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[QUOTE]Originally posted by T e x: [QB] NSCC "liability": http://www.nscc.com/impnot/notices/notice2005/a6029.pdf letter to SEC re NSS and NSCC liability: [QUOTE]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. http://www.sec.gov/rules/sro/nscc/34-51669.pdf#search SECURITIES AND EXCHANGE COMMISSION (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. 2 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 3 direct losses caused by NSCCs gross negligence, willful misconduct, or violation of Federal (..continued) 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. 4 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). 5 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. 6 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. 7 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.[/QUOTE] http://ftp.sec.gov/comments/s7-12-06/jwhite2901.htm ------- [QUOTE]SEC NEWS DIGEST Issue 2005-89 May 10, 2005 SELF-REGULATORY ORGANIZATIONS APPROVAL OF PROPOSED RULE CHANGE 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) [/QUOTE] http://www.sec.gov./news/digest/dig051005.txt ----- notice in Federal Register: http://thefederalregister.com/d.p/2005-05-13-E5-2374 [/QB][/QUOTE]
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