Subject: Follow-up on July 22 Meeting


Download 4.3 Mb.

bet1/26
Sana20.01.2018
Hajmi4.3 Mb.
  1   2   3   4   5   6   7   8   9   ...   26

July 23, 2008 

Subject: 

Follow-up on July 22 Meeting 

Dr. Sirri et al.: 

I thank you for meeting with Ken Salomon, John Welborn and me yesterday afternoon to 

discuss Reg SHO, naked short selling and the SEC's recent emergency order.  As a 

follow-up, I want to emphasize the following points: 

1.  OSTK continues to believe that it is critical that the SEC extend the pre-borrow 

requirement of the emergency order to the entire market, not just the 19 select 

companies.  OSTK requests that the SEC promptly undertake swift rulemaking so that 

this protection applies fairly across the market. 

2.  OSTK continues to support the prompt and full elimination of the option market 

maker exception, an exception that swallows up the good intentions of Reg SHO.  During 

yesterday's meeting, we discussed the relationship between the markets for equities and 

their corresponding derivatives (including listed options). You stated that options market 

makers enjoy an exception from the Reg SHO requirement that they locate and/or deliver 

shares when hedging against options positions. I am not sure that I would read Reg SHO 

to say that.  However, under your theory, if an options market maker sells a put with a 6-

month expiration, then that same market maker has the legal right to naked short and fail 

to deliver an equivalent amount of the underlying equity (leaving the option market 

maker "delta neutral”) for six months. This exception is unnecessary and open to 

abuse/manipulation, particularly with the married puts that often occur in Reg SHO 

threshold securities. Further, OSTK does not believe that such a transaction is “net 

neutral"—that is, that this introduces no additional long or short pressure into the market 

for an issue, as a whole. That would be true if the options market maker entered into a 

legitimate short sale arrangement to borrow shares for the duration of the options 

contract. The act of naked shorting and failing to deliver in perpetuity, however, creates a 

"net change" in the aggregate “risk profile” of an issue (that is, the sum of all long/short 

positions, both in the derivatives space and in the underlying equity). Furthermore, the 

change in the gross sum of tradable securities entitlements in the equity market can drive 

the price below its equilibrium level, both in the short run and long run. In addition, the 

option market maker exception has the added effect of depressing stock loan rebate rates, 

as the options market has become a surrogate for the stock loan market. The option 

market maker exception is not only unnecessary, it is tool used for market distortion and 

manipulation. 

3.  OSTK applauds the SEC for beginning to disclose the daily volume of failures-to-

deliver on a company by company basis.  This is useful information that investors need to 

be able to access.  OSTK urges the SEC to disclose (or perhaps better yet require either 

the exchanges or the DTCC to disclose) this information on a much more timely basis.  

The current lagged disclosure is as much as five months stale.  At the very least, this 


failure-to-deliver data should be available to investors at least as frequently as the 

legitimate short interest data (which the exchanges release twice a month). 

4.  OSTK (along with many others) has long advocated including a pre-borrow 

requirement in Reg SHO.  Yesterday you asked whether in a world where shares are 

always delivered, is such a pre-borrow requirement necessary.  Assuming such world, 

OSTK believes the answer is "no" -- with several caveats: 

o

Without strict and constant surveillance and regular and meaningful 



enforcement and penalties to ensure delivery, such a world is hard to 

imagine.   

o

There would need to be no exceptions to the delivery requirement.  



o

A pre-borrow requirement focuses on the front end of the trade and would 

ensure that no trade would result in a failure-to-deliver; a hard delivery 

requirement focuses on the back end of the trade and creates a period ripe 

for fraud.  I suspect this is why theatres require patrons to present a ticket 

prior to entering the show, rather than allow them to watch the show and 

deliver a ticket five days later. 

o

A hard delivery requirement still allows for an intra-period raid (the period 



would be a day if the hard delivery period was T+1 or a week if the hard 

delivery requirement was T+5).  A trader (day trader, market maker, etc.) 

could raid a stock on naked short sales and cover under the panic sell that 

day.  Without a pre-borrow requirement, a naked short selling trader never 

engages in a borrow so long as he covers during the required period.  

Having no pre-borrow allows the trader to sell as many shares as he likes, 

so long as he covers within the hard delivery period.  There is a lot that 

can be masked by such  trading activities, especially by hedge funds with 

the financial firepower to use fast trading technique to create the panic 

selling into a profitable cover. 

As the SEC considers the differences between a pre-borrow requirement and a hard 

delivery requirement, OSTK suggests that it consider the emerging technology (e.g., the 

Lendex platform) that may allow for maximum liquidity in a pre-borrow world. 

5.  Attached is a spreadsheet showing the $8.5b mark-to-market value of all of the 

failures-to-deliver that occurred with in the DTCC on March 31, 2008 (the most recent 

date for which failure-to-deliver data is available to the public).  Companies listed on the 

Reg SHO threshold list make up $6.1b (72.5%) of the value.  These numbers do not 

include failures-to-deliver occurring outside the DTCC.  In addition, OSTK believes that 

the mark-to-market calculation is an overly conservative way to calculate the effect of the 

failures-to-deliver because those creating the failures-to-deliver would likely be unable to 

cover them at the market prices -- especially in stocks where the failures-to-deliver are a 

large part of (or exceed) the float. 



<<2008.03.31 (SEC) Total FTD Value.pdf>> 

6.  OSTK urges the SEC to expand the purview of Reg SHO to include transactions that 



occur outside the DTCC.  As the SEC looks to improve Reg SHO, it makes sense to 

expand its purview to all trades.  Otherwise, those that use Reg SHO's current loopholes 

to distort and manipulate the market will just move their abusive practices to ex-clearing 

transactions. 

Again, I thank you for taking yesterday's meeting and for your thoughtful consideration 

of the above points. 

Regards, 

Jonathan 

Jonathan Johnson 

Overstock.com, Inc.  



Mark-to-Market Value of FTDs on March 31, 2008

SYMBOL

DESCRIPTION

THRESHOLD 

SECURITY?

TOTAL THRESHOLD 

DAYS

SETTLEMENT 

DATE

 FTDs 

TRADE 

DATE

 PRICE 

 FTDs*PRICE 

TOTAL:

8,475,914,767.63

$        

6,144,891,554.23

$         

A

AGILENT TECHNOLOGIES, INC

N

3/31/2008



192,480

      


3/31/2008

29.83


    

5,741,678.40

$               

AA

ALCOA INC

N

3/31/2008



586,593

      


3/31/2008

36.06


    

21,152,543.58

$             

AACC

ASSET ACCEP CAP CORP

N

3/31/2008



126,922

      


3/31/2008

9.63


      

1,222,258.86

$               

AACS

AMERICAN COMMERCE SLTS INC

N

3/31/2008



27,961

        


3/31/2008

0.01


      

139.81


$                           

AAGH

Asia Global Holdings Corp. Com

N

3/31/2008



68,029

        


3/31/2008

0.10


      

6,462.76


$                      

AANI

AMEDIA NETWORKS INC

Y

131



3/31/2008

101,635


      

3/31/2008

0.00

      


71.14

$                             

AAPL

APPLE INC COM STK

N

3/31/2008



252,703

      


3/31/2008

143.50


  

36,262,880.50

$             

AAUK

ANGLO AMER PLC NEW ADR UK

Y

28



3/31/2008

26,748


        

3/31/2008

29.77

    


796,287.96

$                  

ABA

Alabama Power Company Sr Nt Se

N

3/31/2008



15,820

        


3/31/2008

26.74


    

423,026.80

$                  

10 ABD

ACCO BRANDS CORPORATION

N

3/31/2008



48,175

        


3/31/2008

13.57


    

653,734.75

$                  

11 ABDS

Allegro Biodiesel Corporation

N

3/31/2008



11,927

        


3/31/2008

0.09


      

1,073.43


$                      

12 ABFS

ARKANSAS BEST CORP (DEL)

Y

7



3/31/2008

76,112


        

3/31/2008

31.86

    


2,424,928.32

$               

13 ABH

ABITIBIBOWATER, INC.

Y

138


3/31/2008

1,359,481

   

3/31/2008



12.91

    


17,550,899.71

$             

14 ABI

APPLERA CP-APPLIED BIOSYSTEMS

N

3/31/2008



13,893

        


3/31/2008

32.86


    

456,523.98

$                  

15 ABK

AMBAC FINANCIAL GROUP INC.

Y

75



3/31/2008

72,154


        

3/31/2008

5.75

      


414,885.50

$                  

16 ABMBF

ABCOURT MINES INC CL-B (F)

N

3/31/2008



34,200

        


3/31/2008

0.42


      

14,364.00

$                    

17 ABMD

ABIOMED INC

N

3/31/2008



39,068

        


3/31/2008

13.14


    

513,353.52

$                  

18 ABN

ABN AMRO HOLD N.V. ADS(1 ORD)

Y

21



3/31/2008

10,602


        

3/31/2008

59.90

    


635,059.80

$                  

19 ABNAF

CONSOLIDATED ABADDON RES INC

N

3/31/2008



42,000

        


3/31/2008

0.18


      

7,518.00


$                      

20 ABNPRF

ABN AMRO HLDG N.V. CAP FDG TR

N

3/31/2008



13,984

        


3/31/2008

22.34


    

312,402.56

$                  

21 ABPI

ACCENTIA BIOPHARMACUETICALS IN

Y

36



3/31/2008

486,544


      

3/31/2008

1.11

      


540,063.84

$                  

22 ABR

ARBOR REALTY TRUST INC

Y

80

3/31/2008



130,034

      


3/31/2008

15.08


    

1,960,912.72

$               

23 ABTXQ

AGRIBIOTECH INC

N

3/31/2008



24,412

        


3/31/2008

-

        



-

$                                

24 ABVG

ABV GOLD INC COM STK

Y

72

3/31/2008



1,261,200

   


3/31/2008

0.01


      

7,567.20


$                      

25 ABWG

A.B. WATLEY GROUP INC

Y

153



3/31/2008

31,780


        

3/31/2008

0.06

      


1,906.80

$                      

26 ACAD

ACADIA PHARMACEUTICALS INC

Y

45

3/31/2008



247,431

      


3/31/2008

9.06


      

2,241,724.86

$               

27 ACAH

ACA CAPITAL HOLDINGS INC COM

Y

38



3/31/2008

46,088


        

3/31/2008

0.30

      


13,826.40

$                    

28 ACAR

AEGIS CONSUMER FUNDING GROUP

N

3/31/2008



18,500

        


3/31/2008

-

        



-

$                                

29 ACAS

AMERICAN CAP, STRATETIES LTD

Y

78

3/31/2008



2,773,095

   


3/31/2008

34.16


    

94,728,925.20

$             

30 ACBFF

Alert B&C Corporation Ordinary

Y

13



3/31/2008

2,226,667

   

3/31/2008



0.07

      


155,866.69

$                  

31 ACDQW

ARCADE ACQUISITION CORP WT EXP

Y

26

3/31/2008



266,300

      


3/31/2008

0.37


      

98,531.00

$                    

32 ACEL

ALFACELL CORP

Y

28



3/31/2008

60,460


        

3/31/2008

2.38

      


143,894.80

$                  

33 ACEN

AC Energy Inc. Common Stock

Y

120


3/31/2008

23,199


        

3/31/2008

0.02

      


429.18

$                           

34 ACF

AMERICREDIT CORP

Y

85

3/31/2008



3,362,452

   


3/31/2008

10.07


    

33,859,891.64

$             

35 ACG

ALLIANCEBERNSTEIN INCOME FUND

N

3/31/2008



10,437

        


3/31/2008

8.22


      

85,792.14

$                    

36 ACGU

ASSET CAPITAL GROUP, INC.

N

3/31/2008



34,824

        


3/31/2008

-

        



-

$                                

37 ACGY

ACERGY SA AMERICAN DEPOSITORY

Y

14

3/31/2008



15,078

        


3/31/2008

21.35


    

321,915.30

$                  

38 ACH

ALUIMINUM CORP OF CHINA ADR (2

Y

57



3/31/2008

63,313


        

3/31/2008

40.43

    


2,559,744.59

$               

39 ACI

ARCH COAL, INC.

N

3/31/2008



17,786

        


3/31/2008

43.50


    

773,691.00

$                  

40 ACII

AmeriChip International Inc. N

N

3/31/2008



33,048

        


3/31/2008

0.03


      

859.25


$                           

41 ACIW

ACI WORLDWIDE INC COM STK (DE)

N

3/31/2008



108,550

      


3/31/2008

19.92


    

2,162,316.00

$               

42 ACL

ALCON CHF 0.20 PAR VALUE

N

3/31/2008



26,152

        


3/31/2008

142.25


  

3,720,122.00

$               

43 ACLI

AMERICAN COMMERCIAL LINES INC

Y

6



3/31/2008

42,572


        

3/31/2008

15.80

    


672,637.60

$                  



TOTAL (SHO STOCKS ONLY):

SOURCE: SEC FOIA Office, Bloomberg, CSI Data, FinancialContent, MarketWatch and Dow Jones.

1


Mark-to-Market Value of FTDs on March 31, 2008

SYMBOL

DESCRIPTION

THRESHOLD 

SECURITY?

TOTAL THRESHOLD 

DAYS

SETTLEMENT 

DATE

 FTDs 

TRADE 

DATE

 PRICE 

 FTDs*PRICE 

44 ACOR

ACORDA THERAPEUTICS INC

Y

47



3/31/2008

32,097


        

3/31/2008

17.95

    


576,141.15

$                  

45 ACTC

ADVANCED CELL TECHNOLOGY, INC.

Y

132


3/31/2008

425,597


      

3/31/2008

0.17

      


72,351.49

$                    

46 ACTG

ACACIA RESEARCH CORP AR ACIACI

N

3/31/2008



32,302

        


3/31/2008

5.75


      

185,736.50

$                  

47 ACTU

ACTUATE CORPORATION

N

3/31/2008



19,200

        


3/31/2008

4.10


      

78,720.00

$                    

48 ACUS

ACUSPHERE INC

Y

91



3/31/2008

12,489


        

3/31/2008

0.48

      


5,982.23

$                      

49 ADBE

ADOBE SYS INC (DE)

N

3/31/2008



20,414

        


3/31/2008

35.59


    

726,534.26

$                  

50 ADBRF

ADMIRAL BAY RESOURCES INC

Y

68



3/31/2008

21,800


        

3/31/2008

0.33

      


7,113.34

$                      

51 ADEN

ADEN ENTERPRISES INC

N

3/31/2008



375,720

      


3/31/2008

-

        



-

$                                

52 ADF

ACM MANAGED DOLLAR INCM FD INC

N

3/31/2008



18,080

        


3/31/2008

7.04


      

127,283.20

$                  

53 ADL

AMDL INC

Y

156



3/31/2008

50,280


        

3/31/2008

3.54

      


177,991.20

$                  

54 ADLS

ADVANCED LIFE SCIENCES HOLDING

Y

19

3/31/2008



24,775

        


3/31/2008

0.90


      

22,297.50

$                    

55 ADM

ARCHER DANIELS MIDLAND CO

N

3/31/2008



23,651

        


3/31/2008

41.16


    

973,475.16

$                  

56 ADOT

ADVANCED OPTICS ELECTRNCS INC

Y

11



3/31/2008

100,000


      

3/31/2008

0.00

      


10.00

$                             

57 ADP

AUTOMATIC DATA PROCESSING

N

3/31/2008



24,915

        


3/31/2008

42.39


    

1,056,146.85

$               

58 ADPI

AMERICAN DENTAL PARTNERS INC

N

3/31/2008



28,061

        


3/31/2008

9.67


      

271,349.87

$                  

59 ADS

ALLIANCE DATA SYSTEMS CORP

N

3/31/2008



30,490

        


3/31/2008

47.51


    

1,448,579.90

$               

60 ADST

ADSTAR INC

Y

15



3/31/2008

93,100


        

3/31/2008

0.24

      


22,344.00

$                    

61 ADVC

ADVANCED COMMUNICATIONS TECH

Y

49

3/31/2008



438,810

      


3/31/2008

-

        



-

$                                

62 ADVR

ADVANCED VIRAL RESEARCH CORP

Y

74

3/31/2008



5,649,650

   


3/31/2008

0.01


      

50,846.85

$                    

63 ADXDF

ADEX MINING CRP (F)

N

3/31/2008



11,500

        


3/31/2008

0.31


      

3,565.00


$                      

64 ADXS

ADVAXIS, INC.

Y

66



3/31/2008

41,437


        

3/31/2008

0.14

      


5,801.18

$                      

65 ADY

AMERICAN DAIRY INC

N

3/31/2008



147,746

      


3/31/2008

9.20


      

1,359,263.20

$               

66 ADYE

ARADYME CORPORATION

N

3/31/2008



16,550

        


3/31/2008

-

        



-

$                                

67 AEC

ASSOCIATED ESTATES REALTY CORP

N

3/31/2008



31,899

        


3/31/2008

11.44


    

364,924.56

$                  

68 AECS

AEC HOLDINGS, CORP. NEW COMMON

N

3/31/2008



54,683

        


3/31/2008

0.01


      

437.46


$                           

69 AED

AEGON NV PERP CAP SECURITIES (

Y

6



3/31/2008

11,984


        

3/31/2008

21.65

    


259,453.60

$                  

70 AEIS

ADVANCED ENERGY INDS INC

N

3/31/2008



54,214

        


3/31/2008

13.26


    

718,877.64

$                  

71 AEM

AGNICO-EAGLE MINES LTD

N

3/31/2008



52,747

        


3/31/2008

67.71


    

3,571,499.37

$               

72 AENA

ADRENALINA COM STK (NV)

N

3/31/2008



25,194

        


3/31/2008

1.35


      

34,011.90

$                    

73 AEP

AMERICAN ELECTRIC POWER INC

N

3/31/2008



58,693

        


3/31/2008

41.63


    

2,443,389.59

$               

74 AEPW

ASIA ELECTRICAL POWER INTERNAT

N

3/31/2008



95,295

        


3/31/2008

2.35


      

223,943.25

$                  

75 AER

AERCAP HOLDINGS NV ORD SHS

Y

10



3/31/2008

109,800


      

3/31/2008

17.58

    


1,930,284.00

$               

76 AERG

APPLIED ENERGETICS, INC

Y

8

3/31/2008



367,285

      


3/31/2008

1.66


      

609,693.10

$                  

77 AERP

Aero Performance Products Inc

N

3/31/2008



120,156

      


3/31/2008

0.00


      

96.12


$                             

78 AETE

The Alternative Energy Technol

Y

8



3/31/2008

11,845


        

3/31/2008

3.69

      


43,708.05

$                    

79 AEV

AEGON NV PERPETUAL CAP SEC (NE

N

3/31/2008



10,205

        


3/31/2008

22.49


    

229,510.45

$                  

80 AEYS

AMERICAN ENERGY SVCS INC-NEW

N

3/31/2008



10,000

        


3/31/2008

0.01


      

80.00


$                             

81 AEZS

AETERNA ZENTARIS INC

N

3/31/2008



53,789

        


3/31/2008

1.03


      

55,402.67

$                    

82 AF

ASTORIA FINANCIAL CORP

N

3/31/2008



30,387

        


3/31/2008

27.16


    

825,310.92

$                  

83 AFAO

AFA Music Group, Inc. Common S

N

3/31/2008



4,399,992

   


3/31/2008

0.00


      

440.00


$                           

84 AFB

ALLIANCEBERNSTEIN NATIONAL MUN

Y

9



3/31/2008

10,016


        

3/31/2008

13.86

    


138,821.76

$                  

85 AFDG

ABC FUNDING, INC. COM

N

3/31/2008



55,690

        


3/31/2008

0.55


      

30,629.50

$                    

86 AFFI

AFFINITY TECHNOLOGY GROUP INC

Y

7



3/31/2008

10,776


        

3/31/2008

0.09

      


969.84

$                           

87 AFFX

AFFYMETRIX INC

N

3/31/2008



18,101

        


3/31/2008

17.41


    

315,138.41

$                  

88 AFFY

AFFYMAX INC COM

Y

18



3/31/2008

48,288


        

3/31/2008

14.10

    


680,860.80

$                  

89 AFL

AFLAC INC

N

3/31/2008



129,170

      


3/31/2008

64.95


    

8,389,591.50

$               

90 AFN

ALESCO FINANCIAL INC

Y

115



3/31/2008

422,183


      

3/31/2008

2.88

      


1,215,887.04

$               



SOURCE: SEC FOIA Office, Bloomberg, CSI Data, FinancialContent, MarketWatch and Dow Jones.

2



Do'stlaringiz bilan baham:
  1   2   3   4   5   6   7   8   9   ...   26


Ma'lumotlar bazasi mualliflik huquqi bilan himoyalangan ©fayllar.org 2017
ma'muriyatiga murojaat qiling