading (4:15 p.m. until the open of the consolidated tape the following day) of another list of approximately 1,000 securities. For more information on this pilot, see, and
14 Under the rule, an order can be marked "long" when the seller owns the security being sold and the security either is in the physical possession or control of the broker-dealer, or it is reasonably expected that the security will be in the physical possession or control of the broker or dealer no later than settlement. However, if a person does not own the security, or owns the security sold and does not reasonably believe that the security will be in the possession or control of the broker-dealer prior to settlement, the sale should be marked "short." The sale could be marked "short exempt" if the seller is entitled to rely on an exception from the tick test of Rule 10a-1, or the price test of an exchange or national securities association. Short sales of pilot securities effected during the pilot should be marked "short exempt."
15 The majority of equity trades in the U.S. are cleared and settled through systems administered by clearing agencies registered with the Commission. The National Securities Clearing Corporation ("NSCC"), the largest registered clearing agency for equity securities, clears and settles through its Continuous Net Settlement system ("CNS"). The CNS system nets the securities delivery obligations and the payment obligations of all clearing corporation participants. Clearing corporations notify participants of their securities delivery and payment obligations each day. In addition, the clearing corporation guarantees the completion of all transactions and interposes itself as the contraparty to both sides of any transaction. Clearance may be accomplished on a trade-by-trade basis or through netting of trades either bilaterally between the two counterparties or multilaterally among all members of a clearing corporation to yield balance orders reflecting a single day's trades or all open positions to date (continuous net settlement or "CNS"). See for more information on clearance and settlement.
16 Outstanding shares (or outstanding stock) are the total amount of shares of a corporation's stock that have been issued.
17 See, and for more information on who is required to register and report.
18 See for more information about the Pink Sheets.
19 See for information on market centers.
20 The requirement to close-out fail to deliver positions in threshold securities that remain for 13 consecutive settlement days does not apply to any positions that were established prior to the security becoming a threshold security. This is explained in more detail below.
21 Introducing brokers are typically brokers that perform all the functions of a broker except for the ability to accept money, securities, or property from a customer. They are usually not participants of registered clearing agencies. See Footnote 9 for more information about participants of a clearing agency.
22 See for more information about the exchanges.
23 See for more information about Nasdaq.
24 See for more information about the OTCBB.
25 These lists do not reflect short interest positions of securities. Short interest is the aggregate number of open short sale positions. Short interest does not address the number of fails to deliver that may have occurred or may occur in connection with these short sales.
26 See for more information on which companies are required to register and report.
27 See for more information.
28 Many of these stocks are also considered "penny stocks." See Because penny stocks are generally risky investments, before a broker-dealer can sell a penny stock, SEC rules require the firm to first approve the customer for the transaction and receive from the customer a written agreement to the transaction. The firm must furnish the customer a document describing the risks of investing in penny stocks. The broker-dealer must tell the customer the current market quotation, if any, for the penny stock and the compensation the firm and its broker will receive for the trade. Finally, the firm must send monthly account statements showing the market value of each penny stock held in the customer's account.
29 The Commission recently brought an enforcement action against certain parties, alleging manipulative naked short selling, in a scheme sometimes termed as a "death spiral." See Rhino Advisors, Inc. and Thomas Badian, Lit. Rel. No. 18003 (February 27, 2003) at
30 See
31 For more information about T+3, see
32 See for more information.
33 See for more information about the Pink Sheets.
34 See for more information on manipulation.
35 In addition, each SRO has agreed to make publicly available the trading data in connection with the pilot. The trading data will contain information on each executed short sale involving an exchange-listed or Nasdaq National Market equity security reported by an SRO to a securities information processor. For information on where to find this data, please see

Home | Previous Page Modified: 02/03/2006
Posted by T e x on :
What is rule 15c211
Written by Joseph Quinones

What is rule 15c211?
15c211 Was designed to allow fully reporting public companies to have their securities quoted on Over-The-Counter Bulletin Board (“OTCBB”) by filing some simple disclosure.

Rule 15C211 Under SEC Rule 15C211, a U.S. securities broker or dealer may not publish a quotation for any security unless certain information concerning issuer is available and broker or dealer has a reasonable basis for believing that information is accurate. The information requirement is satisfied, in simple terms, if: 1) a Securities Act registration statement (F-6, F-1) has been filed within last 90 days, 2) issuer is complying with filing requirements and has in its records issuer's most recent annual report, 4) issuer is complying with Rule 12g3-2(b), 5) broker or dealer has on record information relating to issuer, its securities, its business, products and facilities. Management information, financial statements of issuer and certain other data must also be on record. Form 15C211, also known as Form 211, refers to specific filing form a broker/dealer must provide containing information necessary to publish a quotation on company. For more information visit: " target="_blank">[/quote]
Posted by T e x on :
DTC "custody":

DTC’s Custody Service allows Participants to outsource all, or part, of their physical securities processing. Used in conjunction with DTC’s Branch Deposit Service and New York Window (NYW) Service, Participants can retain control of their securities without having to handle and secure them. The service enables Participants to deposit securities not traditionally eligible for DTC, including securities such as customer-registered custodial assets, restricted shares, and certain non-DTC-eligible securities, like certificated money market instruments, private placements, and limited partnerships.


Custody supports Safekeeping, Deposit & Withdrawal, Transfer, Restricted Transfer, Reorganization and Clearance & Settlement services.

Security – DTC’s vault and certificate-handling practices ensure tight security and accurate processing.
"Online" Vault File – Detailed information on every certificate and document is available, including certificate number, registration, negotiability status, restricted indicator, etc.
Contingency – As part of DTC, Custody offers the benefit of total system reliability including DTC’s dedicated back-up site, which is available in the event DTC’s main offices are inaccessible.
Imaging – Images of all certificates and documents held in Custody are available through an imaging workstation.
Interfaces – Participants can choose to interface with DTC’s Custody Service via CCF (batch files), MDH (real-time transaction processing), or PTS. (Not all components of the service are currently available via each method. By year-end 2000, all will.)
The various components of DTC’s Custody Service are explained, below, in more detail. These services can be used in any combination to customize the service to best fit your business needs.
Deposit-Related Features

Deposits – Deposits can be made via the Branch Deposit System (BDS) or as individual Custody Deposits using the PTS system’s CUST function. DTC performs a full examination of deposits, including reviewing the securities for negotiability, as well as ensuring the accuracy of the data transmitted by the Participant in its deposit expectancy file. DTC performs 100% SIC verification and makes calls to the transfer agent on all SIC hits, identifies and creates reorg deposits when applicable, and makes any ineligible issues eligible for custody services on a same-day basis. (PTS, CCF, or MDH)
Legal Deposits – Legal deposits are fully examined, and missing legal requirements are identified and reported to the Participant. The securities are held until made negotiable by a subsequent Trailing Document deposit, or returned to the customer. (PTS, CCF, or MDH)
Trailing Document Deposit – Document deposits can be made into custody, as long as the document deposit identifies a previous deposit of securities. DTC attaches the document deposit to the securities and the item is re-examined for negotiability. (PTS, CCF, MDH)
Legal Deposit Customer Returns – Any item that needs to be returned to the customer or branch because necessary documents were not supplied can be returned with an explanatory letter on the Participant’s letterhead. (PTS, CCF, MDH)
Foreign Securities – DTC will hold foreign securities, but does not provide transfer services. We can, however, attach instructions on your letterhead and forward them to a global custodian, for deposit into your account. (CCF, MDH)
Mutual Funds – DTC can attach a customized letter instructing the fund to credit your firm’s house account. Additionally, we can instruct the fund to perform partial and full redemptions. Payment is made directly to the Participant according to standing bank account instructions. (CCF, MDH)
Government Securities – If government securities are received on a Custody Deposit or via the NYW, DTC can present them to the Treasury Department or the FRBNY for deposit, or in the case of GNMA’s, we can credit your MBS account. (CCF, MDH)

Withdrawal Services

Withdrawals – If securities are required from the custody vault, DTC can make them ready for pick up within 45 minutes of the time the instruction is submitted. Securities can also be mailed directly from the Custody Vault or moved to the Participant’s general free account, as a deposit. Securities can also be mailed directly to your customer accompanied by a letter on your firm’s letterhead. (PTS, CCF, MDH)
Transfer Services
Transfers – For all domestic issues, DTC sends securities to the transfer agent the day after receiving your transfer instructions. DTC performs aging transfer follow-up with the agent after twenty days and every five days thereafter. (PTS, CCF, MDH)
Rush Transfers – DTC processes rush transfer instructions to the agent via express mail on the day of their receipt. An express-mail return envelope is included with the shipment to the agent. DTC performs proof-of-delivery checks the next day. Aging follow-up is on an accelerated five-day cycle. (CCF, MDH, fax or phone)
Restricted Transfers – Custody Participants can service their restricted positions by using DTC’s Restricted Deposit Service (RDS). The RDS service allows Participants to transfer restricted securities that have been sold, either fully or in part. It also supports other types of restricted transactions such as gifting, legend removals, and inventory breakdowns. RDS transfers can be processed as regular or rush items. RDS also provides FAST transfer agents with the ability to credit DTC’s balance for sold positions which expedites Participants receiving credit in their general free account. (PTS only, MDH and CCF scheduled for 2Q 2000)

Reorganization Services

Reorganization Presentation – You can instruct DTC to present any position held in custody for any type of reorganization activity, including redemption, mandatory and voluntary activities. Allocations are made upon receipt through DTC’s existing reorg systems. (PTS, MDH and CCF)
Reorg "Sweeps" – For mandatory activities, DTC automatically presents positions in certain custody locations to the agent for payment or exchange.
Reorg Research – Occasionally, Participants deposit older securities into Custody that may have been the subject of one or more prior reorganization activities. DTC researches such deposits and determines where to present them and what proceeds are due. If the research reveals that proceeds have been escheated, we will pass specific information back to the Participant for follow-up action.
Short-term Redemptions – Certain money market instruments require presentation to the paying agent on payment date and may have payments made too late in the afternoon, to make DTC’s settlement cutoff. DTC captures payment information on these securities when received. On payment date, we deliver the securities to the paying agent with instructions to wire funds to your firm.
Physical Settlement and Clearance Services
Receive and Deliver Activity – The Custody Service is completely integrated with the NYW. This enables Participants to make deliveries directly out of the custody vault. The NYW uses the Envelope Settlement Service (ESS) or makes deliveries via messenger (i.e., over the window). Receives are examined for negotiability and reclaimed if need be. Receives can be booked directly into custody, returned to your firm, or turned for same-day delivery. (PTS, CCF, MDH)
Settlement Balancing – The NYW reconciles all Receive and Deliver activity to NSCC to ensure proper booking on both sides.
Direct Clearing – The NYW can accommodate physical receive and deliver activity for Participants that do not use DTC for Custody — in effect, we act as a New York office for these firms.
Position Maintenance Service

Location Moves – Participant’s inventory is segregated in various locations, sometimes referred to as "boxes". Certificates can be moved from one box location to another to reflect changes in the status of the securities.
Account Number Changes – Each certificate received into custody is identified by your corresponding customer account number. Participants are able to update the customer’s account number on certificates, globally or individually. (PTS, MDH, CCF)
Audits – On occasion, the Participant’s auditors or a custodial customer may require access to your inventory. Given 24-hour notice, DTC will provide a secure room under camera surveillance where securities can be examined.
Bearer Bonds – Coupons can be clipped and presented for payment. Allocations occur as coupon deposits via DTC’s existing coupon service.
Balancing – To make reconciliation simpler, end-of-day positions and activity reports are available on the same files as all other DTC positions and activities (APIBAL and DTFPART).

DTC is offering a Custody Service that is secure, responsive, and efficient. We now offer a transaction-based fee schedule. You pay only for the services you use. By outsourcing your securities processing to DTC, you can eliminate the high fixed costs involved in supporting an in-house operation and replace them with a competitively-priced, variable cost structure.
We pride ourselves on excellent customer service. DTC’s Custody staff has many years experience in securities processing for DTC’s member firms. We recognize that the service level we deliver can have a significant impact on your customer, and we strive to anticipate your needs and exceed your expectations. We look forward to working with you.

For more information
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Posted by T e x on :
shell plays filings bishop:

15-12G filing is to certify and notify termination of registration and/or the suspension of duty to file reports.

It's normally done by OTC BB's when they don't want to file any more and don't care if they go pink. Also it's done when a company intends to go private.

Now and then a pinkee will file if they have more than 300 shareholders and were previously filers and now want to make sure they are legit before doing an r/m since the SEC has been going after some pink shells.

For some weird reason in the last few months especially, some people have decided that shells file them before doing an r/m and they run them on that reason. Whatever works I guess.

I've been playing shells for many years too.
Posted by T e x on :
filing pro se, ie, defending yourself, defending one's self: FILING%20A%20PRO%20SE%20ANSWER.pdf
Posted by skip on :
Some info on NASD Rule 6530.

I thought this was worth making the reference thread. SEC seems to be sticking to this rule a little more now.


Ok, I see what happened now...

14:16 LDHIE Liberty Diversified Holdings, Inc. Common Stock 4/27/2007
Failure To Comply With NASD 6530;
Added to Other OTC (LDHI) **

NASD 6530 states...

Go to the link and read it... 82&element_id=1159000866&highlight=6530#r1159006782

I will highlight the part that I believe is the reason they were delisted, despite filing the necessary, and late, 10-k...

"(e) Notwithstanding the foregoing paragraphs, a member shall not be permitted to quote a security if:
(1) while quoted on the OTCBB, the issuer of the security has failed to file a complete required annual or quarterly report by the due date for such report (including, if applicable, any extensions permitted by SEC Rule 12b-25) three times in the prior two-year period; or"

Here's the deal,
They have actually been late, and filed NT's, 4 times in the last 11 months. They simply got popped for it.

Still the same company... er wait, is that a good thing? No, but who cares, really? I am not in this for the long term investment. They diluted like mad, which made it hard to see bottom, and I will admit, I missed it. But, I also see that the MM's have taken the brunt of a lot of the dilution, as have shareholders over the last month or so. However, none of us want to sell down here. So maybe the MM's will still run it? They have a lot of shares now, and the numbers say yes (volume and price takedown)...

Aside from that, I wanted to share why they were delisted, as I was unaware of the "3 strikes and you're out" rule, until today.

I saw A LOT of companies get axed for it today, pretty interesting, and something to be aware of...
Posted by T e x on :
ya, is sumpin' to keep in mind, for sure...thanks for bringing it over.
Posted by T e x on :
NSS mechanics:

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Posted by: glaszman
In reply to: stockasaurus rex who wrote msg# 73326 Date:5/1/2007 9:44:32 AM
Post #of 73377

OK, heres another template to send your congressperson and Senators, be sure to replace the names i put in or they might put you on iggy ...LOL

Dear Senator Stuff T. Shirt,

I have recently been sued for securities fraud in the State of Oklahoma. I beleive that the only reason I am being sued is that the company I bought stock in has had a "global freeze" placed on it by the DTCC for over a year. The company name is Bancorp International, symbol BCIT. The court case is No CJ-2007-3818, and is posted on the internet here: er=CJ-2007-3181+....

I am confident that I will be found not responsible for the actions outlined by the plaintiff. My letter to you is to point out to you the extraordinary lengths to which the "powers that be" within the markets are forcing companies to go to because of the common practice of selling shares and not delivering the shares to our brokerage accounts. The following is a long but apparently accurate representation of the problem in the marketplace.

Subject: File No. S7-12-06
From: Glen SmithApril 15, 2007
Christopher Cox and Annette Nazareth is this how the game is being played? Everybody knows now its only a matter of time Game Over
(excerpted from Dateline Research)
To get a handle on the concept of naked short selling, one has to know a little about the steps and players involved in the processing of a buy order on the OTCBB and Pink Sheets.
Step 1: The purchaser either calls his broker on the phone or reaches his brokerage firm on the Internet. Lets assume he decides to buy a 1% interest in a penny stock that has 100 million shares issued and outstanding. The buy order is thus for 1 million shares. Lets assume the buy order is at market.
Step 2: The broker on the receiving end of the order then writes up the buy order and places the order on his firms Trading desk.
Step 3: Assuming that the firm does not make a market in this security, they will hand the order on to a market maker that does.
Step 4: This buying market maker will then either go to the selling market maker showing the lowest offer or to a favorite market maker of his and ask him to match the lowest offer. The trade is executed between the buying and selling market makers at the agreed upon lowest offering price.
Step 5: Assuming the buying and selling brokerage firms are small and do not have the facilities to clear the trade, they then send the details of the trade to their respective clearing firms.
Step 6: Since both clearing firms have both cash and shares accounts at the DTCC, the buying clearing firm wires the purchase price from their cash account to that of the selling clearing firm in exchange for the selling clearing firm wiring the 1 million share block from their shares account to the buying clearing firms shares account. This is called Delivery versus payment. The buying brokerage firm then sends out both a trade confirmation and a monthly statement to their client, the buyer of the 1 million shares, indicating that he does indeed own the 1 million shares, what he thinks to be 1%, of that company. Thus the transaction is complete. A real buyer paid real cash to a real seller for real shares. An intermediary known as a market maker provided a mechanism to bring the buyer and seller together. This basically is an over-simplified explanation of the system used on these trading venues, the OTCBB and the Pink Sheets. Selling market makers do not really have to have a sell order in hand to sell securities. Their job is to provide liquidity and to buffer the market from sharp peaks and deep troughs when an imbalance of buy or sell orders appears.
The phenomenon of illegal naked short selling (INSS) is a form of market manipulation/securities fraud that can be perpetrated at any step in the process. A legitimate short sale involves the seller following the letter and spirit of Rule 10(a)1, The short sale rule. It involves the selling firm making affirmative determination in writing that the shares being sold are indeed borrowable. It also prohibits short sales on a downtick. The borrowed shares are later returned. In illegal naked short selling, the shares were not only not borrowed, but they never did exist in the first place. They were created out of thin air. The legal term that describes this fraud is that the perpetrators created an Artifice to defraud the purchasers of the shares. Rule 10(b)-5 of the 1934 Exchange Act addresses this behavior.
In order for this fraud to be perpetrated on unsuspecting investors, two main prerequisites exist. The first is the fact that purchasers of shares on these trading venues do not request the registration and home delivery of their shares. They see an entry on their monthly brokerage statement and have no reason to question its validity.
The second prerequisite is the fact that brokerage firms do not monitor for the good delivery of shares purchased by their clients as mandated by The Customer Protection Rule or Rule 15 (c) 3-3. With the presence of these two prerequisites as being the norm on these trading venues, clever opportunists have realized that they can sell nonexistent shares through Canadian margin accounts, in an undetected fashion, and thereby assume a naked short position.
This followed by the subsequent selling of yet more nonexistent shares tends to result in a precipitous drop in the share price, a share rollback of the victim corporation and its disastrous loss of market cap, or the outright bankruptcy of the victim corporation which circumvents the need for the naked short position to be closed, as it no longer trades. This lack of closure of the sell then buy circuit allows the massive proceeds of this fraud to bypass the taxman.
The typical naked short selling campaign or bear raid results in the death of the victim company within a 6 to 9 month period. The management teams and investors are often left scratching their heads wondering what hit them.
A variety of other preexisting conditions are present on these trading venues that allow this fraud to be perpetrated with little chance of detection. One of these is the inherent inability of a public corporation to communicate with its shareholders holding shares in Street Form.
The advent of the Internet has helped somewhat though. Statistics show that 8 of 10 companies trading on these 2 trading venues, the OTCBB and Pink Sheets, will die within their first three years of existence. These thinly traded and under-capitalized companies are often no more than shell companies whose existence was designed to line the pockets of their creators. The level of chicanery on these trading venues is distinct and the investment community knows about it. When the Vancouver Stock Exchange drastically buckled down on fraudulent behavior several years ago, the scamsters headed south of the border to the OTCBB and Pink Sheets.
The above statistic of 8 of 10 failures combined with the knowledge of the massive amounts of pump and dump programs in effect has caused the investment community to collectively look upon these companies as future bankruptcies. This mindset leads to certain behaviors among those opportunists that have visibility of buy orders for these future bankruptcies.
When a buy order for one of these presupposed scams lands then the entire investment community has their antennae up and a certain feeding frenzy occurs wherein the investment professionals fight amongst themselves to be the one to naked short sell into this buy order. Also these trading venues have very little supervision by the regulators who are strapped for cash as well as manpower. There really are no cops on the beat.
The Pink Sheets, for example, are a privately run trading venue, owned and operated by the National Quotation Bureau. Who needs regulators though when you have naked short sellers determining which corporations are scams and systematically annihilating them? The markets themselves have no visibility whatsoever to investors, even those with Level 2 machines, and market makers pretty much can do what they please. If a market-making firm is selling 50 million shares per month of a certain victim company and buying only 2 million shares per month and has been doing this for several years, then this would surely be nice to know.
The tremendous amount of money involved here attracts these opportunists by the boatload. Investor naivet is also a cornerstone. Very few people, with the exception of the perpetrators of this fraud, know how this game is played. The inherent confusion involved with millions of trades settling at any given time creates a certain cloud of dust that can obscure the perpetration of this fraud. There is no Day of reckoning for these trades. The IOUs just fly around in Cyberspace and never seem to land. It becomes incumbent on the victim corporations to call a Legal time out to get a peak at these IOUs. There is a certain psychology involved also that is inherent to some naked short sellers. They think of themselves as self-appointed sheriffs trying to rid the wild west of companies they diagnose as scams.
If their diagnosis is incorrect then it usually doesnt make much of a difference anyway because they will bankrupt both legitimate and scam corporations. Bankrupting legitimate corporations is seen as collateral damage which occurs in any war. Brokerage firms hosting the accounts of Offshore Corporations, especially those located in the tax havens, do not follow the Know Your Customer rules. A commission is a commission.
The Patriot Act is buckling down in this regard and brokerage firms are to be on high alert for suspicious money flow activity. For those in need of laundering the proceeds of illicit activity, naked short selling provides a handy way to launder that 200% margin maintenance requirement attached to naked short sale orders for especially penny stocks.
Actually the crimes of naked short selling, wire fraud, money laundering, and tax evasion go hand in hand on these venues. Another key preexisting condition is that market makers are not forced to make public their naked short positions on a monthly basis as they must on the more senior exchanges. This is yet another example of the lack of transparency on these trading venues. As far as the Pink Sheets go, there are basically no demanding standards to match or surpass in order to be granted membership.
Another contributing factor has to do with the fact that input into the DTCC comes solely from the broker/dealers. Any picture that the brokerage firms want to paint regarding the disposition of a corporations shares can be painted at will. The fox is guarding the henhouse.
All of these factors combined form an environment within which this fraud can be perpetrated with very little risk of detection. If the laws were to drastically change tomorrow then these same fraudsters would just tweak their modus operandi accordingly and not even miss a beat.
Referring back to the 6 steps involved in a model buy order, one can see the myriad of ways available to naked short sell into this purchase order. The first individual with a shot at this opportunity is the broker who gets the phone call from his client, the purchaser. There are two main modalities used to naked short sell at this level. Weve seen where the broker himself can naked short sell into the buy order by picking up the phone and placing a matching sell order, usually through his own non-U.S. margin account, into the market at an opportune time.
The more common technique used at this level is the broker picking up the phone and telling an associate of his about the opportunity that has just landed on his desktop. The broker is used as a scout and is usually paid back for these favors by the brokerage business coming his way from those he is scouting for. Manipulations at this Step 1 level are relatively rare but do occur especially when the broker receiving the call works in a Canadian Brokerage Firm where the naked short selling rules are more lax.
Step 2 level manipulations are fairly common and they involve the broker receiving the phone call writing up this buy order and setting it on his firms trading desk. The trader processing this buy order has 3 main mechanisms to utilize in order to avail either himself or a colleague of his to this wonderful opportunity to naked short sell into this buy order for shares of this future bankruptcy.
The first modality involves the trader picking up the phone to his personal broker at a Canadian firm and having him feed in a naked short sell order for a matching amount of shares at an opportune time. He can also naked short sell into the order right at his trading desk, a process called desking, which places the naked short position into a proprietary account of his own firm. This practice is almost universally done to all international buy orders. Desking is very commonplace. A third option would be to act as a scout for colleagues that would like to avail themselves of this wonderful opportunity and give them a heads up to the fact that a buy order is about to enter the system.
Step 3 involves a heretofore unmanipulated buy order being sent to a buying market maker from the trading desk of the firm receiving the buy order. There is an intrinsic reality in this relationship between the market maker and its client, the buying brokerage firm, that is critical to understand. The buying market makers need the order flow from the buying brokerage firms. It is their lifeblood.
When presented with a buy order, the buying market maker often has to naked short sell into the order just to keep his client brokerage firm happy with his services. The buying brokerage firm wants rapid execution of the buy order in order to get their hands on the commission. Since the stock of these companies is usually very thinly traded, oftentimes there are no sellers around to satisfy the demand for shares. The market maker is expected by his client to perform, which means to continuously naked short sell into buy orders presented by that client.
It is incredibly common for even the most ethical of market makers, due to this pressure to keep their clients happy, to run up immense naked short positions just in the course of their business. Their job is to provide liquidity to these illiquid markets. Where the crimes are often committed at this Step 3 level is in how the market maker handles this predicament he has gotten himself into. On the other hand, there are certain market makers that blindly naked short sell into each buy order on these trading venues that crosses their desk.
Market makers have literally dozens of ways to cause harm to these corporations that they accidentally ran up an immense naked short position against. These vary from continuing to naked short sell into every buy order that appears, effectively neutralizing these buy orders, to contacting naked short selling consortia to lend them a hand in killing the company. There is an endless list of market manipulative techniques to employ.
These Step 3 manipulations are the single biggest component of the overall naked short selling campaigns. Market makers are incredibly powerful in these campaigns in that they are legally allowed to naked short sell while acting in the capacity of a bona fide market maker. Not only this but they dont have to reveal the size of their naked short positions to anybody. The Short Sale Rule, Rule 10 (a)-1, does not apply to the OTCBB and Pink Sheets. Step 3 manipulations involving these buying market makers are collectively known as The Wall. Very few buy orders make it over this wall and find a real seller.
Step 4 manipulations presuppose that the buying market maker behaved himself and went into the market and filled that buy order by approaching the market maker with the lowest offer price or a different market maker that was willing to match that lowest offer. The Semi-ethical buying market makers are in need of a quick print. They want to run the order and grab a quick markup. They know only too well which brokerage firms and other market makers to approach in order to get the buy order quickly naked shorted to them. Many of these public corporations shares are Piggy-back Qualified, this allows any firm to put on a Market maker hat and legally naked short sell without having to file a Form 15(c)2-11.
The same games are played with these selling market makers, but the height of the wall is a little less. Ethical selling market makers may or may not have a real sell order in hand. Oftentimes they will naked short sell into a buy order and then go on the bid to attempt to level out this now naked short position. If they accidentally dug themselves into a hole while servicing clients then they may sit on the offer all day and naked short sell into every buy order that appears. The lack of visibility that these markets provide to investors allows extremely manipulative techniques to go undetected.
Step 5 presupposes that both the buying and selling broker/dealers are not self-clearing. The clearing firms are in a unique position to orchestrate these manipulations behind the backs of
their client brokerage firms.
Step 6 manipulations occur in and around the DTCC. The back office policies at the DTCC have long been ascribed the role as the problem here. Activities at the Lending Pool, both of the Canadian Depositary Service and the DTCC also provide opportunities to both add yet another layer of manipulations as well as cover up earlier manipulations. All of the input into the DTCC is, of course, from the brokerage community. When attempting to drain this lending pool of its contents, careful attention must be paid to those shares held in Canadian Brokerage Firms because the level of chicanery here is alleged to be extremely high.
One can now get an appreciation for the nearly limitless opportunities available to attack one of these corporations during a bear raid. A very small percentage of buy orders actually meet up with a real seller selling real shares. There is just too much money to be made taking on naked short positions and then killing companies. From a risk/reward point of view the chance of detection is infinitesimally low and the rewards are abundant.
The ability to sell nonexistent shares in an undetected manner provides for a self-fulfilling prophecy of sorts. The victim companies find it necessary to finance their burn rate at artificially low levels, which leads to massive dilution. If the company were fortunate enough to actually have earnings at some point, they would be diluted so badly that it wouldnt even matter. Of all of the varieties of securities fraud in existence, and there are many, naked short selling campaigns are usually thought of as the manipulation of choice providing the most favorable risk/reward ratio.
Since the model buy order that executed all 6 steps results in an exchange at the DTCC of cash for shares between the buying and selling firms, any short circuiting at any step would prevent this exchange from happening. In order to exchange cash for shares you need shares There arent any when it comes to naked short selling. There never were any. The purchaser paid hard-earned cash for air. That monthly statement is a lie. His brokerage firm never did receive good delivery of a share certificate, there never was one. In fact, in the case of a Step 1 or 2 manipulation, the broker/dealer first damaged the company by artificially diluting it, and then he sold this damaged bill of goods to his client.
One might ask, Well then where is the buyers money? The buyers money is in the hands of his own brokerage firm. The same people he just paid a commission to and that have a fiduciary responsibility to him. Since there was no good delivery of shares made to the buying brokerage firm in exchange for payment, (Delivery versus payment), the check never left the coffers of the buying brokerage firm. There never was a real seller into whose pocket the cash should have gone. In Wall Street parlance, the buying brokerage firm has a Failure to receive on their books. All of the intermediate brokerage firms have both a failure to deliver and a failure to receive on their books except for the manipulating party itself, he would just have a Failure to Deliver on his books. The IOUs just travel through cyberspace and never get addressed.
Everybody owes everybody else and as long as nobody puts their foot down and demands delivery then this will be the status quo. So why dont all of those firms with all of these Failures on their books rectify matters and level up their positions. The Customer Protection Rule (Rule 15 3-3), clearly states that the buying brokerage firm is mandated by law to go into the open market and buy-in that Failure to deliver within 10 business days of settlement. But in the case of a Step 1 or 2 manipulation, it is the buying brokerage firm itself that is the crook. How can you buy yourself in? The sobering reality is that all of the brokerage firms in their various roles in this buy transaction will make a ton of money if NOBODY forces anybody to deliver. That would wreck this whole wonderful low risk/high reward game, and nobody wants to do that.
The question now becomes, What is that entry in my monthly statement all about if there never were any shares purchased? We refer to these entries as BEEs or Bogus Electronic Entries. Their purpose is to give the buyer a certain comfort level so that he never suspects any fraud. It also serves to cover up the fact that the buyers money is actually in the coffers of his own brokerage firm, and being lent out or invested by them. The investor who bought nonexistent shares from his brokerage firm or whomever, was the victim of a Double Whammy. Not only did he not get the 1% ownership that he thought he was buying, he actually got a much lesser percentage of a company that he might not even recognize, one that perhaps he would have never bought the shares of if he had known the truth.
This company might have 100 million real shares issued and outstanding according to its Transfer Agent, but it may also have 500 million bogus electronic entries in existence. The bad news here is that all 600 million shares of this company can be sold tomorrow. An interesting phenomenon occurs when this investor holding the bogus electronic entry decides to sell his shares. After all his broker cant hardly tell him that he cant sell his Bogus Electronic Entry because we failed to get Good Delivery as mandated by law. When you want to sell, your broker is going to sell this Bogus Electronic Entry or air to some unsuspecting investor, who in no way shape or form can ever get Good Delivery.
The seller had no idea that he bought and sold nonexistent shares, and this process will go on and on and on. As long as nobody suspects anything and those monthly statements keep coming, then this little secret will never be revealed. The stock itself will trade like a big overweight whale, and buy orders of a significant size will not nudge the price one iota because of all of those extra shares that can be sold at any time. Should bad news be released a market massacre might ensue.
Typically the financiers of the company will fatigue and stop cutting checks, deeming that any more checks cut may be good money after bad. They will assume that all of that selling must be coming from somewhere and the only people that own that much stock is management, so this whole thing must have been some kind of a Pump and dump from the get go. Then it will be time to turn out the lights and nobody will ever know the reality of what was going on.
The transaction that this investor took part in actually created out of thin air a new million shares of stock. These shares can be bought and sold at will. They will never be detected by anybody as being fake, because of the lack of a Day of reckoning. The company in question will show 100 million shares being owned at the DTCC by various firms if everybody leaves them in Street Form.
If you, however, stack up all of the monthly statements of all of the shareholders for a given date, and add them up, you will come to the total of 600 million shares being owned, not 100 million. The absolute size of naked short positions actually have a tendency to increase in an almost geometric fashion because the larger the naked short position, the larger the potential losses to the naked short sellers should something go awry. This increases the incentive level to kill this corporation. Long-lived Bear raids are very scary to naked short sellers and demand special weapons and tactics.
The brokerage firms that perpetrate this fraud cover it up by breaking yet more laws. By law the purchase confirmation mailed to the buyer of the shares was to indicate to the buyer the capacity within which his broker acted. Typically the brokerage firm will act as an agent/broker and charge a commission.
In Step 1 and 2 naked short selling, however, the brokerage firm actually acted as a principal/dealer and actually charged what is known as a markup. If the brokerage firm were to indicate this capacity under which it actually acted, then the investor might question what this principal/dealer business is all about. Since the brokerage firm does not want the investor to know that they naked short sold him this air and that they were sitting on his money, they will just lie on the confirmation slip as to the capacity in which they acted.
The question is often asked as to when the day of reckoning occurs wherein these bogus entries must be made good upon. The law lists three different days of reckoning. The Customer Protection Rule, Rule 15(c)3-3, mandates that the Failure to receive certificated shares that were purchased in a transaction, are to be bought in by the purchasing brokerage firm on the 10th business day past the settlement date (T plus 3). The law also states that the selling firm in this transaction is to buy-in their client doing the selling if he hasnt produced the certificate within 30 days of settlement.
The law further mandates that brokerage firms buy-in failures to receive and deliver within 45 days of filing quarterly reports that noted these Fails. With the absence of Rule 10 (a)-1, The Short Sale Rule, having any application to the OTCBB and Pink Sheets, the Customer Protection Rule is the only line of defense left against this fraud but it is ignored almost 100% of the time. There is just too much money to be made while ignoring it to turn down.
Investors becoming educated as to the nature of naked short selling and demanding the registration and home delivery of their shares has to be the cornerstone of the effort to end the perpetration of this fraud.
Since all 6 steps need to be completed in the Model buy order in order to match up a real buyer with a real seller, all of these manipulations at the various steps along the way result in the creation of new shares which exist in the form of a bogus electronic entry. These cause massive dilution of a corporations share capital, which has a depressant effect on the share price.
Since all financings of these corporations are tied to these artificially depressed prices, the dilution problem is further exacerbated. All corporations have to cover their monthly burn rate just to keep the lights on. This accelerated dilution rate is a constant source of discontent with shareholders. They not only see the price per share evaporating, but their percentage ownership of the corporation is also dwindling due to the artificially high dilution levels.
The resultant loss in shareholder morale throws yet more fuel on the fire of this companys problems. Again there is a bit of a geometric progression in the companys problems as opposed to a more linear arithmetic progression. Due to the inherent nature of this animal called naked short selling, the playing field becomes so tipped in favor of the racketeers that one wonders how any corporation could survive.
The same games can be played in the absence of a buy order from the sell side of the equation. Sophisticated naked short sellers typically work out of offshore corporations located in tax havens around the world. Banking secrecy laws in these havens help to prevent detection of the identity of the actual perpetrator of the fraud. If one is going to break 20 or 30 securities laws then one might as well do it in an anonymous fashion.
The modus operandi usually has an offshore corporation A setting up a margin account in a non-U.S.brokerage firm. This corporation A will have one shareholder and one director namely Corporation B from a different tax haven with different banking secrecy laws. Corporation B in turn will have one director and one shareholder being Corporation C in yet another tax haven.
For the victim company to attempt to identify Corporation Cs owner would now cost a fortune and take a great deal of time. These victim companies have neither. During this past February, non-U.S.regulators discovered the existence of 13,00 of these offshore corporate accounts amongst Corporation A will now start selling massive amounts of the victim companys stock. Corporation A will often be set up as a Hedge Fund.
The non-U.S.Brokerage Firm taking the sell order knows darn well that this offshore corporation doesnt own any shares, but they can always play dumb later on should something go awry. Besides theres some big commission money to be made. The non-U.S.Brokerage Firm will typically insist on a 150% to 200% margin maintenance requirement. The naked short selling of penny stocks is inherently dangerous and the broker/dealer needs to be protected. It is extremely easy to Scuttle an offshore corporation should the plan backfire and the non-U.S.firm knows this.
As far as the role of the non-U.S.Broker/dealer utilizing the lax non-U.S. laws regarding naked short selling, they have three main incentives to break the law and take the order. The first is the commissions generated. The second is the use of all of that money placed for margin maintenance requirements, and the third is the visibility of large sell orders providing opportunities for front running.
One technique the non-U.S.Brokerage Firms utilize is known as the Hot Potato technique. Firms are often allowed to keep a naked short position on the books for only a 10-day period after which fines may be levied. After 9 days a firm carrying a large naked short position can hand that position off to a Buddy brokerage firm like a hot potato. After another 9 days it may go to a 3rd firm or back to the original firm. If it gets too burdensome then its off to a friendly hedge fund for long term storage.
Who are the typical holders of these non-U.S.margin accounts used for perpetrating this fraud? Offshore hedge funds are the most powerful of these groups. Hedge funds with less than 100 participants do not need to follow the rules and regulations dictated by The Investment Company Act of 1940. This provides both anonymity and lack of liability for the participants. Hedge funds typically contain the money of deep-pocketed players not averse to risk. Large market making firms as well as other Wall Street entities own significant positions in these hedge funds and can count on them when caught in a pinch. Hedge funds account for a very large percent of this naked short selling activity. The Senate Finance Committee is currently investigating the relationship between hedge funds and naked short selling.
Various naked short selling consortia are in existence around the world. They pride themselves on their due diligence capacities and they really are very impressive in that regard, but not infallible, which leads to significant opportunities when they do make errors. Some of these groups have their own websites and aid their disciples on the choice of non-U.S. Brokerage Firm to set up a relationship with. Usually a firm with a Head Compliance Officer that is willing to turn his head the other way a lot. These groups will typically have their head guru with good investigative connections as well as street smarts.
Recently weve seen a lot of activity out of Europe. Shares of OTCBB and Pink Sheet stocks actually trade on subdivisions of various markets over there, totally unbeknownst to management. Not unexpectedly 99% of the trades are sells.
One aspect of this business that has recently been revealed is how these various naked short selling groups communicate and collude with each other. If one group is having a tough time killing a company and their intent is becoming very obvious, then they will hand the baton on to their co-conspirators to help polish off the corporation. This is a very scary thought. These people are incredibly deep-pocketed in the first place.
An interesting phenomenon often occurs when the first gets visibility of a large sell order. Lets assume that it is a 20-million share sell order of nonexistent stock at market to be executed in two weeks time. The typical source of a sell order like this might be a market maker with a hedge fund connection that accidentally got into a large naked short position while servicing a valued client.
Knowing that this sell order is going to severely depress the victim companys share price, the will often put in their own sell order of maybe 10 million shares and process it before processing the 20 million share sell order. The offshore corporation cant exactly point an accusing finger should they detect the front running since they are breaking the law themselves. Now the will hand a 30-million share sell order to a market maker.
When the market maker sees this now gigantic sell order they will often front run this 30 million share sell order with a 10 million share sell order of their own making. They know all too well what a 30 million share sell order will do to one of these thinly traded securities. Thus a sell order of 20 million nonexistent shares has now grown to 40 million nonexistent shares.
This elucidates the Self fulfilling prophecy aspect of naked short selling. Unsuspecting shareholders will pay real money for all 40 million of those shares and not suspect any hanky-panky at all. How could a monthly statement from one of these prestigious Wall Street firms be telling a lie?
Thus naked short selling can work from left to right through the various steps involved in the processing of a buy order, in essence neutralizing the up ticking effect on share prices caused by buy orders, or from right to left with the introduction of massive sell orders of nonexistent shares.
A close cousin of naked short selling involves a form of predatory financing called Death Spirals. Companies in dire need of financings are often forced, by necessity, to trust that financiers will not pre-sell their equity financings in an effort to clobber the market and then convert for a very large number of shares at artificially low prices. These financings are based on fixed dollar amounts of conversions and not a fixed number of shares. A riskier form of death spirals involves potential financiers dumping tons of shares before even cutting a deal for a financing. Conventional death spirals are actually a form of temporarily naked short selling because the shares are forthcoming but usually restricted by Rule 144.
Within the past two years the world of naked short selling has been changed forever. Four separate events have rocked the world of the naked short sellers. Since the secrecy of the modus operandi is so important to these people, the headlines caused by these Four events is not welcome at all by the perpetrators.
The first event was the arrest of Anthony Elgindy and the exposure of his methodologies of naked short selling utilizing the services of two allegedly corrupt FBI agents. Elgindy and his huge following have allegedly been one of the pillars in the naked short selling community.
The second event was the sudden bankruptcy of the non-U.S. Brokerage Firm which has been the alleged headquarters for naked short selling worldwide.
The third event was the arrest of the CEO of this firm for attempting to naked short sell $30 million worth of three companies shares to an undercover FBI agent. The fourth event was Operation Uptick, revealing the incestuous linages between organized crime and reputable brokerages in the U.S. The Winds of Change do seem to be blowing a bit, and it wouldnt take much of a breeze to knock down this House of cards the naked short sellers have built.
The significance of these events is not just getting these individuals and institutions out of commission. The real importance is the education that the public needs to receive in regards to naked short selling as these trials and bankruptcies go forward. Again the secrecy factor is the key to naked short selling. If the investing public knew what was going on behind the scenes on the OTCBB and Pink Sheets, then the uproar caused could mushroom into a total lack of confidence in this system, which is already on its knees after the Enron and Anderson debacles. If this knowledge did become commonplace, then at least one of the main two prerequisites, that of not registering and demanding delivery of shares, might be eradicated.
Several non-U.S.Brokerage Firms were recently sued by clients for not delivering the share certificates that he had demanded the delivery of. He had obviously been naked shorted the shares by both firms. In their statement of defense, the attorneys for the firms claimed that it was the actual client of theirs doing the naked short selling that owed the share certificate to the client/buyer and not the firm. The Customer Protection Rule would obviously beg to differ. This is a typical example of the mentality of the non-U.S.Brokerage Firms.
The non-U.S.Regulators have lowered the boom on the behemoth BMO Nesbitt in regards to Serious Know your client deficiencies and Failure to supervise brokers. Many of those 13,000 offshore corporate accounts have tens or even hundreds of millions of dollars playing the naked short side of the market. A broker managing these accounts is supposed to look into the sources of these funds to rule out any illicit activity like money laundering.
In the U.S. the Patriot Act demands that brokers scrutinize these funds and file SARs (Suspicious Activity Reports) when illicit behavior is suggested. This was implemented mainly as an anti-terrorist funding measure, but hopefully will spill over into keeping in check naked short selling. The dynamics of bringing to the publics attention this insidious disease of naked short selling, has never been more exciting than at the present. The public is being immersed in learning the mechanisms of action of the Elgindys, the Valentines, the Thomson Kernaghans, these 13,000 offshore corporate accounts, money laundering, tax evasion aspects, etc.
An important aspect of these naked short selling wars is the length of time that the victim company has been under attack. When these naked short selling gurus that can smell a scam from 40 miles away guess right and beat up a scam company, the company doesnt have a chance because of the vicious nature of naked short selling. The lack of assets of the company will be exposed and announced from the mountaintops.
What are interesting are the battles that ensue when these gurus misdiagnose a real company with real assets as a scam. The naked short sellers will still be able to knock the market cap down by 99%, but often it becomes tough to Kill the company. Investors that know that the company has the goods can sit back and buy shares at a tiny fraction of book value and thereby average down their previous purchases. Since the size of the naked short position is of a cumulative nature, increasing with the age of the battle, a point is reached wherein the naked short sellers cannot afford to cover this massive naked short position without driving the share price to the moon. This is when the games get really dirty because hundreds of millions of dollars are now up for grabs, winner take all.
One has to wonder how many young micro cap corporations with great promise have been snuffed out while in this incubator of the OTCBB and Pink Sheets. Have we missed out on any potential cures for cancer or high tech breakthroughs? What happened to the dreams of all of those entrepreneurs who put every penny they had into their private companies in preparation for going public, and then getting massacred once public?
For an annual fee of $1,850, a corporation can receive from the DTCC a weekly update as to the number of shares that each of the brokerage firms on Wall Street have for a given corporation in their Shares account. Keep in mind they all have cash accounts also. The problem with these lists are two-fold. They only reflect the number of shares for which Good Delivery was attained. They also dont address whether or not that brokerage firm owes any shares to a common pool of shares there available to any broker/dealer in need of quick shares. If for example the weekly DTCC Summary states that a broker/dealer has 1 million shares of a given corporations stock in their account, this must be compared to the sum of all shares being reflected as owned in the monthly statements of that firm as mailed out to their client/shareholders. Lets assume this total is 4 million shares. The difference between these two figures can be characterized in several ways. The difference represents: 1) The naked short position of that firm, 2) The number of shares bought by that firm for which Good delivery did not occur, 3) The number of Bogus electronic entries that firm has on its books and that gets mailed out every month.
Wall Street can camouflage very well the number of shares represented by the sum of all shares being reflected as owned in monthly statements. An indication of this number can be attained by a corporation receiving its NOBO list or list of non-objecting beneficial owners. To this number must be added the number of shares owned by OBOs or objecting beneficial owners. When a person signs up for a brokerage account he is asked to check a box denoting whether or not the company in which he owns shares of has the right to know of his shareholdings. If he does not object to this, then he is a NOBO. The NOBO lists are available from ADP Brokerage Services Group at 1-888-237-1900.
When a person adds the total shares held of a given corporation at the DTCC to the number of shares held by Registered shareholders in safe deposit boxes, the sum will equal the issued and outstanding number of shares of that corporation exactly. So at first glance, all seems to be in order until you realize that the DTCC list only represents Good deliveries which on these trading venues is the exception and not the rule. And so the fraud is perpetrated on and on and on.
In regards to the Pool of shares held at the DTCC that is available in the case of an emergency, this was allowed by Addendum C- (1) of the NSCCs (National Securities Clearing Corp.) rules and regs. They were taken over by the DTC several years ago, the amalgamation of which formed the DTCC. The Lending Departments of a firm monitor things here and are one of the biggest profit centers in any firm. From a practical point of view, until this pool is 100% empty of shares, dont expect any upward pressure on share prices due to the borrowing ability provided by the pool. Once it is empty, however, each further demand for the registration and delivery of shares should theoretically cause a forced buy-in of shares under a Guaranteed Delivery basis.
It is relatively easy to empty out the pool at the DTCC. If a company has 70 million shares at the DTCC and a naked short position of 500 million shares, then all the company has to do is create a situation that withdraws 70 of 570 million shares available to be withdrawn. As was stated earlier, all of the brokerage firms represented along the chain of events of one buy order are HIGHLY incentivised not to demand the correction of those Failures to receive and deliver. In order for this to occur, the shareholder and the issuer must be educated as to how this game is played.

I apologise for the length of this letter, but this is not a simple problem problem. I am not complaining about losing money on a "bad investment". I am complaining about a system that does not respect the law. The system appears to be similar to a "check kiting scheme". We have laws in place that are not being enforced. This lack of enforcement is forcing small publicly traded companies to take unusual and drastic measures to attempt to find Justice. In this case, the CEO is filing suit against the shareholders who obviously never had access to any of the aforementioned tools. It is a desperate ploy, but after more than a year of attempting to work with the system, one can hardly blame them. Those that do have access to the aforementioned tools act with impunity while the shareholders and the companies continue to suffer.


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"rule 11" federal procedures; harassment, frivolous:
Posted by T e x on :
Canadian short threshold violation:

[url= 706344&tocID=95] ype=toc&dbID=200 706344&tocID=95[/url]


Bulletin No. 3531 — Discipline — Discipline Penalties Imposed on Union Securities Ltd. and John P. Thompson; Violation of By-law 29.1. (April 18, 2006)


Bulletin No. 3531 — Discipline — Discipline Penalties Imposed on Union Securities Ltd. and John P. Thompson; Violation of By-law 29.1. (April 18, 2006)

Paul Smith
Enforcement Counsel
(604) 331-4764
Lorne Herlin
Enforcement Counsel
(604) 331-4752
For distribution to relevant parties within your firm

April 18, 2006


Discipline Penalties Imposed on Union Securities Ltd. and John P. Thompson; Violation of By-law 29.1.

Person Disciplined
A Hearing Panel of the Investment Dealers Association of Canada (the Association) appointed pursuant to Association By-law 20 has imposed discipline penalties on Union Securities Ltd. (Union), a Member of the Association, and Union’s Ultimate Designated Person (UDP) John P. Thompson (Thompson).

By-laws, Regulations, Policies Violated
After a Settlement Hearing on April 18, 2006 in Vancouver, British Columbia, a Hearing Panel considered, reviewed, and accepted a Settlement Agreement negotiated between Union, Thompson, and Staff of the Enforcement Department of the Association (Staff). Pursuant to the Settlement Agreement, Union and Thompson (the Respondents) admitted that they failed to develop and implement adequate compliance systems to ensure effective supervision of activity at the firm to the required standards of the Association, and thereby acted contrary to Association By-law 29.1.

Penalty Assessed
The penalties imposed against the Respondents are as follows:

a) Union will pay a global fine inclusive of costs in the amount of one million dollars ($1,000,000);

b) Thompson is permanently prohibited from acting as UDP for Union or any other Member firm; and

The Respondents are also bound by the following undertakings provided to Staff:

a) over the next three year period, Union will retain the services of a qualified external compliance consultant acceptable to Staff to review and test its compliance systems and policies;

b) Union will add at least one external independent Director to its Board of Directors;

c) Union will refrain from operating any accounts for corporations for which the purpose of incorporation is to circumvent registration requirements; and

d) Union will ensure that it creates and maintains an audit trail including documentation of its “locate” of securities for any short sales and acknowledges that the threshold limits set out in Regulation SHO under the Securities Exchange Act of 1934 (SHO) apply to it and will ensure that all such short sales are not in violation of the threshold rules referred to in SHO.

Staff and the Respondents acknowledged and agreed that the penalty would have been significantly higher except for the following mitigating factors:

a) the Respondents fully cooperated with the Compliance Monitor which was appointed by an Association Hearing Panel on July 25, 2005 and consented to the extension of the Compliance Monitor’s term;

b) by agreeing to an early resolution of these matters, the Respondents enabled Staff to devote resources to other matters;

c) with the exception of the failure to provide the Preserved Records (paragraphs 53-57 of the Settlement Agreement), the Respondents fully cooperated with Staff in their investigation of the matters giving rise to the Settlement Agreement;

d) in total Union has and/or will spend $500,000 for the services of the Compliance Monitor and for the services of the external compliance consultant that it has undertaken to retain for the next three years pursuant to paragraph 80(c)(i) of the Settlement Agreement; and

e) Thompson has no prior disciplinary history.

Summary of Facts
Factual Background

Union was founded in 1963 and has been a Member of the Association since February 28, 1997. Union’s head office is in Vancouver, British Columbia.

Thompson is the chief executive officer of Union. He has been registered in a number of capacities from 1983 to the present. From July 2001 to February 2005 he was Union’s Chief Compliance Officer and since January 2002 he has been Union’s UDP.

The Settlement Agreement resolved all outstanding enforcement matters during the relevant period. These enforcement matters resulted from the Respondents’ failure to develop and implement compliance systems to the required standards of the Association.

Examples of these failures are set out under the headings that follow.

Sales Compliance Reviews

The Association’s draft 2005 Sales Compliance Review (SCR) report described in detail instances of problems in many areas of the sales compliance function at Union. Many of the adverse findings in the draft report, including many characterized as “significant” and/or “repeat items”, had also been cited in previous SCR reports.

In particular, the draft 2005 SCR report described instances of problems in the following subject areas:

a) deficiencies related to supervision of client account activity to the required standards of the Association;

b) deficiencies related to supervision of branch offices to the required standards of the Association;

c) deficient internal controls to detect or restrict certain registrant or account activities;

d) inadequate account documentation;

e) operating accounts in the United States (US) without registration or applicable exemptions from registration requirements;

f) inadequate account verification procedures;

g) deficiencies related to supervision of futures trading; and

h) a failure to update Union’s compliance manual to reflect regulatory changes implemented by the Association since the previous SCR.

The failure by the Respondents to prevent or correct the sales compliance shortcomings noted in the SCRs was detrimental to the public interest, and was therefore a contravention of By-Law 29.1.

Accounts For US Residents Through Yukon Holding Companies

In 2001, the Association released Member Regulation Notice 114 (MR 114) which warned Member firms that if they were not registered in the US jurisdiction where a client resided and were not eligible for exemption with that jurisdiction they must close the account by March 1, 2002.

After the release of MR 114 Union closed accounts held by US residents and, as a result of client inquiries, sought and received an opinion from US counsel that US residents could operate accounts at Union through Yukon holding corporations without Union being registered in the state in which the US resident lived, provided the corporation was organized under Yukon law and the principal place of business was the Yukon. At the time Yukon was unique in that there was no residency requirement for the directors of a Yukon corporation.

With this opinion, Union advised its Registered Representatives (RRs) who in turn advised their US resident clients that if the client chose to establish Yukon holding companies, Union would open an account for the Yukon holding company. Union RRs referred most of the US resident clients to the same Yukon law firm to transact all of the required corporate paper work

Some US resident clients chose to incorporate a Yukon corporation in order to open an account at Union. The US residents had no connection to the Yukon. Yukon was simply a Canadian jurisdiction that allowed sole non-resident directors to incorporate a company.

None of the US residents had any personal or business connection with Yukon. The purpose of most of the Yukon holding companies was to operate investment accounts at Union. The same US resident was the beneficial owner and was contacted at the same telephone number in the US. All investment decisions were made by the US resident in the US. Three different RRs at Union estimated that their commission revenue derived from Yukon holding companies represented over 50% of their gross commissions in 2002, 2003, and 2004.

By informing and allowing US residents to open these accounts Union acted contrary to By-law 29.1.

Short Selling US Securities

“Naked” short selling generally refers to selling short without having borrowed the securities to make delivery. As a result, the seller fails to deliver securities to the buyer when delivery is due. This is known as a “failure to deliver" or a "fail."

On December 2, 2004, the Association published Member Regulation Notice MR0320 which advised Member firms that the US Securities and Exchange Commission (SEC) had adopted SHO. Members trading directly or indirectly on US markets were advised to adjust their trading practices to comply with this rule and that failure to comply with this rule may be considered to be a violation of IDA By-law 29.1.

One of the goals of SHO was to establish uniform "locate" and "close-out" requirements in order to address problems associated with fails, including potentially abusive "naked" short selling, such as purposely driving down the price of a security.

After reviewing fail data for threshold securities from January 10, 2005 through to June 30, 2005 (the Short Selling Period), Staff identified a number of securities at Union that were not properly located by Union and consequently the firm was not able to deliver. In certain stocks, the failures by Union to “locate” were continuous.

During the Short Selling Period, Union executed short sales for certain OTCBB companies without proper locate procedures being done. In each instance Union relied on the US market maker to perform the “locate” and relied on the US market maker to document the locate. By relying on the US market maker, Union failed to properly perform and document the “locate”. In certain instances Union continued to short threshold securities with fails outstanding for a period of 13 or more consecutive settlement days without pre-borrowing.

Although Union obtained advice from US counsel that market makers could perform and document the locate function on Union’s behalf, Union acknowledged that it failed to adequately implement proper controls and procedures with respect to short selling US stocks in accordance to SHO and Association MR0320 and therefore violated Association By-law 29.1. Union acknowledged it is responsible for having evidence that the “locate” has been done; and for compliance with the threshold requirements set out in SHO.

Supervision Of F

F is a RR who commenced working at Union’s Toronto branch office in August 2001. Since October 1999 F has been under strict supervision due to the fact that garnishee orders have been obtained against him and prior to joining Union he had been named as a defendant in a number of civil litigation matters.

Between August 2001 and January 2002, F executed transactions in the D Account on instructions provided by D’s brother-in-law, who did not have trading authority on the account. Further, without D’s authorization F gave cheques that were issued to D, to D’s brother in law.

By virtue of F being under strict supervision, Union was required to approve and document each trade ticket that F completed. While most trade tickets were approved and documented as required, on certain trade tickets there is no evidence of pre-approval.

These failures of supervision were detrimental to the public interest, and therefore collectively constituted a violation of Association By-Law 29.1.

Failure To Cooperate

On October 14, 2004, Staff wrote to Union and to F to inform each of them of Staff’s investigation into F’s conduct and into Union’s supervision of F’s activities. On November 3, 2004, Staff wrote to Union to, among other things, request unfettered access to F’s computers for the investigation.

Discussions ensued between Staff and counsel for Union. As a result, the computer hard-drives were preserved, secured and held by counsel for Union (the Preserved Records). Much relevant information was provided to the Staff. However, Union refused to provide Staff with free access to the Preserved Records. Union contended that some of the information in the Preserved Records was personal to F and was, therefore, irrelevant. Union also took the position that some of the material was covered by solicitor-client privilege claimed by F.

On June 6, 2005, a Hearing Panel found that Union failed to comply with By-law 19.6 when it failed to provide free access to the Preserved Records, other than those over which solicitor-client privilege was claimed.

Union requested a hearing and review of the decision of the Hearing Panel. In the Settlement Agreement, Union withdrew its request for a hearing and review of the decision and agreed to fully comply with the decision of the Hearing Panel.

Supervision Of L

L was a RR and a Registered Options Representative (ROR) in the Calgary branch office of Union.

While still under the mandatory 90 day close supervision period for a newly registered RR, L commenced a trading strategy in the accounts of two clients which primarily involved the trading of S&P Index options and options in technology companies. Neither client had any past experience with options. As a result of this trading strategy, both clients suffered significant losses.

The Respondents failed to take steps early enough to effectively prevent the activity in the accounts of the two clients. These failures of supervision were detrimental to the public interest, and therefore collectively constituted a violation of Association By-law 29.1.

Appointment Of A Monitor

Due to a number of matters, including those set out above, on July 22, 2005 without notice to Union, Staff made an application to a Hearing Panel for the appointment of a Monitor (the Compliance Monitor) for Union.

On July 25, 2005 the Hearing Panel granted Staff’s application and appointed a Compliance Monitor for a 90 day term.

On August 10, 2005 Union indicated that it intended to request a review of that decision. In the Settlement Agreement, Union withdrew its request for a review.

Kenneth A. Nason
Association Secretary

© 2006, IDA. By using this website, you acknowledge and signify that you have read,
understood and agreed to be bound by the disclaimer.

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NASD District Offices:
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15-12G tactics, strategies, background; "going dark" :

Going Dark: The Harsh Reality of Voluntary Deregistration
By John Deysher

Investors weren’t the only ones fleeing the stock market last year. Companies also headed for the exits. And a growing number of investors are taking the hit as hundreds of small companies “go dark” or voluntarily deregister their shares. The result is often a falling share price and investors left in the dark about the firm’s finances and prospects.

What does it all mean?

When a firm “goes dark” it deregisters with the Securities and Exchange Commission (SEC) and delists its shares. Deregistered firms are no longer required to make SEC filings such as annual reports, proxies, 10-Ks, 10-Qs and other important documents. And they’re no longer required to have annual meetings or elect outside directors.

To deregister, a firm files Form 15-12G (Securities Registration Termination) with the SEC stating its intent to deregister, usually by a certain date. Once that date arrives, the stock exchange or NASDAQ prohibits future trading in the shares. The firm’s shares are then relegated to the pink sheets, where liquidity is usually much lower. Although the actual process takes some time, the firm’s share price typically will decline immediately after the “going dark” announcement, since many institutions are prohibited from owning shares of firms that don’t file with the SEC or trade on the exchanges or NASDAQ.

Who Approves?

Unfortunately, the going dark process does not require shareholder approval. As long as a firm has less than 300 shareholders of record, the board of directors can make the decision.

Although you may think even small firms would have more than 300 shareholders, the key phrase is “shareholders of record”—meaning the number of shareholders the firm has on its books. Often times this vastly understates the number of true owners. For example, Acme Widget may have 299 shareholders of record. But the shareholders of record may include firms like Merrill Lynch, AG Edwards and Morgan Stanley who hold shares on behalf of thousands of customers who chose to hold their securities in “street name” instead of taking physical delivery. In other words, a brokerage firm owning a million shares on behalf of thousands of individual customer-shareowners is actually treated as one shareholder of record, the same as an individual owning a thousand shares.

A better measure of the actual number of shareholders is “beneficial owners,” which includes all shareholders—including those holding shares in street name. Using this measure, many firms that delist would be prohibited from doing so because the number of beneficial owners exceeded 300.

Some institutional investors have petitioned the SEC to close the loophole, arguing that the definition of “shareholders of record” is obsolete. When the law was originally written in 1965, most investors took physical delivery of their shares. Nowadays, most investors hold their shares in street name, so “shareholders of record” probably understates the number of actual owners in many cases. The SEC is now holding public hearings on this and will analyze their findings in due course.

Dark and Darker

As shown in Table 1, the “going dark” phenomenon has gathered steam in recent years.

Table 1. The Rising Trend of Voluntary Delistings
Year Number of Delistings
1998 28
1999 30
2000 14
2001 43
2002 67
2003 198
2004 114
2005 138 (thru Dec. 15)
Source: The SEC EDGAR archives (2004-2005); Wharton School study, Nov. 2004 (1998-2003).
Many financial professionals believe the increase is a consequence of the passage of Sarbanes-Oxley legislation in the Fall of 2002, which in turn was in response to numerous corporate financial scandals.

Sarbanes-Oxley—or SOX, as it’s known in the trade—imposed new and significant reporting requirements on public companies that can be quite costly. Public firms must now report in greater detail not only their financials but also their methods for compiling and verifying them. It’s not unusual for small firms to pay an additional $500,000 to $1 million per year in SOX compliance costs, such as accounting, legal and consulting fees. To many small company managers, this is real money that may be spent in better ways, such as growing the business or paying down debt. This is especially true if the firm does not avail itself of the primary benefits of being public—the ability to sell shares to the general public or use them to make acquisitions.

SOX Backfires

Paradoxically, the SOX legislation that was supposed to foster additional transparency and protect shareholders interests now appears to be having the opposite effect. Many small firms are delisting to avoid compliance, which leaves shareholders in the dark. For these firms, the burdens of operating as a registered company now outweigh the benefits.

As might be expected, the SEC is dismayed with firms that deregister in order to avoid SOX compliance. Hence, the public hearings mentioned earlier and the possibility of more accurate shareholder counts that would prevent deregistration for many firms.

But what should an investor do who becomes a “victim” of deregistration?

As an investment firm that traffics in the shares of small, thinly traded companies, we have some experience in this area. In early 2004, we were monitoring the prospects of Southern Energy Homes (SEHI), a small, well-run manufactured home producer that was bumping along the bottom of the manufactured housing cycle. Warren Buffett had just purchased two key industry players—Oakwood Homes and Clayton Homes. SEHI had traded as high as $15 in late 1996 and was now muddling along at $2 on NASDAQ. The balance sheet was intact, management was rationalizing operations and owned a big stake. In short, we liked what we saw.

In January 2004, SEHI announced their plans to deregister to reduce costs. Immediately the shares fell by 30% as shareholders ran for the exits, not wanting the uncertainty of owning a non-filing company.

At this point we called management with four questions about whether SEHI would continue to:

Make news announcements of important events such as earnings releases, etc.? Answer: Yes, they would issue press releases on important events.

Make quarterly and yearly financial statements available on a timely basis? Answer: Yes, they would post financial statements and notes on their Web site.

Hold annual meetings including election of outside directors? Answer: Yes, they would have yearly elections of directors including independents.

Have annual results audited by a reputable CPA firm? Answer: Yes, they would have annual results audited to high standards. Basically, SEHI told us they would continue to act as a public company without the regulatory costs of being one. Disclosure would approximate SEC requirements.
Liking what we heard as well as the fundamentals we built a position in quick order.
Over the next 18 months, SEHI’s results and share price improved substantially. We also got lucky. SEHI has several plants within hours of some of the areas hardest hit by Hurricane Katrina. FEMA placed a significant home order with SEHI. Shares that we purchased for $2.20 after the delisting were sold at $7.10 about 18 months later.

Shareholder Action Plan

The lessons here are several:

If a company you own announces plans to deregister, don’t panic. If the fundamentals are intact, the shares are probably worth owning. Even in the less liquid pink sheets, shares of firms with improving fundamentals will appreciate. However, you should call the firm immediately to assess their plans for ongoing communication with outside shareholders. Ask the same questions we did of Southern Energy Homes—which gave the right answers. If you receive answers that indicate communication will be lessened, there may be some governance issues relating to the treatment of outside shareholders. For example, we would find it difficult to own shares of a company that provided only an annual report and had no annual meetings or election of directors.
Make sure the fundamentals are intact. Use the deregistration announcement as an opportunity to perform a thorough review of company prospects. Often a firm will deregister to help hide a deteriorating financial condition, bad accounting or other ailments

Fortune favors the bold. To be a successful investor you must have the courage of your convictions. That means if you’ve done your homework, don’t be afraid to step up to the plate, especially in the face of consensus opinion that’s going the other way. Southern Energy Homes was a good investment for us. We did the due diligence, liked what we saw and bought shares at low prices when they were being given away. It doesn’t always work this way, of course, but you’ll improve your odds if you investigate before you invest and then act on your findings.

John E. Deysher is president and portfolio manager of the Pinnacle Value Fund, a diversified, SEC-registered open-end mutual fund specializing in the securities of small and micro-cap companies. Mr. Deysher is a Chartered Financial Analyst (CFA) and has been managing equity portfolios for over 20 years. He lives in New York City and may be reached at deysher*

[many links, sidebar/frame items deleted -- tex ]
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SEC overview, including enforcement:

Securities and Exchange Commission

The Securities and Exchange Commission (SEC) is the federal agency primarily responsible for administering and enforcing federal securities laws. The SEC strives to protect investors by ensuring that the securities markets are honest and fair. When necessary, the SEC enforces securities laws through a variety of means, including fines, referral for criminal prosecution, revocation or suspension of licenses, and injunctions.

Headquartered in Washington, D.C., the Commission itself is comprised of five members appointed by the president; one position expires each year. No more than three members may be from one political party. With more than nine hundred employees, the agency has five regional and six district offices throughout the country and enjoys a generally favorable reputation.

Securities Laws

Before the October 29, 1929, stock market crash on Wall Street, a company could issue stock without disclosing its financial status. Many bogus or severely undercapitalized corporations sold stock, eventually leading to the disastrous plunge in the market and an ensuing panic. From the havoc wreaked by the crash came the first major piece of federal securities legislation, the Securities Act of 1933 (15 U.S.C.A. § 77a et seq.). The act regulates the primary, or new issue, market. The following year, Congress provided for the creation of the Securities and Exchange Commission when it enacted far-reaching securities legislation in the Securities Exchange Act of 1934 (15 U.S.C.A. § 78a et seq.). These two laws, along with the Trust Indenture Act of 1939 (15a U.S.C.A. §§ 77aaa-77bbbb), the Investment Company Act of 1940 (15 U.S.C.A. §§ 80-1-80a-64), the Investment Advisers Act of 1940 (15 U.S.C.A. §§ 80b-1-80b-21), and the Public Utility Holding Company Act of 1935 (15 U.S.C.A. §§ 79a-79z-6) make up the bulk of federal securities laws under the jurisdiction of the SEC.

In addition to federal statutory authority, the SEC has broad rule-making authority. It has used this power to fashion procedural and technical rules, define terms used in the laws, and make substantive rules implementing the laws. The SEC also devises forms that must be used to fulfill various requirements in the statutes and rules. Moreover, the SEC engages in a significant amount of informal lawmaking through the distribution of SEC releases containing its opinions on questions of current concern. These releases are disseminated to the press, companies and firms registered with the SEC, and other interested persons. In addition to these general public statements of policy, the SEC also responds to individual private inquiries.

Securities Act of 1933

The Securities Act of 1933 regulates the public offering of new issues. All public offerings of securities in interstate commerce or through the mails must be registered with the SEC before they can be offered and sold, subject to exemptions for specifically enumerated types of securities, such as government securities, nonpublic offerings, offerings below a certain dollar amount, and intrastate offerings. The registration provisions apply to issuers of securities or others acting on their behalf. Issuers must file a registration statement with the SEC containing financial and other pertinent data about the issuer and the securities that are being offered. The Securities Act of 1933 also prohibits fraudulent or deceptive practices in the offer or sale of securities, whether or not the securities are required to be registered.

A major part of the SEC's work is to review the registration documents required by the 1933 Act and determine when registration is required. Registration with the SEC is intended to allow potential investors to make an informed evaluation regarding the worth of securities. Registration does not mean that the commission approves of the issue or that the disclosures in the registration are accurate, nor does it insure an investor against loss in the purchase.

Registration requires extensive disclosure on behalf of a corporation. For example, full disclosure includes management's aims and goals; the number of shares the company is selling; what the issuer intends to do with the money; the company's tax status; contingent plans if problems arise; legal standing, such as pending lawsuits; income and expenses; and inherent risks of the enterprise. Registration consists of two parts: a prospectus, which must be furnished to every purchaser of the security, and other information and attachments that need not be furnished to purchasers but are available in SEC files for public inspection. A registration statement is generally effective twenty days after filing, but the SEC has the power to delay or suspend the effectiveness of the registration statement. When a disclosure or registration statement becomes effective, it is called a prospectus and is used to solicit orders for the security.

Securities Exchange Act of 1934

The Securities Exchange Act of 1934 transferred responsibility for administration of the 1933 Act from the Federal Trade Commission to the newly created SEC. The 1934 Act also provided for federal regulation of trading in already issued and outstanding securities. Other provisions include disclosure requirements for publicly held corporations; prohibitions on various manipulative or deceptive devices or contrivances; SEC registration and regulation of brokers and dealers; and registration, oversight, and regulation of national securities exchanges, associations, clearing agencies, transfer agents, and securities information processors.

The SEC has broad oversight responsibilities for the self-regulatory organizations within the securities industry. For approximately 140 years prior to 1934, stock exchanges regulated their own members. Self-regulation is still an important component of the industry, but now the SEC provides additional regulation, including authority to review disciplinary actions taken by a self-regulatory organization. The 1934 Act also established the Municipal Securities Rulemaking Board and conferred oversight power upon the commission. The Municipal Securities Rulemaking Board formulates rules for the municipal securities industry. The commission has the authority to approve or disapprove most proposed rules of the board.

The 1934 Act seeks to provide the public with adequate information about companies with publicly traded securities. Subject to certain exemptions, disclosure requirements apply not only to companies with securities listed on national securities exchanges but to all companies with more than five hundred shareholders and more than $5,000,000 in assets. Companies must file detailed statements with the SEC when first registering under the 1934 Act and must provide periodic reports as prescribed by the commission.

Under the 1934 Act, the SEC also regulates the solicitation of proxies. Proxies are voting solicitations allowing stockholders to participate in the annual or special meetings of shareholders without actually attending the meeting; the proxy empowers someone else to vote on behalf of the shareholder. Detailed SEC regulations delineate the form of proxies and the information that must be furnished to stockholders. A registered company must furnish each shareholder, before every stockholder meeting, a proxy statement and a proxy form on which she can indicate approval or disapproval of each proposal expected to be introduced at the meeting. Companies must file with the commission copies of the proxy statement and the proxy form. The SEC may comment on the proxy statement and insist on changes before it is mailed to security holders.

The Williams Act of 1968 (Pub. L. No. 90-439, 82 Stat. 454) amended the 1934 Act to address recurring problems arising in tender offers and corporate takeovers. A tender offer is a formal request that stockholders sell their shares in response to a large purchase bid; the buyer reserves the right to accept all, none, or a certain number of shares tendered for sale. A takeover occurs when a corporation assumes control of another corporation through an acquisition or merger. Pursuant to the law as amended, any person or group that takes ownership of more than five percent of any class of specific registered securities must file a statement within ten days with the issuer of the security and with the SEC. This statement provides the background of the purchaser, the source of funds used in the purchase, the purpose of the purchase, the number of shares owned, and any relevant contracts, arrangements, or understandings. In addition, no person may make a tender offer unless he has first filed with the SEC and provided certain specific information to each offeree. A tender offer must remain open for a minimum of twenty days and at least ten days after any change in the terms of the offer.

The Securities Act of 1934 also requires any person who beneficially owns, whether directly or indirectly, more than 10 percent of a class of certain registered securities and every officer or director of every company with specific registered securities to report to the SEC. Reports must be filed at the time the status is acquired and at the end of any month in which such a person acquires or disposes of any equity securities of that company. This provision is designed to discourage short-term trading by preventing corporate insiders from unfairly using nonpublic information.

Investment Company Act of 1940

Pursuant to the Investment Company Act of 1940, investment companies must register with the SEC. Investment companies are companies engaged primarily in the business of investing, reinvesting, or trading in securities. They may also be companies with more than 40 percent of their assets consisting of investment securities, that is, securities other than those of majority-owned subsidiaries and government securities. Among other types of companies, this act covers "open-end companies," commonly known as mutual funds. The SEC regulatory responsibilities under this act encompass sales load, management contracts, the composition of boards of directors, capital structure of investment companies, approval of adviser contracts, and changes in investment policy. In addition, a 1970 amendment imposed restrictions on management compensation and sales charges.

The act prohibits various transactions by investment companies, unless the commission has first made a determination that the transaction is fair. Moreover, the act permits the SEC to bring a court action to enjoin the execution of mergers and other reorganization plans of investment companies if the plans are unfair to security holders. The SEC also has the power to impose sanctions pursuant to administrative proceedings for violation of this act and may file suit to enjoin the acts of management officials involving breaches of fiduciary duties or personal misconduct and may bar such officials from office.

Investment Advisers Act of 1940

This act provides for SEC regulation and registration of investment advisers. The act is comparable to provisions of the 1934 Act with respect to broker-dealers but is not as comprehensive. Generally speaking, an investment adviser is a person who engages in the business of advising others with respect to securities and does so for compensation. Certain fee arrangements are prohibited; adverse personal interests in a transaction must be disclosed. Moreover, the SEC may define and prohibit certain fraudulent and deceptive practices.

Other Securities Laws

The Trust Indenture Act of 1939 applies to public issues of debt securities in excess of a certain amount. This law prescribes requirements to ensure the independence of indenture trustees. It also requires the exclusion of certain types of exculpatory clauses and the inclusion of certain protective clauses in indentures. In addition, the Public Utility Holding Company Act of 1935 (15 U.S.C.A. §§ 79a-79z-6) was enacted to correct abuses in the financing and operation of electric and gas public utility holding companies; the SEC's functions under these provisions were substantially completed by the 1950s.

SEC Enforcement Authority

The commission enforces the myriad laws and regulations under its jurisdiction in a number of ways. The SEC may seek a court injunction against acts and practices that deceive investors or otherwise violate securities laws; suspend or revoke the registration of brokers, dealers, investment companies, and advisers who have violated securities laws; refer persons to the Department of Justice for criminal prosecution in situations involving criminal fraud or other willful violation of securities laws; and bar attorneys, accountants, and other professionals from practicing before the commission.

The SEC may conduct investigations to determine whether a violation of federal securities laws has occurred. The SEC has the power to subpoena witnesses, administer oaths, and compel the production of records anywhere in the United States. Generally, the SEC initially conducts an informal inquiry, including interviewing witnesses. This stage does not usually involve sworn statements or compulsory testimony. If it appears that a violation has occurred, SEC staff members request an order from the commission delineating the scope of a formal inquiry.

Witnesses may be subpoenaed in a formal investigation. A witness compelled to testify or produce evidence is entitled to see a copy of the order of investigation and be accompanied, represented, and advised by counsel. A witness also has the absolute right to inspect the transcript of her testimony. Typically the same privileges one could assert in a judicial proceeding, such as the Fourth Amendment to the U.S. Constitution's prohibition against unreasonable searches and seizures and the Fifth Amendment's privilege against self-incrimination, apply in an SEC investigation. Proceedings are usually conducted privately to protect all parties involved, but the commission may publish information regarding violations uncovered in the investigation. In a private investigation, a targeted person has no right to appear to rebut charges. In a public investigation, however, a person must be afforded a reasonable opportunity to cross-examine witnesses and to produce rebuttal testimony or evidence, if the record contains implications of wrongdoing.

When an SEC investigation unearths evidence of wrongdoing, the commission may order an administrative hearing to determine responsibility for the violation and impose sanctions. Administrative proceedings are only brought against a person or firm registered with the SEC, or with respect to a security registered with the commission. Offers of settlement are common. In these cases the commission often insists upon publishing its findings regarding violations.

An administrative hearing is held before an administrative law judge, who is actually an independent SEC employee. The hearing is similar to that of a nonjury trial and may be either public or private. After the hearing the judge makes an initial written decision containing findings of fact and conclusions of law. If either party requests, or if the commission itself chooses, the commission may review the decision. The SEC must review cases involving a suspension, denial, or revocation of registration. The commission may request oral argument, will study briefs, and may modify the decision, including increasing the sanctions imposed. Possible sanctions in administrative proceedings include censure, limitations on the registrant's activities, or revocation of registration. In 1990 the SEC's powers were expanded to include the authority to impose civil penalties of up to $500,000, to order disgorgement of profits, and to issue cease and desist orders against persons violating or about to violate securities laws, whether or not the persons are registered with the SEC.

The U.S. Court of Appeals for the District of Columbia or another applicable circuit court of appeals has jurisdiction to review most final orders from an SEC administrative proceeding. Certain actions by the commission are not reviewable.

The SEC may request an injunction from a federal district court if future securities law violations are likely or if a person poses a continuing menace to the public. An injunction may include a provision that any future violation of law constitutes contempt of court.

The SEC may request further relief, such as turning over profits or making an offer to rescind the profits gained from an insider trading transaction. In cases of pervasive corporate mismanagement, the SEC may obtain appointment of a receiver or of independent directors and special counsel to pursue claims on behalf of the corporation.

Willful violations may be punished by fines and imprisonment. The SEC refers such cases to the Department of Justice for criminal prosecution. Willfulness means only that the defendant intended the act, not that he knew that it was a violation of securities laws.

See: Administrative Law and Procedure; Bonds; Mergers and Acquisitions.

( I believe these are links in thge original, that one would follow having reached; however, I started here: --tex )
Posted by T e x on :
NSCC "liability":

letter to SEC re NSS and NSCC liability:

Subject: File No. S7-12-06
From: Janie White
Affiliation: InvestorJanuary 28, 2007
I do not intend to "sugar-coat" my opinions about the Commission. While my remarks may offend you, I, as an investor, feel violated.
I do not need an educational lesson on Regulation SHO or short selling. I am well aware of the rules, loopholes, and failures within the system. Needless to say, I am very disturbed by it all.
By imposing the grandfather clause in REG SHO, you have made it possible for criminal entities to destroy thousands of small businesses. You have also gave them aid and comfort by continuing to ignore the requests of investors and companies, suffering at the hands of these abusers.
1. The SHO threshold securities list identifies the companies that have failures to deliver positions within them, but does not publicly disclose which brokerage, market making firm, or clearance corporation which is responsible for these open positions. This is a double standard, and is unacceptable. Why publish the name of the rape victims, if you refuse to publish the rapists?
2. The "grandfathering" clause is ridiculous. Do you think my creditors would pardon me for mounting up a massive amount of debt, more or less saying you still have to pay us, but your current actions are the ones' that will be penalized first?
When I read this clause in the SHO regulation, my initial response was huh???? I had to read it several times because it seemed so preposterous, I could not believe what I was reading.
3. The stocks present on the threshold securities lists , in the most part, have remained on the lists indefinitely, without their open positions being relieved. What is the purpose of this regulation if it is not effective, and not enforced?
4. Do you honestly believe, or feel that investors believe that every company that alleges manipulation is guilty of dilution? No , this is not the case. Some of us are educated enough to know the differences between dilution and manipulation and this is why I have a very big problem trusting my retirement, and my personal investments, in a system that is rigged to benefit hedge funds, big business, self regulatory organizations, etc. other than providing a safeguard for my family's future.
5. If Sarbanes-Oxley is intent on scrutinizing every nook and cranny of a public company, shouldn't that company be privy to information about the amount of shares that have been "borrowed" by the DTCC's stock borrow program?
I have witnessed several requests for this information from public companies to the DTCC, but their requests are ignored or denied, without so much as an utter from the enforcement division of the SEC.
6. Regulation SHO has failed to include some of the most abused companies on the market today, because they are non-reporting companies. While it is apparent that some of these companies may be termed as a "scam", there are many developing companies that enter this division of the market to gain funds to expand their projects. However, many of them are forced to shut their doors due to the value of their shares being massively manipulated by the system they depended on to further their efforts.
7. While it seems that the SEC looks closely at every aspect of public companies, it has been blind to the manipulation that has hampered the future existence of some of these companies, and has seriously thwarted the efforts of others.
8. When I go to a bank to borrow money, my payment is made to the bank that I borrowed the money from. How is it legitimate for the DTCC to lend shares of company stock, receive payment for that stock, fail to deliver that stock, yet go unpenalized? If my payment was in default from the bank I borrowed money from, I would incur massive penalties, and my credit would be ruined. If I failed to pay the debt, my purchases could be seized, and/or I could face criminal penalties for my actions, especially if I became a repeat offender. The company whose nonexistent shares were sold, did not benefit monetarily from the open failures to deliver, and if the company fails, or goes out of business, these open positions do not have to be closed out. Where does this money go? Do we see the income made from these sales on any IRS tax forms? Please inform me where I might obtain this information if I am incorrect.
9. Self regulatory organizations, hedge funds, and clearance corporations have no place in a fair market system. These organizations have crippled our markets, and undermined the confidence of individual investors like myself. If these organizations cannot be scrutinized and regulated as strict as publicly traded companies, they should not be present in any market in the world.
10. The Freedom of Information Act- I have not figured out the benefit of this yet. On one hand it is said that information is permitted under this act, but it can be denied for any number of reasons, one of which may/or may not be due to use in an ongoing investigation. This leads me to believe that information that might be pertinent to shareholders could be denied, without an explanation being disclosed. I thought it was the goal of the Commission to provide protection and "transparency" within the market. To deny information without an explanation is denying transparency.

Instead of penalizing companies for the sins of the abusers, it's past time the SEC did the job it was formed to do. This is middle America you are talking to, fully aware of the crimes that are going unpunished. If middle America is aware, I know that the Commission is fully aware. It's time for the Commission to stop hiding behind the disinformation it has been spoon fed, making excuses for the problems it fails to recognize.
The Commission has been fully aware for years that this manipulation has been perpetrated, and has chosen to provide little to no resolve to end this painful situation. I can promise you, no matter how long this takes, the truth will be exposed. If the SEC chooses to be blind to this situation as it is currently, the Commission will be judged based on the fact that it was aware of the situation, and did nothing to correct it, resulting in the distabilization of our nation.
I'm sure President Bush does not want an unfavorable light to be shed upon the market or the Commission in his efforts to reform social security. I wonder how he will feel when his whole plan is terminated because of lack of investor confidence within the current market? Those who are at the receiving end of this abuse are educated daily about the corrupt tactics involved in the money pit of the trading world. It is these people who will become educators to future investors persuading them to put their money in a safer environment, a better alternative than having a stacked deck in the stock market poker game.
Secretary Paulson would like for everyone to believe the money and initial public offerings are leaving the US markets because of the expense of complying with Sarbanes-Oxley.
I beg to differ. These companies and future companies are leaving our markets because you are not protecting them or their investors. Instead, you turn a blind eye while they are pillaged and raped of their fair market value.
You, instead, have taken it upon yourselves to protect the Wall Street elite, at the expense of your reputations, as evidenced in the recent Senate Judiciary Committee Hearing.
It is not my job to inform you of specific events or information concerning fraud, manipulation, or corruption within the stock market. As you know, my hands are tied by the Commission's rules prohibiting me from obtaining certain information under the Freedom of Information Act ,while neither denying, or confirming any ongoing investigations(I think this is a "cop out").
It is indeed the job of the Commission to discern the boundaries,(if they are ever created) ,as to what defines manipulation, and to provide appropriate punishment for these crimes instead of ignoring them, or giving the offenders a" slap on the wrist".....and it is indeed a slap on the wrist when the Commission punishes offenders in the millions of dollars when their crimes netted them billions.
How long will you allow these crimes to go unpunished? How long will you allow these criminals to suck the system dry will the puny penalties you impose? How long will crime pay?
This was the SEC's mission statement, once upon a time. At least you do not look like hippocrites for eliminating the word integrity, as there is NONE left within this agency.
"The primary mission of the U.S. Securities and Exchange Commission (SEC) is to protect investors and maintain the integrity of the securities markets. As more and more first-time investors turn to the markets to help secure their futures, pay for homes, and send children to college, these goals are more compelling than ever. " (More people are losing money by investing in the current system)
"The laws and rules that govern the securities industry in the United States derive from a simple and straightforward concept: all investors, whether large institutions or private individuals, should have access to certain basic facts about an investment prior to buying it. To achieve this, the SEC requires public companies to disclose meaningful financial and other information to the public, which provides a common pool of knowledge for all investors to use to judge for themselves if a company's securities are a good investment. Only through the steady flow of timely, comprehensive and accurate information can people make sound investment decisions. " (What about the self regulatory organizations; What do you require of them?)
"The SEC also oversees other key participants in the securities world, including stock exchanges, broker-dealers, investment advisors, mutual funds, and public utility holding companies. Here again, the SEC is concerned primarily with promoting disclosure of important information, enforcing the securities laws, and protecting investors who interact with these various organizations and individuals. "
"Crucial to the SEC's effectiveness is its enforcement authority. Each year the SEC brings between 400-500 civil enforcement actions against individuals and companies that break the securities laws. Typical infractions include insider trading, accounting fraud, and providing false or misleading information about securities and the companies that issue them." (What about the alleged counterfeiting fraud perpetrated by clearance corporations, namely the DTCC, NSCC?)
"Though it is the primary overseer and regulator of the U.S. securities markets, the SEC works closely with many other institutions, including Congress, other federal departments and agencies, the self-regulatory organizations (e.g. the stock exchanges), state securities regulators, and various private sector organizations." (The private sector should have no role in a governmental organization concerning financial securities)
Maybe some members of the Commission should read from their own website, as it is obvious that they have failed to do so. As a matter of fact, maybe they should revise it to make them look as though they have been more competent than they have been.
It wouldn't be the first time a statement or rule was revised to fit a particular situation. See approved rule below.
(Release No. 34-51669; File No. SR-NSCC-2004-09)
May 9, 2005
Self-Regulatory Organizations; National Securities Clearing Corporation; Order Approving Proposed Rule Change to Establish a Comprehensive Standard of Care and Limitation of Liability to its Members
I. Introduction
On December 8, 2004, the National Securities Clearing Corporation (NSCC) filed with the Securities and Exchange Commission ("Commission") proposed rule change SR-NSCC-2004-09 pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (Act).1 Notice of the proposal was published in the Federal Register on April 6, 2005.2 No comment letters were received. For the reasons discussed below, the Commission is approving the proposed rule change.
II. Description
NSCC is establishing a comprehensive standard of care and limitation of liability with respect to its members. Historically, the Commission has left to user-governed clearing agencies the question of how to allocate losses associated with, among other things, clearing agency functions.3 The Commission has reviewed clearing agency services on a case-by-case basis and in determining the appropriate standard of care has balanced the need for a high degree of clearing agency care with the effect the resulting liabilities may have on clearing agency
1 15 U.S.C. 78s(b)(1).
2 Securities Exchange Act Release No. 51458 (March 31, 2005), 70 FR 17494.
3 Securities Exchange Act Release Nos. 20221 (September 23, 1983), 48 FR 45167 and 22940 (February 24, 1986), 51 FR 7169.
operations, costs, and safekeeping of securities and funds.4 Because standards of care represent an allocation of rights and liabilities between a clearing agency and its members, which are generally sophisticated financial entities, the Commission has refrained from establishing a unique federal standard of care and generally has allowed clearing agencies and other self-regulatory organizations and their members to establish their own standards of care.5 In addition, the Commission has recognized that a gross negligence standard of care is appropriate for certain noncustodial functions where a clearing agency, its board of directors, and its members determine to allocate risk to individual service users.6
NSCC believes that adopting a uniform rule7 limiting NSCCs liability to its members to
4 Id.
5 Id.
6 Securities Exchange Act Release No. 26154 (October 3, 1988), 53 FR 39556. NSCCs services provided to members are noncustodial in that, other than clearing fund deposits, it does not hold its members funds or securities.
7 New Section 2 of Rule 58 states:
SEC. 2. Notwithstanding any other provision in the Rules:
(a) The Corporation will not be liable for any action taken, or any delay or failure to take any action, hereunder or otherwise to fulfill the Corporations obligations to its Members including Settling Members, Settling Bank Only Members, Municipal Comparison Only Members, Insurance Carrier Members, TPA Members, Mutual Fund/Insurance Services Members, Non-Clearing Members, Fund Members and Data Services Only Members, other than for losses caused directly by the Corporations gross negligence, willful misconduct, or violation of Federal securities laws for which there is a private right of action. Under no circumstances will the Corporation be liable for the acts, delays, omissions, bankruptcy, or insolvency, of any third party, including, without limitation, any depository, custodian, sub-custodian, clearing or settlement system, transfer agent, registrar, data communication service or delivery service (Third Party), unless the Corporation was grossly negligent, engaged in willful misconduct, or in
direct losses caused by NSCCs gross negligence, willful misconduct, or violation of Federal
violation of Federal securities laws for which there is a private right of action in selecting such Third Party.
(b) Under no circumstances will the Corporation be liable for any indirect, consequential, incidental, special, punitive or exemplary loss or damage (including, but not limited to, loss of business, loss of profits, trading losses, loss of opportunity and loss of use) howsoever suffered or incurred, regardless of whether the Corporation has been advised of the possibility of such damages or whether such damages otherwise could have been foreseen or prevented.
(c) With respect to instructions given to the Corporation by a Special Representative/Index Recipient Agent, the Corporation shall have no responsibility or liability for any errors which may occur in the course of transmissions or recording of any transmissions or which may exist in any magnetic tape, document or other media so delivered to the Corporation.
(d) With respect to the Corporations distribution facilities, the Corporation assumes no responsibility whatever for the form or content of any tickets, checks, papers, documents or other material (other than items prepared by it)placed in the boxes in its distribution facilities assigned to each Settling Member, Municipal Comparison Only Member, Insurance Carrier Member, TPA Member, Fund Member and Data Services Only Member, or otherwise handled by the Corporation; nor does the Corporation assume any responsibility for any improper or unauthorized removal from such boxes or from the Corporation's facilities of any such tickets, checks, papers, documents or other material, including items prepared by the Corporation.
(e) With respect to Fund/Serv transactions, the Corporation will not be responsible for the completeness or accuracy of any transaction or instruction received from or transmitted to a Settling Member, Data Services Only Member, TPA Member, TPA Settling Entity, Mutual Fund Processor or Fund Member through Fund/Serv, nor for any errors, omissions or delays which may occur in the transmission of a transaction or instruction to or from a Settling Member, Data Services Only Member, TPA Member, TPA Settling Entity, Mutual Fund Processor or Fund Member.
(f) The Corporation will not be responsible for the completeness or accuracy of any IPS Data and Repository Data received from or transmitted to an Insurance Carrier Member, Member or Data Services Only Member through IPS nor for any errors, omissions or delays which may occur in the transmission of such IPS Data and Repository Data to or from an Insurance Carrier Member, or Data Services Only Member.
securities laws for which there is a private right of action will: (1) memorialize an appropriate commercial standard of care that will protect NSCC from undue liability;8 (2) permit the resources of NSCC to be appropriately utilized for promoting the accurate clearance and settlement of securities; and (3) will be consistent with similar rules adopted by other self-regulatory organizations and approved by the Commission.9
III. Discussion
Section 19(b) of the Act directs the Commission to approve a proposed rule change of a self-regulatory organization if it finds that such proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to such organization. Section 17A(b)(3)(F) of the Act requires that the rules of a clearing agency be designed to assure the safeguarding of securities and funds which are in its custody or control.10 The Commission believes that NSCCs rule change is consistent with this Section because it will permit the resources of NSCC to be appropriately utilized to protect funds and assets.
8 NSCC has always operated under a gross negligence standard of care and both internal and external counsel have consistently advised members that this is the case. NSCC is seeking to eliminate any confusion due to the absence of a clear standard set forth in its rules and to memorialize its historical practice. In addition, NSCC has in effect a service agreement with the Fixed Income Clearing Corporation (FICC) pursuant to which FICC provides services for NSCCs fixed income products. This service agreement provides for a gross negligence standard of care. In the absence of this new rule, NSCC could be in the position of having to pay for losses caused by FICC that are not recoverable under the agreement.
9 See, e.g., Securities Exchange Act Release Nos. 37421 (July 11, 1996), 61 FR 37513 File No. SR-CBOE-96-02; 37563 (August 14, 1996), 61 FR 43285 File No. SR-PSE-96-21; 48201 (July 21, 2003), 68 FR 44128 File No. SR-GSCC-2002-10; and 49373 (March 8, 2004), 69 FR 11921 File No. SR-FICC-2003-09.
10 15 U.S.C. 78q-1(b)(3)(F).
Although the Act does not specify the standard of care that must be exercised by registered clearing agencies, the Commission has determined that a gross negligence standard of care is acceptable for noncustodial functions where a clearing agency and its participants contractually agree to limit the liability of the clearing agency.11 NSCCs functions are noncustodial in that it does not hold its members' funds or securities. It is reasonable for NSCC, which is member-owned and governed, and its members to agree through board approval of the proposed rule change and to contract with one another in a cooperative arrangement as to how to
11 In the release setting forth standards that would be used by the Division of Market Regulation in evaluating clearing agency registration applications, the Division of Market Regulation urged clearing agencies to embrace a strict standard of care in safeguarding participants funds and securities. Securities Exchange Act Release No. 16900 (June 17, 1980), 45 FR 4192. In the release granting permanent registration to The Depository Trust Company, the National Securities Clearing Corporation, and several other clearing agencies, however, the Commission indicated that it did not believe that sufficient justification existed at that time to require a unique federal standard of care for registered clearing agencies. Securities Exchange Act Release No. 20221 (October 3, 1983), 48 FR 45167. In a subsequent release, the Commission stated that the clearing agency standard of care and the allocation of rights and liabilities between a clearing agency and its participants applicable to clearing agency services generally may be set by the clearing agency and its participants. In the same release, the Commission stated that it should review clearing agency proposed rule changes in this area on a case-by-case basis and balance the need for a high degree of clearing agency care with the effect resulting liabilities may have on clearing agency operations, costs, and safeguarding of securities and funds. Securities Exchange Act Release No. 22940 (February 24, 1986), 51 FR 7169. Subsequently, in a release granting temporary registration as a clearing agency to The Intermarket Clearing Corporation, the Commission stated that a gross negligence standard of care may be appropriate for certain noncustodial functions that, consistent with minimizing risk mutualization, a clearing agency, its board of directors, and its members determine to allocate to individual service users. Securities Exchange Act Release No. 26154 (October 3, 1988), 53 FR 39556. Finally, in a release granting the approval of temporary registration as a clearing agency to the International Securities Clearing Corporation, the Commission indicated that historically it has left to user-governed clearing agencies the question of how to allocate losses associated with noncustodial, data processing, clearing agency functions and has approved clearing agency services embodying a gross-negligence standard of care. Securities Exchange Act Release No. 26812 (May 12, 1989), 54 FR 21691.
allocate NSCCs liability among NSCC and its members. Therefore, the Commission has determined that given the noncustodial nature of NSCCs services, a gross negligence standard of care and limitation of liability is allowable for NSCC.12
IV. Conclusion
On the basis of the foregoing, the Commission finds that the proposed rule change is consistent with the requirements of the Act and in particular Section 17A of the Act and the rules and regulations thereunder.
IT IS THEREFORE ORDERED, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (File No. SR-NSCC-2004-09) be and hereby is approved.
12 The Commission notes that the rule change does not alleviate NSCC from liability for violation of the Federal securities laws where there exists a private right of action and therefore is not designed to adversely affect NSCCs compliance with the Federal securities laws and private rights of action that exist for violations of the Federal securities laws.
For the Commission by the Division of Market Regulation, pursuant to delegated authority.13
Margaret H. McFarland
Deputy Secretary
13 17 CFR 200.30-3(a)(12).
When a company has problems with a particular securities rule, are they given the freedom to rewrite or modify those rules as generously as Self-Regulatory Organizations?
No, they are not. There is clearly a double-standard displayed between publicly traded companies and Self-Regulatory Organizations.
Yes, ladies and gentlemen, it is rather obvious that the "revisions" that have been made by the Self-Regulatory Organizations are necessary to enable them to continue to manipulate the market to their own benefit, as the" stock borrow program "has generated countless shares of stocks from companies they have no intentions of ever making legitimate. It is flawed. It is massive....and you are aware of it.
Without publicly traded companies, Self-Regulatory Organizations, as well as the SEC would not be necessary. Without investors, companies cannot survive. Without protection, transparency, and reform more investors will choose not to invest....think of it as the "food chain". You must start at the beginning. Without a beginning, there is no need for an ending.
It is not helpful or beneficial, in any way, to antagonize me with enclosures explaining short selling and regulation SHO. I find it offensive and frustrating, to say the least.
I did not ask you for any "inside" information about an investigation you may or may not be conducting.
I simply asked you, "what do you intend to do to fix this problem?"
Thus far, I am still awaiting a valid response.
At one time, the SEC denied the existence of naked short selling. Now, the Commission justifies it, thinking investors cannot smell the stinch.
There is NO excuse for naked short selling. It IS the same as counterfeiting. It IS time to punish the perpetrators instead of the victims.
Even though the Supreme Court has never clearly decided if a governmental agency can or cannot be guilty of violating the RICO act, if the Commission knew of misconduct and continued to do nothing to correct the situation, malicious intent could be proven beyond a shadow of a doubt.
Even though a government agency cannot be named as a defendant person under RICO, a government agency may still serve as the enterprise through which a defendant engages in a pattern of racketeering. Any governmental agent extorting persons "under color of authority" is participating in the conduct of the governmental entity's affairs through a pattern of racketeering activity. Governmental entities may also be an enterprise if they are a passive instrument through which the racketeering acts are committed, advanced or concealed, or a governmental entity may also be a victim enterprise, e.g., if outsiders were operating or managing the affairs of the enterprise through bribery, for example.
There are more than enough letters, comments, and complaints on the SEC's website, evident that the Commission has been informed about these crimes for several years, and continues to justify the crimes instead or resolving them.
Speaking for investors, like myself, we are still waiting, watching, and hoping that we will not be forced to lose total faith in a favorable conclusionto this dilemma....but our patience is wearing thin.
I do apologize if I have offended anyone with my strong comments. However, I cannot apologize for my honesty.
I respectfully request that the Commission:
1. Fix that, which is obviously broken, by eliminating the grandfather clause in REG SHO immediately
2. Restore investor confidence and faith in the system by having the same set of rules, and applying them to everyone, regardless of their "political clout"
3. Protect publicly traded companies and their assets
4. Protect investors and their property(certificates in individual name)
5. Keep private organizations out of a public marketing system
6. Require complete transparency for Self-Regulatory Organizations and companies
7. Dispose of the double-standard imposed on publicly traded companies and Self-Regulatory Organizations
8. Accounts held in electronic (street) form, should be held in individual name only
9. Provide assistance and funding(auditors, accountants, etc.) to companies wishing to comply with Sarbanes-Oxley
10. Impose legislation to disassemble Self-Regulatory Organization making them a government entity, or governed and directly supervised by one capable of competence and fairness.
We only want a level playing field. We are only asking for a fair trading system. Considering it is our money that we invest in the markets, we do not feel this is too much to ask for.



Issue 2005-89 May 10, 2005



The Commission approved a proposed rule change (SR-NSCC-2004-09) filed
by the National Securities Clearing Corporation to establish a
comprehensive standard of care and limitation of liability with respect
to its members. Publication of the order is expected in the Federal
Register during the week of May 9. (Rel. 34-51669)


notice in Federal Register:

[ May 28, 2007, 12:06: Message edited by: T e x ]
Posted by T e x on :
proposed change, Buy-ins Continuous Net Settlement System (CNS), NSCC:

order approved:
Posted by T e x on :
NASD Notice re Buy-ins *and* extensions: 15.pdf

Search results, NASD, "buy-in":
Posted by T e x on :
updated, newbie-info, combo post, via 10 of 13:

Originally posted by metball4:
paper trade? Where do you learn of these stocks, any good sources?

Not trying to give you a headache...but here's some more info...

Some simple and Basic questions:

What do these letters mean?
DD=due diligence (Research)
MM=Market Maker (definition )
EOD=End Of Day
EOW=End Of Week
HOD=High of Day
PPS=Price Per Share
O/S=Outstanding Shares
A/S authorized shares
POS=Piece of "Poo Poo"
IMHO=In My Humble(Honest) Opinion
LMAO=laugh My A** off
L2's=Level 2's

Also look at this link

Some great Definitions

Try paper trading or
This next one you can actually open an account with "play money" and see if your ideas work

it is the most needed tool in this game...without your capital(funds) can't do anything!
Lot's of people get overly involved in a stock...and "believe"...don't "follow the hype" your own DD

How is one "flagged" a daytrader?
To avoid being flagged a daytrader, you can not sell and trade the same stock more than 3x's in a 5 day period.
Buy "XYZ" and sell it the same day=not a day trader.
Buy "XYZ" on Monday and sell it on Tuesday=not a daytrader.
Buy AND sell "XYZ" more than 3x in a 5 day period= Day trader.
You can buy and sell different stocks...just not the same one.

Also look here DW_005906

Take a look at this link f/9/t/001490/p/1.html?

What are "free" shares?
Many People will sell a stock once it has "reached" an increase where they can sell to "get back" their original investment and then continue to let the rest of the shares "ride", these are "free shares" (ones that the gain of the pps has "covered") All of these, once sold, would be complete profit.

What are "gappers"?

What are settled funds?
You open your account with cash, those are "settled funds",
You buy stock XYZ , you sell XYZ to purchase a different stock,
It will take 3 business days for those funds to become "settled".
Some brokers will let you purchase stocks with unsettled funds
but you can not sell that newly purchased stock for the 3 days,
The sell of a stock is what needs to "settle" not the purchase of a stock.
Think of it as a check clearing your bank after you have deposited it.

I have $200 in a cash account...I buy 200 shares of XYZ on Monday...I can sell those shares ANYTIME after my 5 minutes or 5 doesn't matter...I dont have to wait for anything...However, this is where the "settlement time" comes in, although allot of brokers will let you buy with the unsettled funds from the sale of XYZ...I CAN NOT SELL..the new stock that I purchased...(here it is) UNTIL the settlement date...usually 3 business days...

The settlement date applies to the SELL of a stock...NOT the purchase of the stock...

Must have book to read is
"a beginners guide to day trading on line"
by Toni Turner

This site will answer most all questions:

Lots of info in this link:(start at the begining of the thread) t/001296/p/1.html

Some interesting Links...for the learning process
Reading charts

Lists stocks with 52 week highs and lows and DD info

Level 2's and other stuff free|stock_chart

Monthly share volume for stocks &Month=8-1-2006

Investor terms/definitions

A site that gives buy and sell points?

lots of info

On line book

Stock screeners

http://www.*********.com/default.asp?m=sho_csv.asp?xchg=naz&xxchg= ASP

"Daily Microcap Report"

A link for "setting" those stock screeners;; f=4;t=000004;p=0


A thread about SCAMS t/001659/p/1.html#000001

Trading Options

#1 Rule: Protect your capital! #2 Rule: Never fall for the BS on the boards!
Posted by J_U_ICE on :
The Truth Behind Penny Stock Spam
A deluge of e-mail come-ons puts gullible investors at risk while the government does little to stop it.
By Thomas M. Anderson
From Kiplinger's Personal Finance magazine, June 2007

Promoters of penny stocks typically pitch these high-risk investments as if they were valuable real estate, like oceanfront property. With little money down, you can make a quick-and-easy profit. But in reality, penny stocks are more like swampland. And now, thanks to spam, the muck is spreading at an alarming rate, and efforts to stop it have so far been as effective as ordering the tide not to come in.

You probably trashed an e-mail message last December touting Goldmark Industries. A spam campaign predicted that investors would earn spectacular returns. One e-mail, which forecast the stock would gain 1,077%, said, "Watch GDKI [Goldmark's symbol] soar on Wednesday, Dec. 20!"

Maybe you didn't bite, but many others did. On December 19, the day before the spam campaign began, Goldmark closed at 17 cents a share. Nine days later, when the spam barrage ended, the stock closed at 35 cents. Those who held the stock before the e-mail campaign doubled their money. Investors who bought at the top lost their shirts. The stock closed at 6 cents in mid April.

If you think we're talking about chump change, think again. The Securities and Exchange Commission says spam campaigns promoting Goldmark and 34 other stocks that the agency recently suspended from trading for ten days robbed investors of tens of millions of dollars. And those 35 are just a few acres of the swamp. The SEC estimates that 100 million stock-spam messages are sent daily. Postini, an e-mail-security company, says the volume of spam that hypes stocks has grown 120% in the past six months, and that about one-fifth of all spam is stock-related. (On April 13, the SEC suspended trading on three more penny stocks that it suspected were being manipulated through spam campaigns.)

Spam attacks
Spammers never let facts get in the way. Take an e-mail about Goldmark sent last October, before the campaign cited by the SEC. The note claimed that Goldmark, which says it produces and distributes hip-hop music, films and TV shows, had struck a deal with rap impresario Sean "Diddy" Combs. A Combs representative says the claim was fiction. None of the firms whose stocks were suspended, including Goldmark, acknowledge involvement in the spam campaigns.

People behind those campaigns have a big edge over those who buy on the hype: They know when the spam will end. A well-executed spam attack can produce triple-digit gains in a matter of days. Because of a December spam campaign, for example, the stock of Apparel Manufacturing Associates rose from 6 cents to 45 cents in just five days. It was among the stocks later suspended by the SEC.

Almost all stock spam is illegal. That's because these e-mails violate the Securities Act of 1933, which, among other things, bars paid promoters from touting stocks without disclosing the details of their compensation. Spam that doesn't allow you to opt out of the e-mail list (and most stock spam does not) also violates the 2003 CAN-SPAM Act, as well as state anti-spam laws.

You may have noticed that your spam blocker is letting more stock touts through. That's because spammers have become more sophisticated. The e-mails you open look ordinary, but many messages are in the form of digital images that spam filters can't read. And spammers avoid detection by using computer viruses to infect vast networks of computers, which then disseminate millions of e-mails.

Stock spam would wither without a healthy supply of junk-company shares, of which there is no shortage in the U.S. Most of these low-priced, thinly traded stocks are found on the Pink Sheets and the OTC Bulletin Board. NASD, the self-regulatory body of the brokerage industry, runs the OTCBB, and stocks quoted by this service must register with the SEC. That cuts down -- but doesn't eliminate -- the number of stocks that can be manipulated. The Pink Sheets, a private company, permits stocks that don't file with the SEC to be listed on its service.

NASD won't venture a guess at the number of OTCBB stocks involved in penny-stock spam. Cromwell Coulson, chief executive of the Pink Sheets, estimates that 10% of the more than 4,800 stocks that trade on his service are easy marks for spammers because the companies provide little or no financial information. The Pink Sheets has stopped quoting prices for the 35 stocks the SEC suspended as well as shares of more than 300 companies about which the company has received spam-related complaints from investors.

Draining the swamp
Suspending trading may help drain the swamp -- although how effective the tactic is remains to be seen. Other methods of dealing with the surfeit of stock spam are shutting down or prosecuting promoters, educating investors, and flagging stocks that are ripe for manipulation.

Although illegal e-mail touts are generally untraceable, other markets have developed ways of stopping criminals from pumping up share prices. For example, the free-wheeling Vancouver Stock Exchange was long home to many penny stocks that were subject to "pump and dump" schemes. But in the late 1990s, Canadian regulators began requiring executives and promoters of small-company stocks to register their promotional activities and submit to background checks.

As a result, Canada eliminated the most egregious penny-stock scams, says Martin Eady, director of corporate finance at the British Columbia Securities Commission. Regulators crack down hard against those who violate the rules. In November 2005, for example, the commission suspended Ray Dabney, president of Xraymedia, after he admitted to sending out 22 false news releases about the company. Several Xraymedia directors serve on Goldmark's board, and the two companies share the same Vancouver address, according to filings with the Pink Sheets. Xraymedia was the subject of a 2003 spam campaign, according to, a Web site that tracks penny-stock spam. Shares of Xraymedia are quoted on the Pink Sheets. Although barred from the Pink Sheets, Goldmark shares may still trade if a broker is willing to sell them to investors (few are).

Because markets north of the border are unfriendly to stock scammers, they focus their efforts on Canadian companies that trade in the U.S., where they face fewer restrictions, says the Pink Sheets' Coulson. Eady estimates that more than 660 companies from British Columbia are quoted on the OTCBB and the Pink Sheets but don't trade on a Canadian exchange. Canadian regulators are considering even tougher measures to restrain their home-grown stock scammers, Eady says, even though most investors ripped off by their spam live in the U.S.

Not all spam involves Canadian companies. Coulson believes that groups of scammers based in Florida, Nevada and Texas hype many U.S.-based companies that are the subjects of pump-and-dump campaigns.

As a practical matter, prosecuting spammers isn't easy. For a promoter's claims to run afoul of the SEC, the law states that a "reasonable" person would have to believe a touter's claims are true, says Donald Langevoort, a Georgetown University law professor and a former SEC special counsel. But because most reasonable people would not believe the claims, the law doesn't view many of these assertions as illegal, he says. The SEC says it knows who orchestrated the spam campaigns behind some of the 35 stocks it briefly suspended. But as of mid April, the commission hadn't lodged complaints against any of the perpetrators.

What's needed next
The best way to protect investors is to keep reminding them of the dangers of acting on e-mail touts. Over the past three years, NASD has issued six alerts about stock spam on its Web site, but the gullible continue to be taken in. "Only investor education can have a real effect," says Langevoort.

There may be a better solution than education: identifying stocks that are ripe for manipulation. Coulson plans to label Pink Sheets stocks suspected of being involved in pump-and-dump schemes with a skull-and-crossbones on the Pink Sheets Web site. He has also proposed that the SEC require more information about promoters who legally tout stocks. An SEC spokesman says the agency is reviewing Coulson's proposal but adds that the commission doesn't have the power to impose Canadian-style rules without congressional action. Congress hasn't considered any legislation to limit penny-stock spam or restrict stock promoters.

Meanwhile, stock spammers mock efforts to impede them. On March 11, only three days after the SEC announced its crackdown, a flood of spam touted United Environmental Energy (UTEV) as a "HOT NEW SEC APPROVED STOCK FOR YOUR ATTENTION!" The spam asserted that United was not a "Pump&Dump" stock. Over the next four days, the shares rose from 5 cents to 40 cents, then quickly fell to 10 cents. The Fort Lauderdale, Fla., company, which does not file financial statements with the SEC, says it was not involved in the spam campaign.

Calculated risk: A safe approach to penny stocks
Penny stocks get the greed glands going -- with good reason. It's a lot easier for a 10-cent stock to double or triple in no time than it is for a $100 stock, even though price, by itself, is not a measure of value. But penny stocks -- defined by the Securities and Exchange Commission as those that don't trade on Nasdaq or on an exchange and sell for less than $5 -- are generally far riskier than higher-priced stocks. If you're still tempted by low-priced stocks, here are some ways you can avoid being ripped off.

Look for the financials. Tiny companies don't have to file audited financial reports with the SEC. If a company you're interested in doesn't file, stay away. Financial data for most penny stocks touted in e-mails is either crummy or nonexistent.

Check the market value. Not all low-priced stocks are small companies. If a company's market value (share price times shares outstanding) is $50 million or more, chances are it's legit. Among the stocks recently recommended by the Turnaround Letter, a newsletter with a superior stock-picking record, five traded in mid April for less than $5 but sported market capitalizations of $218 million and up. The best known: Gateway, the computer maker, with annual sales of $4 billion and a market value of $848 million. It traded at $2.23.

Don't bet the ranch. Use only a small portion of your money to dabble in penny stocks and buy only if you can afford to lose 100% of your investment.
Posted by T e x on :
time and sales:


Ace of Spades

Member Rated:
posted June 18, 2007 11:35 PM
Yes you are talking about You have to register for free. Then type in the symbol and go to "Time&Sales" quote. It will list every trade. The basic quote page will even list the average trade size. Like GOOGLE for example...their average trade size today was 168 shares which is about $87,000. Heres the link and a few others.

This will show you the direction that the "Big Money" is flowing in and out of IDUSTRY GROUPS". It's owned by INVESTOOLS. It's basicly INVESTOOLS for free.

To know what I mean by the Big Money Chart...go to the investools link and look at the free video at the bottom for "Money Flow. Then go to the link for the free "Money Flow Chart"

This is my favorite message board for NASDAQ and BIG BOARD STOCKS..."The Wall Street Pit" at the

Learn to trade NASDAQ stocks and swing trade them...And its easier, safer, and more profitable than PENNY STOCKS. There are some great traders at THELION.COM. The traders there usally post breaking news there quick.

Here is another free Big Board / NASDAQ stock Chat Room that is awesome! ! ! !

Here's a link for the TOP 100 BIG BOARD STOCKS..... 0+Stocks&display=alternate

Oh...And you must have a copy of IBD delivered to your door step if you can afford it...

Posts: 1207 | Registered: Aug 2006 | IP: Logged |

Posted by T e x on :


position sizing...damn handy
Posted by T e x on :
NSCC pre-emptive pardon


T e x

posted June 13, 2005 07:15 PM
did Gerald Ford's pre-emptive pardon of Nixon bother anyone? This, on DTCC letterhead, is infuriating:[/URL]

DATE: MAY 16, 2005
On December 8, 2004, National Securities Clearing Corporation ("NSCC" or “the Corporation”) filed
and on May 9, 2005 the Securities and Exchange Commission ("SEC") approved rule filing SRNSCC-
2004-09, which consists of modifications to NSCC’s Rules and Procedures (the “Rules”) to
memorialize the Corporation’s current standard of care and limitation of liability.
The approved changes create a uniform standard limiting NSCC’s liability to direct losses caused by
NSCC’s gross negligence, willful misconduct, or violation of Federal securities laws for which there is
a private right of action. In addition, the changes: (a) memorialize an appropriate commercial
standard of care that will protect NSCC from undue liability; (b) permit the resources of NSCC to be
appropriately utilized for promoting the accurate clearance and settlement of securities; and (c) are consistent with similar rules adopted by other self-regulatory organizations and approved by the Commission.

Questions regarding SR-NSCC-2004-09 should be directed to Allison Finnegan, Senior Associate
Counsel, at (212) 855-3283, or to the undersigned at (212) 855-3203.

Karen L. Saperstein
Managing Director and General Counsel

Nashoba Holba Chepulechi
Adventures in microcapitalism...

Posts: 15502 | From: Fort Worth | Registered: Apr 2005 | IP: Logged | f/2/t/007928/p/99.html?

[ July 23, 2007, 20:20: Message edited by: T e x ]
Posted by *Mag* on :
OTCQX is a new market tier organized by Pink Sheets, LLC that sets apart a select group of issuers as worthy of consideration by U.S. investors. Qualified issuers use the efficient and robust OTCQX listing process to provide credibility and visibility of disclosure to investors. OTCQX is designed to meet the needs of small to medium sized, publicly-traded U.S. companies and non-U.S. companies listed on qualified international stock exchanges.
Posted by jbfreedom on :
Posted by T e x on :
Originally posted by jbfreedom:

boy, O! boy...

you're welcome.

Watch that CAPS key, though--if you mis-key here? You might well mix up a buy or sell...

Hate when that happens!
Posted by T e x on :
pretty interesting; before the new "tiers" at Pinksheets, but still interesting background from an academic perspective:

Microstructure of the Pink Sheets Market


The Pink Sheets market is a highly unregulated trading venue that is virtually free of
affirmative obligations or reporting requirements. Using all quotes and trades reported
through the Pink Sheets electronic quotation service and Pink Link electronic execution
service in the 2004 calendar year, we examine whether regularities that exist in highly
regulated markets arise for stocks traded through the Pink Sheets. We find that the
market appears quite capable of creating organized rather than chaotic quotation and
trading activity in an environment without a tick size, even among penny stocks, and that
bid-ask spreads show a consistent relation with market maker costs.
Posted by T e x on :
reverse merger info site:
Posted by T e x on :
SEC, PIPEs, short-selling:

Litigation Release No. 20341 / October 19, 2007
SEC v. Zev Saltsman, et al., Civil Action No. 07-CV- 4370 (NGG) (E.D.N.Y.) (filed October 19, 2007)
Commission Charges Short Sellers and Corporate Insiders in Massive Scheme to Conceal the Short Sellers' Control Over Ramp Corporation and Xybernaut Corporation
On October 19, 2007, the Commission filed a civil action in the U.S. District Court for the Eastern District of New York against: two short sellers, Zev Saltsman and Menachem Eitan; two former officers and directors of Xybernaut Corporation, Edward G. Newman and Steven A. Newman; a former director of Xybernaut and outside counsel to Xybernaut and Ramp Corporation, Martin E. Weisberg; and Ramp's former CEO, Andrew Brown. The Commission's complaint charges the defendants with engaging in a scheme to conceal Saltsman and Eitan's control over Ramp and Xybernaut.

In particular, the Commission's complaint alleges that between 2001 and 2004, Saltsman and Eitan, through 34 nominees, invested more than $88 million in private investments in public equity ("PIPE") transactions of Xybernaut and Ramp, companies that traded on the NASDAQ Small Cap Market and the American Stock Exchange, respectively. During that period, Xybernaut issued more than 123 million shares of common stock to 21 nominees of Saltsman and Eitan in return for more than $67 million in PIPE financing. Similarly, between December 2002 and November 2004, Ramp issued more than 161 million shares of common stock to 13 nominees of Saltsman and Eitan in return for more than $21 million in PIPE financing. Xybernaut and Ramp filed 18 registration statements registering the resale of those shares, and those registration statements were misleading because, among other things, they created the impression that the investors were independent from one another and controlled by persons other than Saltsman and Eitan. Saltsman and Eitan profited from the scheme by executing short sales and covering those short positions with newly issued PIPE shares in violation of the registration provisions of the federal securities laws. Saltsman and Eitan often executed wash sales between their various nominee accounts in order to disguise these violations of the federal securities laws. As a result of their illegal conduct, Saltsman and Eitan received a total of more than $55 million in illicit profits by trading in Ramp and Xybernaut stock.

The complaint also alleges that Saltsman and Eitan paid officers and directors of Ramp and Xybernaut to ensure access to future PIPE deals and maintain control over the companies. In December 2003, Saltsman and Eitan allegedly gave Brown $50,000 in cash. In 2003 and 2004, Saltsman and Eitan paid $4.1 million to Steven Newman and Weisberg. These payments, as well as the relationships that developed between the companies' management and Saltsman and Eitan, were never disclosed in Ramp or Xybernaut's corporate filings or registration statements.

The Commission's complaint further alleges that during the course of the scheme, Brown, Weisberg, Edward Newman and Steven Newman provided valuable assistance to Saltsman and Eitan. In 2001, Weisberg helped Edward Newman and Steven Newman transfer a total of 1.1 million shares of their own Xybernaut stock to Saltsman and Eitan to allow Saltsman and Eitan to cover existing short positions in Xybernaut. In 2003, Weisberg lied to the Commission staff about sales of securities to Saltsman and Eitan that occurred during the pendency of a PIPE registration statement. Brown, Weisberg, Edward Newman and Steve Newman also concealed Saltsman and Eitan's control over the PIPE investments and the nominees.

The complaint alleges that each of the defendants violated Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and that Saltsman and Eitan also violated Sections 5(a), 5(b)(2), and 5(c) of the Securities Act and Sections 13(d) and 16(a) of the Exchange Act and Rules 13d-1, 13d-2, and 16a-3 thereunder. The complaint also alleges that Weisberg aided and abetted Xybernaut's violations of Section 14(a) of the Exchange Act and Rule 14a-9 thereunder, and that Steven Newman, Edward Newman, and Brown violated Exchange Act Rule 13a-14. The complaint further alleges that Weisberg, Steven Newman, Edward Newman and Brown aided and abetted Xybernaut and Ramp's violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. In its enforcement action, the Commission is seeking an order permanently enjoining the defendants from future violations of the foregoing provisions of the federal securities laws, and a final judgment ordering disgorgement of ill-gotten gains and civil penalties. The Commission also seeks officer and director bars against Weisberg, Steven Newman, Edward Newman and Brown.

The Commission acknowledges the assistance of the U.S. Attorney's Office for the Eastern District of New York and the Federal Bureau of Investigation.

SEC Complaint in this matter

Home | Previous Page Modified: 10/19/2007
Posted by T e x on :
note to self:

As with any subjective form of technical analysis, there are, at times,
variable definitions which will be defined according to the users' experience
and background. This is true of some candlestick patterns. Depending
on my source of information, these were instances in which I came
across different, albeit usually minor, definitions of what constitutes a
certain pattern. For example, one Japanese author writes that the open
has to be above the prior close in order to complete a dark-cloud cover
pattern (see Chapter 4). Other written and oral sources say that, for this
pattern, the open should be above the prior high.
In cases where there were different definitions, I chose the rules that
increased the probability that the pattern's forecast would be correct. For
example, the pattern referred to in the prior paragraph is a reversal signal
that appears at tops. Thus, I chose the definition that the market has
to open above the prior day's high. It is more bearish if the market opens
above the prior day's high and then fails, then it would be if the market
just opens above the prior day's close and then failed.

Posted by T e x on :

Candlestick charts provide many useful trading signals. They do not,
however, provide price targets. There are other methods to forecast targets
(such as prior support or resistance levels, retracements, swing
objectives, and so on). Some Japanese candlestick practitioners place a
trade based on a candlestick signal. and stay with that trade until another
candlestick pattern tells them to offset. Candlestick patterns should
always be viewed in the context as to what occurred before and in relation
to other technical evidence.

Posted by T e x on :
As touched upon in the previous discussion, the technicals contribute
to market objectivity. It is human nature, unfortunately, to see the
market as we want to see it, not as it really is. How often does the following
occur? A trader buys. Immediately the market falls. Does he take
a loss. Usually no. Although there is no room for hope in the market, the
trader will glean all the fundamentally bullish news he can in order to
buoy his hope that the market will turn in his direction. Meanwhile
prices continue to descend. Perhaps the market is trying to tell him
something. The markets communicate with us. We can monitor these
messages by using the technicals. This trader is closing his eyes and ears
to the messages being sent by the market.
If this trader stepped back and objectively viewed price activity, he
might get a better feel of the market. What if a supposedly bullish story
is released and prices do not move up or even fall? That type of price
action is sending out volumes of information about the psychology of the
market and how one should trade in it.
I believe it was the famous trader Jesse Livermore who expressed the
idea that one can see the whole better when one sees it from a distance.
Technicals make us step back and get a different and, perhaps, better
perspective on the market.

Posted by T e x on :

Knight’s IOIs Keep Orders Dark

Nina Mehta

October 05, 2007 - One of the biggest trading houses is stepping up efforts to bypass exchanges and ECNs when laying off positions from its vast market-making operation.

Knight Equity Markets, the broker-dealer subsidiary of Knight Capital Markets, the big institutional and wholesaling firm, is executing more than 60 million of its 400 million shares per day through Knight Link, an electronic indications-of-interest service. The customers using the service include the electronic trading desks of 10 to 15 bulge bracket brokers.

Volume in Knight Link, which launched in mid-2006, ramped up this summer. In August, when volumes took off everywhere, the system executed 66 million shares per day, said Jamil Nazarali, head of electronic trading at Knight Equity Markets. In July it executed a daily average of 50 million shares, and in June an average of 33 million. Overall, the firm executes 400 million shares per day in listed and Nasdaq stocks.

Knight Link’s flow is generated by Knight’s executions against its retail broker-dealer clients, including E*Trade, Fidelity, Scottrade and Ameritrade. After Knight executes client orders, it typically seeks to lay off its position and manage its risk.

Knight Link sends streaming IOIs from Knight’s electronic trading desk directly to the routing engines of big brokers. If a broker has an order on the other side, it can send the order to Knight, which then executes the trade and reports it to the NASD/Nasdaq trade reporting facility. Knight Link also accepts immediate-or-cancel orders from some clients, instead of sending them IOIs. Nazarali says Knight Link’s fill rate is “over 90 percent” for the streaming IOIs, which represent about 75 percent of Knight Link’s executions.

Knight doesn’t charge brokers for Knight Link executions. According to Nazarali, the system’s main competitors are dark pools, which try to attract broker flow before it’s sent to the market. Knight Link’s IOIs, often for several thousand names—because of Knight’s huge market-making business—include the firm’s side and size for every name.

This IOI product is different from the traditional indications for natural contra-side liquidity that many brokers send to traders. This type of IOI from electronic market makers and dark pools is directed to algorithmic trading or electronic routing engines, not humans. The human traders are never aware of the IOIs until after a trade occurs.

Knight isn’t the only market-making firm providing this type of service. Other large electronic liquidity providers such as Automated Trading Desk, which Citi bought in June for $680 million, stream IOIs directly to the electronic trading engines at many big brokers. Goldman Sachs’ Sigma X pool, for example, gets streaming orders from about half a dozen electronic liquidity providers, including Knight Link, ATD, Liquidnet H2O and NYFIX Millennium.

Several large brokers contacted by Traders Magazine said they use Knight Link as well as similar indications-type products from other firms. These are considered additional sources of liquidity for the brokers after they internalize what they can within their own walls. All said their customers can choose to opt out of executing against this flow.

JPMorgan’s Carl Carrie, global head of algorithmic products in the broker’s electronic client solutions group, said his firm connects to Knight “in a variety of ways” and also connects to “a number of IOI-related products.” He added that there now exists “a virtual book of IOIs for algorithms to trade against.”

For brokers, an execution in Knight Link “reduces market-impact costs and avoids exchange or ECN fees,” Nazarali said. For Knight, avoiding the public markets reduces its fees, facilitates its risk management and enables the firm to take on more trading with clients because it can more easily hedge its activities.

Nazarali said the next stage for Knight Link is working with ECNs, exchanges, mid-tier and regional brokers, and order management systems and execution management systems to provide them with an additional liquidity source that can potentially reduce their execution costs.

(c) 2007 Traders Magazine and SourceMedia, Inc. All Rights Reserved.<

Nina Mehta

Posted by T e x on :

Neovest’s Do-It-Yourself Algo Revolution

Nina Mehta

October 05, 2007 - It’s official. First came the OMS. Then the EMS. Now there’s an AMS. Neovest, the builder of a popular execution management system, is incorporating functionality into its platform that lets traders more efficiently manage their use of the 100-plus algorithms on the system. The vendor, a subsidiary of JPMorgan, calls AlgoGenetics, its new software toolkit, an algorithmic management system, or AMS.

This “new class of software,” as Neovest deems it, lets traders construct their own “meta-algorithms”—automated execution strategies that combine algos from multiple brokers, dark pools and direct-market-access tools. In doing so, it frees them from the time-consuming process of overseeing and adjusting their electronic execution strategies.

In effect, AlgoGenetics lets traders replicate the way they trade manually through self-customized algos, which they can name, share on their desk and update whenever they want. They can also use AlgoGenetics to adapt the behavior of existing broker algos to suit their execution needs.

Free at Last

A trader can, for example, construct a meta-algo to buy a stock via a Credit Suisse implementation shortfall algo in the morning, regularly checking for crosses on NYFIX Millennium. After a predetermined portion of the order is executed, the meta-algo could switch to a JPMorgan volume-based algo, changing its participation level in the market based on the stock’s price. The algo could also be programmed to spray orders into dark pools.

“Traders don’t have to be boxed in anymore,” says Bryce Byers, Neovest’s chief executive officer. “They know which algorithms [from different brokers] they want to use for specific situations, and when to switch algos based on market conditions, price, time or other criteria. They can now leverage the strength of all their algo providers to trade exactly the way they want.” The Neovest EMS gives users a suite of DMA tools and access to 20 dark pools, 130 broker-dealers and algos from 20 brokers.

AlgoGenetics was developed by a half-dozen technologists from Neovest and a team of six from JPMorgan’s algo product development group. The platform grew out of the algorithmic customization work JPMorgan does for clients. More than 50 percent of the firm’s clients ask for some level of customization, notes Carl Carrie, global head of Neovest and algorithmic products in JPMorgan’s electronic client solutions group. He speculates that many buyside traders will eventually become conditioned to “building and harvesting their own algos.”

JPMorgan bought Neovest in 2005, at a time when other broker-dealers were snapping up independent DMA platforms. These include Citi’s acquisition of Lava Trading in 2004 and Lehman’s acquisition of RealTick in 2005. Fifteen broker-dealer “resellers” currently offer the multi-broker Neovest platform to their clients. These include Pershing, Electronic Specialist and Fidelity Capital Markets Services.

Next Step

Neovest doesn’t charge customers for the AlgoGenetics platform. As with all trading through Neovest, customers pay brokers and execution venues for the executions they receive. Neovest gets $0.0008, or 8 mils, per share from brokers, with no minimum fee.

Adam Sussman, an analyst at research firm TABB Group, notes that the functionality in Neovest’s AlgoGenetics represents the “next step” for multi-broker algorithmic aggregation platforms as execution management becomes more complex in a fragmented marketplace. The initial advance, spearheaded by Bloomberg, was enabling traders to access multiple algos from different brokers on one system. Many vendors of order management systems and EMSs, including Neovest, now aggregate algos from dozens of brokers.

Sussman sees two main benefits to this type of algorithmic management platform. First, it enables users to switch between algos without manually overseeing that process, by setting conditions “that will automatically drive an order from one algo to another.” In Sussman’s view, this is particularly important for firms shuttling 20 to 25 percent of their flow through algorithms, since those firms are likely to encounter workflow-management issues. Second, Sussman adds, creating meta-algorithms forces a trader “to automate his thought process, enabling him to map what he wants to see happen with an order onto an algorithm.”

Other technology providers, such as Progress Apama, FlexTrade and Portware, offer tool kits that enable traders to build their own algos, but these typically require some programming or computer skills and are not set up to readily use broker algos as components within a larger execution strategy.

Neovest’s Byers notes that AlgoGenetics was designed for ease of use. “A trader doesn’t have to corner a programmer or ask the sellside to customize an existing algo to meet his specifications,” he says. The trader can use AlgoGenetics’ drag-and-drop interface to create algos on the fly and put them into operation immediately.

The first clients to use Neovest’s AlgoGenetics are three New York-based hedge funds, including Scopus Asset Management. Bill Skutch, the head trader at Scopus, says the platform “allows us to maintain neutrality among brokers and take more control over algos by customizing them for individual stocks or sectors.”

Stronger Platform

Brad Bailey, a senior analyst at research firm Aite Group, points out that buyside traders increasingly want more flexibility around the algos they use. “[AlgoGenetics] is a tool that makes absolute sense if it optimizes a trader’s use of algorithms, leads to cost mitigation and has a rules-based approach to execution,” he says.

In addition to benefiting traders, AlgoGenetics could enhance Neovest’s position in a competitive landscape for multi-broker EMSs. JPMorgan’s Carrie says AlgoGenetics puts Neovest in the catbird seat. “We believe Neovest will be the strongest algo platform in the near term as a result of AlgoGenetics and our other offerings,” he says. “This empowers traders not just to trade better, but to build their own capabilities for trading better. It’s a greenfield opportunity for traders.”

(c) 2007 Traders Magazine and SourceMedia, Inc. All Rights Reserved.<

Nina Mehta

Posted by T e x on :

Public Markets Tap Into Dark Pools

Peter Chapman

October 25, 2007 - Orders sent to the public marketplace are increasingly not being filled there.

A handful of exchanges and ECNs, those entities that make up the public marketplace, have begun initiatives to pair their incoming orders that can’t be executed with those sitting in dark pools. Rather than automatically route these orders to other public market centers, as is standard practice, they are looking to ship them to broker-dealers for a fill. The nascent trend is likely to increase the number of trades done away from the displayed markets.

“We are in the middle of building a dark-pool strategy,” Brian Hyndman, a senior vice president in Nasdaq’s transaction services group, told Traders Magazine. “We plan to introduce an order type that would not only route out to the public markets, but if the customer requested, would also route to certain dark pools.”

Nasdaq is not alone. NYSE Arca, the ISE Stock Exchange, LavaFlow ECN, and Direct Edge ECN are also ramping up efforts to let their customers interact with non-displayed orders resident elsewhere. In most cases, that means the systems of broker-dealers, but it could also include those of the buyside.


What the exchanges and ECNs are doing is not entirely new. Direct Edge has offered an order type that routes incoming orders that can’t be executed to certain “enhanced liquidity partners,” [ELPs] including dark pools, since last year.

But the trend is picking up steam. Nasdaq says it will start development of its order type this quarter. Lava says it is in the early stages of development and is in talks with several dark pools.

The drive to “aggregate” dark pools is also not new. Most of the major broker-dealers have developed algorithms that can simultaneously “ping,” or probe, several dark pools. And some of the dark pools themselves are either entering into order-sharing arrangements with each other or else electronically alerting sellside and buyside systems to orders they hold.

Both groups of broker-dealers are reacting to the explosion in the number of dark pools and the associated volume. By accessing as many of these pools at once, the brokers satisfy their customers’ need to efficiently probe the systems. And by avoiding the public marketplaces, they avoid transaction fees.

For the exchanges and ECNs, the idea of pairing orders with those resting in third-party dark pools is not too far removed from their current practice of pairing incoming orders with orders resting undisplayed in their own systems.

Hidden Orders

Both Nasdaq and NYSE Arca in particular have found great success with hidden order types, or those resting undisplayed inside their systems. Nasdaq, for instance, says about 18 percent of its liquidity is invisible. Incoming orders have the opportunity to match up with these orders at the midpoint of the market.

The ISE, which operates an intraday crossing system called MidPoint Match, offers similar functionality. Traders using discretionary order types can trade against orders residing in the MidPoint Match at the BBO midpoint. Discretionary orders are those that display at one price on the ISE book but are set to trade at a more aggressive, undisclosed price.

Despite interest on both sides of the bright/dark divide for additional exposure, a closer partnership is not a slam dunk. The bright pools are nervous about throwing their orders into dark places. The dark pools are equally nervous about exposing their orders to the light (or to other dark pools, for that matter). Each group is worried about surrendering information to the other side.

Dark pools typically suffer from low match rates. Thus, they are eager to interact with the outside world. But they are reluctant to share their orders with others, lest they leak valuable information. So while they want contact, they want it on their terms.

And while they are not averse to alerting outsiders to the presence of specific orders resting in their systems, dark pools are nervous about letting outsiders in simply to poke around. In the past year, two dark pools—Investment Technology Group’s POSIT and Pipeline Trading—banned access to broker-dealer algorithms.

Others are cautious as well. “Everybody wants us to give them a feed into our dark pool,” says Andy Brenner, head of the ISE Stock Exchange, “but we’re not comfortable with that.”

Soliciting Interest

If the customer permits, the ISE can also send out alerts to its broker-dealer members about the existence of an order inside MidPoint Match. The ISE sends out what it calls a “solicitation of interest” that offers up the name of the stock only. It does not include any price or size information, as would a typical “indication of interest.” The SOI doesn’t indicate whether it’s a buy or sell order.

Agency broker BNY ConvergEx is grappling with the same issue as its new VortEx dark pool gets off the ground. BNY will allow ECNs and exchanges to transmit IOIs to VortEx, but has so far decided not to send VortEx orders out. “We are trying to be very careful about our client information,” says Carey Pack, president of BNY ConvergEx Execution Solutions.

Dark pools’ reluctance to throw down a welcome mat partly explains the approaches of the two ECNs trying to get inside the systems. If a Direct Edge customer opts to seek out liquidity on the books of one of the ECN’s six enhanced liquidity partners, Direct Edge will first send an IOI to the dark book. It will not simply ping the system. (When it first launched the service, it was pinging the pools, sources say.) The dark book can refuse the trade.

“Dark pools want to be dark,” says Bill O’Brien, Direct Edge’s chief executive officer. “They don’t want to put a displayed order on our book. We are not forcing them to trade.”

Despite the uncertainty of a fill with this method, Direct Edge is having some success with its ELP program. On a recent day, the ECN traded about 18 million shares of dark liquidity. That was about 5 percent of the total 320 million shares hitting Direct Edge that day. (Direct Edge’s match rate is about 50 percent.)

The percentage of Direct Edge volume trading against dark flow is up considerably from when the program started, O’Brien says. And it is likely to go higher still, he adds. “We intend to add more partners, as well as raise the profile of the program,” he says.

Recently, Knight Capital Group, the owner of Direct Edge, sold a large stake in the ECN to Goldman Sachs and Citadel Derivatives Group. Some expect the two big trading firms to become enhanced liquidity providers. O’Brien would only say that the ECN has plans to disclose the name of its ELPs in the near future as part of its branding.

Citi’s LavaFlow ECN is in the early stages of developing its dark-pool aggregation, or “hub,” plan. It is taking a different approach. Rather than ping the dark pools or transmit IOIs to them, LavaFlow plans a kind of order-sharing arrangement. An order sitting in a dark pool can simultaneously sit undisplayed in LavaFlow. If a contra-side order comes into LavaFlow and doesn’t match, it has the option of matching with the dark order in the dark pool.

Dark Strategies

LavaFlow will deliver the contra order to the dark pool. If the dark-pool order is still unexecuted, the two will match. If the order has been executed, the pool will reject the LavaFlow order. Lava is, in effect, mimicking the order-delivery functionality some exchanges offer ECNs. It is offering the dark pools the option of having orders delivered to them for possible execution. That eliminates the possibility of a double execution.

John Procopion, director of sellside execution services in Citi’s electronic trading group, describes LavaFlow as a “next-generation ECN” because it performs the traditional ECN role of displaying liquidity and also acts as an aggregator of dark liquidity.

The goal is similar to the one that put Lava Trading on Wall Street’s map nearly 10 years ago. At a time when traders were trying to cope with a growing number of ECNs, it introduced its ECN-aggregator product. Known as ColorBook, the product was a roaring success. Today, ColorBook also connects to dark pools.

More Flow

LavaFlow is being positioned to tap into the tremendous order flow passing through ColorBook. About 1.5 billion to 2 billion shares pass through the system each day. With the launch of LavaFlow earlier this year, ColorBook users have had the option of checking the ECN’s book for fills before traveling on to their destination. The ECN is open to other direct access systems although it does not route those orders out.

All trades occurring in LavaFlow are printed using the FLOW market participant identifier. All orders that route out and trade on other public venues are printed using the GOTO identifier. (A past article in this magazine mischaracterized GOTO as an algorithm that searches dark pools.) If a routed order trades in a dark pool instead, it will print under that pool’s market participant ID.

Procopion maintains LavaFlow’s order-delivery methodology is superior to both pinging and using IOIs, which expose valuable information. “Customers are not inclined to show their hands if they don’t have to,” Procopion explains. “They are willing to participate if there is something to do on the other side. They don’t want to blindly ping some proprietary engine and potentially tip their hands.”

As for IOIs, they are not firm orders. Thus, using them is not as effective as order delivery, Procopion says. “This is an actual order resting in LavaFlow,” he says of his firm’s methodology.

Exchange Strategy

Nasdaq would not discuss its strategy—IOIs, pinging or order delivery—but its plans include using its Nasdaq Execution Services broker-dealer to route to dark pools. Nasdaq is considered the most aggressive of the exchanges in this area. In fact, many sources question if industry regulations even permit exchanges to interact with undisplayed markets. Some exchange execs say it is easier for an ECN to offer these services than an exchange.

Brian Carr, president of NYFIX Millennium, one of the larger dark pools, says he is uncertain as to whether Millennium could interact with an exchange, but says the field “is wide open” for ECNs. Millennium, like ISE MidPoint Match, sends electronic alerts out to buyside and sellside systems if the customer permits.

Carr says Millennium is open to sending the alerts to ECNs. “We don’t treat ECNs any differently from broker internalization or other matching systems,” he says. “We’ll talk to anyone who has a pool of liquidity that we can easily connect to and share liquidity.”

At the ISE, Brenner says his exchange is “thinking about creative ways” to aggregate dark pools, but won’t be more specific. “Wouldn’t everybody love to be the place where all that order flow sits?” he adds. Executives from the Chicago and Philadelphia stock exchanges say they have no immediate plans to offer access to dark liquidity, but they are studying it due to its growing importance.

Princeton, N.J.-based Order Execution Services is a specialty broker-dealer that routes orders from one public marketplace to another on behalf of the outbound routing marketplace. Mike Barth, an executive vice president at OES, sees interest from his firm’s customers, often the broker-dealer units of exchanges, to “find ways to access dark pools.” Barth notes that reducing transaction costs is partly driving interest. “Everyone recognizes the value that the dark model brings,” he says, “so there is an effort to try to integrate it into Reg NMS.”

(c) 2007 Traders Magazine and SourceMedia, Inc. All Rights Reserved.

Posted by T e x on :
way cool site for public lands, mining DD, etc:
Posted by T e x on :


This site is about timing financial markets. It does not suggest that timing should become a part of your overall investment strategy, only that if you dismiss it entirely you may be missing something. Specifically, the site demonstrates one version of the Decision Moose framework, INDEX MOOSE, which uses exchange traded index funds in an attempt to time the markets.

The Moose first appeared on the internet in 1997. Between 1997 and 2000, while the S&P 500 was gaining an impressive 79%, Index Moose fared even better, up 179%. It went into cyber-hibernation in April 2000 when the author, William Dirlam, took a position with a new investment advisory firm and had to pull the site from the internet. U.S. stocks then suffered their worst bear market since 1929, while Index Moose returned about 300% through January 2004, at which point the model returned to the internet.
Posted by BooDog on :
Always good to have a set of your own rules.
Link provided by Tex.

Tips for Winning at Day Trading
Making money is easy–it's keeping it that's tough. Here are some suggestions to help you profit over the long term
By Ben Levisohn

I was 25, teaching preschool in Colorado, and getting tired of listening to a childhood friend tell me he was making more money each day "day trading" than I made in a month. When he offered me the chance to come to New York and learn how to do it too, I jumped.

At the time, of course, I knew nothing about the stock market or how it worked. But I gradually learned. At a now-defunct day-trading firm, I was taught how to trade, but the system I was taught was useless if I didn't have the mental bent to stick with it. At least there were rules I could follow. Some were ready-made; others I had to figure out myself. Some came easily; others took time to internalize. I'm no longer a day trader, but the rules are still with me. Here are the ones that helped me earn a living as a day trader for nearly eight years.

1. Have a system and stick to it like Crazy Glue.
As a trader, I was a tape reader. But I was a tape reader with a niche: mid-cap stocks on the New York Stock Exchange. I watched the stocks trade, and I watched the quotes change, looking for an entry point. If a large order appeared on the tape, I'd buy myself a few hundred and see what happened. That was my system.

When you're trading, you have to have a system—rules that define which stocks you watch, and when you buy or sell. Whether you're buying undervalued large caps or short-term momentum plays, find a system that works and stick to it. There's a word for trading on tips or because a talking head mentioned it on CNBC: gambling.

2. Cut your losses.
As a trader, you have to minimize your losses. When I was wrong (that is, if I knew I was wrong), I would try to exit my position with as little damage as possible. No trader makes money all the time. At my best, one-third of my trades were winners, one-third were losers, and the remaining third were negligible. But I knew I'd traded well if my biggest winner was three times the size of my biggest loser. Of course, I wasn't able to do this every day. I once lost $3,000 on a Friday and, as punishment, I got to chew on it all weekend. But there's always tomorrow. That is, unless you blow through your capital. Then you're finished, kaput.

3. The only thing you have to fear is fear itself.
I was a preschool teacher before I became a day trader, and believe me, I was more suited to playing with 4-year-olds than I was to watching market machinations. When I started, I sat at my desk for a week without making a trade. My boss finally emerged from his office and informed me that it was time. So I did it. I bought 100 shares. I lost money. And I lived through it.

Still, I had a hard time accepting the notion of risk. I cost myself money every day because I was afraid of losing an eighth or a 16th on a trade. I'd dump my stock for a small profit, only to see it run up a point right after I got out. It took me a year, and cost me thousands of dollars in profits, to learn to control my fear. And you know what? During that whole time, the downside was never worse than my imagination.

4. Don't get greedy.
You can't live on paper profits. But when you're holding a position that has done everything you expected—and more—it's very easy to get greedy. You start thinking, "Sure, I'm in the money a couple of grand, but it could go higher." So you hold on, long after the signs have started to indicate momentum is turning. And your gain turns into a loss. There's nothing wrong with selling into strength and taking some of your gains off the table.

5. Worry about what you can control. Ignore what you can't.
When I started trading eight years ago, I heard whispers on the desk about a new trader and a trade gone bad. It was our version of the horror story around the campfire. The trader, so the story went, owned 200 shares of a stock and was in the money $200. It was a winning trade. Then the stock was halted because of accounting irregularities. It reopened down 20 points and the trader lost $4,000.

This is an extreme example, but it teaches a great lesson. In the market, events occur all the time that we have no control over. Earnings are preannounced. A takeover attempt becomes public. A CEO dies in a plane crash. Stuff happens. That story, by the way, turned out to be true. That trader could have walked away, but instead kept at it and is still in the business eight years later. The moral? Control what is in your ability to control and let the rest go.

6. The market is always right.
You might think you know better than the market. Think again. The market always knows best, and if you try to fight it, you will lose. Guaranteed. I've seen trader after trader lose gobs of cash after buying a stock and watching it plummet. As they count their losses, they all say the same thing, "But the stock had good news." Good news isn't always positive, and bad news isn't always negative. If it were that easy, I'd still be trading.

7. A little bit of technical analysis never hurts.
As a tape reader, I didn't care much for technical analysis. Or rather, I didn't understand most of it, and I certainly wasn't going to place an order because a computer told me to. I'll leave that to the quants. But some technical indicators are easier to understand, and more important, they matter. Take support and resistance levels: Resistance occurs on the upside, when a stock reaches a point and can't go any higher. Support is the level a stock won't trade below on the downside. They're usually pretty easy to spot. When a stock price breaks through one of them, watch out, because everyone else is. A move isn't guaranteed (there are no guarantees), but interesting things can happen.

8. Don't try to catch a falling safe.
Many traders are gamblers at heart, and nothing appeals to the gambler more than trying to guess when a stock has hit rock bottom and is ready to reverse direction. The upside move is usually quick and violent, and if you're right, you stand to make a lot of money. But picking the bottom isn't easy.

In 1999, I witnessed firsthand what can happen when you're wrong. SunTrust Banks was getting hammered, and rather than doing the smart thing and shorting the stock, one of my colleagues figured he would try to catch the bounce. He bought some shares. The stock dropped. He bought some more. The shares continued to fall. The firm finally ordered him to sell. He lost $20,000.

It's really quite simple. Don't fight momentum.

9. Buy low, sell high.
We hear this so often, it's easy to ignore. But forgetting it is one of the biggest mistakes a trader can make. If you're dollar-cost averaging, timing is unimportant, but if you're trading, price matters.

A stock starts to move, but you want confirmation, so you wait to buy. It moves a little more, but you're still unsure, so you let it go. Then it really starts to fly and you place your order. Your order gets filled just as the move ends. You've bought the stock from someone who had held the shares since the move started. He makes a big profit; you take a big loss, cursing your bad luck.

10. Know your exit.
When the dot-com bubble popped, it took many a trading profit with it. Why? Because a lot of traders didn't have exit strategies. A stock would fall, traders would "buy the dip" and wait for it to bounce. The stocks always did. But then they didn't.

Regardless of your time frame, have an exit strategy for if a trade doesn't go your way. I liked to use stop-loss orders, which triggered a sale if a stock hit my predetermined loss threshold. But whatever you do, know when you'll get out, so a small loss doesn't turn into a big one you can't recover from.

11. Build a pyramid.
If you have 100 shares and a stock moves a point, you make $100. With 1,000 shares, you can make $100 on a 10¢ move. Obviously, you can make more money with a larger position, but with it you also have more risk. So how do you balance the risk and reward? Build a pyramid.

I would typically start my position with anywhere from 500 to 1,000 shares. As the stock went up, I'd add more shares along the way. But I would try to add in smaller increments, keeping the base of my position larger than subsequent purchases. That way, if I ended up buying 100 shares more at the top, I had 1,000 from the bottom. A top-heavy pyramid topples; a bottom-heavy position protects your risk.

12. Making money is easy. Keeping it is hard.
Anyone can make money in a trade. It's easy. You buy a stock, it goes up, and you sell it. Every trader can regale you with a story of his big winner. But even a monkey at a keyboard can be right every once in a while. What separates a profitable trader from that monkey is the ability to hold on to hard-won gains. Maybe these tips will help you do just that.
Posted by BooDog on :
Pretty cool swing trader site...
Posted by BooDog on :
Level II lesson
Posted by T e x on :

nice summary of the distinction between investor and trader for IRS purposes--and, no, it's *not* related to the "pattern day trader" definition re: SEC/FINRA and brokerages. Nice info on electing to go "mark-to-market," too.

Form D & wash sale info:

[ February 02, 2008, 20:47: Message edited by: T e x ]
Posted by T e x on : ember122007.pdf ember122007.pdf ember122007.pdf***X

[ February 16, 2008, 15:01: Message edited by: T e x ]
Posted by Happy Valley on :
Type in the ticker and it will list what funds are buying/selling that particular stock...Click on the fund and it will also list the date of the transactions...Nice little quick check for big board players...
Posted by T e x on :
hey, fellas?

please find or create a more appropriate [edit] thread [/edit] for these two posts.



[ April 05, 2008, 00:30: Message edited by: T e x ]
Posted by T e x on :
lol, nice post...
Posted by T e x on :
wash sale info, from

Wash Sales 101
How the wash sale rule works

By Kaye A. Thomas
Updated May 30, 2007

Accounting for Active Traders

Schedule D made easy
Open a savings account now

A rule that postpones losses if you buy replacement shares around the same time.

When the value of your stock goes down you get that sinking feeling — you've lost money. But the tax law doesn't allow that loss until you sell the stock. In a way that's good, because it means you can control the timing of your deduction, taking it when the benefit is the greatest.

The problem is, you may have a conflict. You want to deduct the loss, but you also want to keep the stock because you think it's going to bounce back. It's tempting to think you can sell the stock and claim the loss, then buy it back right away. And that's where the wash sale rule comes in. If you buy replacement stock shortly after the sale — or shortly before the sale — you can't deduct your loss.
General Rule

In general you have a wash sale if you sell stock at a loss, and buy substantially identical securities within 30 days before or after the sale.

Example: On March 31 you sell 100 shares of XYZ at a loss. On April 10 you buy 100 shares of XYZ. The sale on March 31 is a wash sale.

The wash sale period for any sale at a loss consists of 61 days: the day of the sale, the 30 days before the sale and the 30 days after the sale. (These are calendar days, not trading days. Count carefully!) If you want to claim your loss as a deduction, you need to avoid purchasing the same stock during the wash sale period. For a sale on March 31, the wash sale period includes all of March and April.
Contracts and Options

The wash sale rule can apply even if you don't acquire stock. If you enter into a contract or option to acquire stock, that's enough to make the wash sale rule apply. Your sale of stock can also be a wash sale if, within the wash sale period, you sell a put option on the same stock that's "deep in the money." And you can have a wash sale from selling options at a loss, too. For more on this subject see Wash Sales and Options.
Consequences of a Wash Sale

The wash sale rule actually has three consequences:

* You are not allowed to claim the loss on your sale.
* Your disallowed loss is added to the basis of the replacement stock.
* Your holding period for the replacement stock includes the holding period of the stock you sold.

The first one is clear enough, but the others may require some explanation.
Basis Adjustment

The basis adjustment is important: it preserves the benefit of the disallowed loss. You'll receive that benefit on a future sale of the replacement stock.

Example: Some time ago you bought 80 shares of XYZ at $50. The stock has declined to $30, and you sell it to take the loss deduction. But then you see some good news on XYZ and buy it back for $32, less than 31 days after the sale.

You can't deduct your loss of $20 per share. But you add $20 per share to the basis of your replacement shares. Those shares have a basis of $52 per share: the $32 you paid, plus the $20 wash sale adjustment. In other words, you're treated as if you bought the shares for $52. If you end up selling them for $55, you'll only report $3 per share of gain. And if you sell them for $32 (the same price you paid to buy them), you'll report a loss of $20 per share.

Because of this basis adjustment, a wash sale usually isn't a disaster. In most cases, it simply means you'll get the same tax benefit at a later time. If you receive the benefit later in the same year, the wash sale may have no effect at all on your taxes.

There are times, though, when the wash sale rule can have truly painful consequences.

* If you don't sell the replacement stock in the same year, your loss will be postponed, possibly to a year when the deduction is of far less value.
* If you die before selling the replacement stock, neither you nor your heirs will benefit from the basis adjustment.
* You can also lose the benefit of the deduction permanently if you sell stock and arrange to have a related person — or your IRA — buy replacement stock.
* As explained in my book, Consider Your Options, a wash sale involving shares of stock acquired through an incentive stock option can be a planning disaster.

Holding Period

When you make a wash sale, your holding period for the replacement stock includes the period you held the stock you sold. This rule prevents you from converting a long-term loss into a short-term loss.

Example: You've held shares of XYZ for years and it's been a dog. You sell it at a loss but then buy it back within the wash sale period. When you sell the replacement stock, your gain or loss will be long-term — no matter how soon you sell it.

In many situations you get more tax savings from a short-term loss than a long-term loss, so this rule generally works against you.
Additional Rules

There's a lot more to the wash sale rule. We get questions on our message board about all of the following issues:

* You don't have a wash sale unless you acquire (or enter into a contract or option to acquire) substantially identical securities.
* You don't have a wash sale, even though you bought identical shares within the previous 30 days, if the shares you bought aren't replacement shares.
* There are mechanical rules to handle the situation where you don't buy exactly the same number of shares you sold, or where you bought and sold multiple lots of shares. See Wash Sale Mechanics.
* If a person who's related to you — or an entity related to you, such as your IRA — buys replacement property, your loss may be disallowed under a different rule: you may be treated as if you made an indirect sale to a related person.
* You don't actually have to purchase stock within the wash sale period to have a wash sale. It's enough if you merely enter into a contract or option to acquire replacement stock.
* Short sales present a special problem in connection with the wash sale rule.
* There are special considerations in applying the wash sale rule to traders.

Losses Only

The wash sale rule only applies to losses. You can't wipe out a gain from a sale by buying the same stock back within 30 days.
Planning for Wash Sales

What can you safely do to plan around the wash sale rule? No technique is completely safe. Here are some ideas to consider.

* Most obviously, you can sell the stock and wait 31 days before buying it again. (Check your calendar carefully!) The risk here is that the stock may rise in price before you can repurchase it.
* If you're truly convinced the stock is at rock bottom, you might consider buying the replacement stock 31 days before the sale. If the stock happens to go up during that period your gain is doubled, and if it stays even you can sell the older stock and claim your loss deduction. But if you're wrong about the stock, a further decline in value could be painful.
* If your stock has a strong tendency to move in tandem with some other stock, you may be able to reduce your risk of missing a big gain by purchasing stock in a different company as "replacement" stock. This is not a wash sale because the stocks are not substantially identical. Thirty-one days later you can switch back to your original stock if that is your wish. But there's no guarantee that any two stocks will move in the same direction, or with the same magnitude.

There's no risk-free way to get around the wash sale rule. But then again, continuing to hold a stock that has lost value isn't risk-free, either. In the end it's up to you to evaluate all the risks, and balance them against the benefit you'll receive if you can claim a deduction for your loss.

Posted by T e x on :
Originally posted by T e x:
NSCC pre-emptive pardon


T e x

posted June 13, 2005 07:15 PM
did Gerald Ford's pre-emptive pardon of Nixon bother anyone? This, on DTCC letterhead, is infuriating:[/URL]

DATE: MAY 16, 2005
On December 8, 2004, National Securities Clearing Corporation ("NSCC" or “the Corporation”) filed
and on May 9, 2005 the Securities and Exchange Commission ("SEC") approved rule filing SRNSCC-
2004-09, which consists of modifications to NSCC’s Rules and Procedures (the “Rules”) to
memorialize the Corporation’s current standard of care and limitation of liability.
The approved changes create a uniform standard limiting NSCC’s liability to direct losses caused by
NSCC’s gross negligence, willful misconduct, or violation of Federal securities laws for which there is
a private right of action. In addition, the changes: (a) memorialize an appropriate commercial
standard of care that will protect NSCC from undue liability; (b) permit the resources of NSCC to be
appropriately utilized for promoting the accurate clearance and settlement of securities; and (c) are consistent with similar rules adopted by other self-regulatory organizations and approved by the Commission.

Questions regarding SR-NSCC-2004-09 should be directed to Allison Finnegan, Senior Associate
Counsel, at (212) 855-3283, or to the undersigned at (212) 855-3203.

Karen L. Saperstein
Managing Director and General Counsel

Nashoba Holba Chepulechi
Adventures in microcapitalism...

Posts: 15502 | From: Fort Worth | Registered: Apr 2005 | IP: Logged | f/2/t/007928/p/99.html?
better link:
Posted by Ticker on :
Oh my! Now that I am done chasing stocks for the day, I will read this...and read... and read... [Wink]
Posted by BooDog on :
Halts & Resumptions / Cease Trade Orders

For Cananda's IIROC

Trading Halts & Timely Disclosure

Disclosure rules require that companies report all material information about their business and financial affairs to the public in a timely and fair manner. These rules aim to ensure that investors are given equal access to material information.

IIROC monitors the timely disclosure of material information by companies trading on marketplaces that have retained IIROC as their regulation service provider. Media releases issued by listed companies with material information are reviewed by IIROC surveillance staff before being released on the newswires or the company’s website. If a news release is unclear or overly-promotional, IIROC may ask the company to revise it.

When surveillance staff believe that the information is material enough to significantly impact the price of the security they might issue a “trading halt.” A trading halt is a temporary pause in trading to allow the market to properly absorb the information. It is based on the principle that all investors should have the same timely access to important company information.

The reactivation of trading after a halt is called a “trade resumption.”

In a given year, IIROC coordinates more than 1,000 halts and 750 resumptions.

If IIROC staff notice erratic price moves in stocks, they will contact the issuer to see if it has information to explain the movement. Staff may ask the company to issue a news release if they believe that material information is leaking into the market or if they believe rumours are affecting the stock price.

When a company fails to make timely disclosure of material information, the provincial securities regulators can issue a Cease Trade Order (CTO) which stops the trading of the company’s stock. Once issued, a CTO remains in effect until the company meets its disclosure obligations.

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