Post by jannikki on Oct 1, 2006 18:00:16 GMT -4
SEC Roundtable on SHO lacks Objectivity – September 20, 2006
David Patch
The recent proposal change to Regulation SHO up for public comment, and the follow-on hearings before the Securities and Exchange Commission to discuss this proposal continue to shed light on the mindset of the Commission staff. Specifically, the non-objective mindset of the staff members responsible for maintaining fair markets.
Consider, last Friday the SEC held a roundtable public conference to evaluate Regulation SHO. According to the SEC press release the roundtable discussion will focus on empirical evidence learned from the Regulation SHO Pilot.
The morning session started with a group of six panelists comprised of economists and finance professors who evaluated the trade data [liquidity, volatility, market efficiency] obtained during a Pilot program that eliminated the “tick test” rule from a grouping of securities. Essentially the Pilot program allowed short sellers to sell into bids. While these economists appeared adept at calculating numbers their understanding of the market dynamics, how trades are executed, were not as easily distinguishable. By the end all six came to similar conclusions, that being that the SHO Pilot program did not have a significant impact on the liquidity and efficiency of the markets.
While these macro conclusions may or may not be accurate, the issue of how deep these evaluations delved is. The panelists evaluated SHO like it was a simple financial statement of a leading bank with little human trading realities being applied.
The afternoon session was more enlightening as a second set of six panelists was brought in to interpret the evidence presented in the early morning session. This set of panelists also included economists and finance professors but also included industry members. The objectivity of this panel was set early on.
With each panelist being afforded a 5-minute warm up speech prior to interpreting the data each took this opportunity to defend the short selling industry instead of discussing the subject matter of the Pilot program.
Panelist Larry Harris, Chair in Finance for USC Marshall School of Business started the show and identified short sellers as a necessary tool to offset the more serious issue of a market pump and dump. Pump and Dump having little to do with SHO but we were on notice as to where this panelists mind was. Harris went on to say that market bear raids are infrequent and impossible to detect. These comments being evidence that Mr. Harris had never fully researched the realities of the daily market real time.
A most recent bear raid is illustrated in Escala Group where the level of settlement failures grew steadily from 50,000 shares to 3.2 Million shares in a matter of a week while the value of the stock dropped from over $30.00 to $4.50. The level of fails equated to nearly 50% of all shares trading within the public float.
Larry Harris was followed by Pete Kyle, Professor of Finance for the University of Maryland who admitted to seeing the views of short selling in nearly identical light to Mr. Harris. With the statements already on record by Harris, Kyle simply added on the pile his opinion of short sellers as market heroes and the important role these investors play as police in our markets. Short sellers are the “allies” of the SEC and SEC enforcement according to Kyle and he made sure we were aware of this by stating it several times over this short 5-minute speech. For Kyle, short sellers mitigate pump and dump schemes through a series of offsetting short selling trades.
Kyle neglected to consider that it is not a solid legal position to offset one crime with another but that was the position Mr. Kyle considered. The best approach taken by Kyle in this gang war is to arm one side with bullets [short sellers] and one side with slingshots [investors] and somehow justify the fight as fair.
Kyle went further to satisfy his opinion by declaring that the SEC should refrain from any kind of mandatory buy-in provisions when addressing persistent settlement failures in the system. Instead the SEC should simply impose a series of escalating fines for those who have executed the sale of unregistered securities. Settlement failures are now a critical component of the market theorized Kyle.
Now, 10 minutes into the second session and nary a word about the pilot program up for discussion but plenty of comments about how a short seller is the American hero of our markets. The ethics and credibility of these individuals should afford them unlimited opportunity to trade on non-existent shares because the short seller, unlike the regulators, can smell out a pump and dump.
The remaining four panelists mimicked the comments of these first two with one panelist now representing hedge funds in former Yale Professor Owen Lamont and two panelists representing Wall Streets Tier I firms in Bear Stearns and Goldman Sachs.
Bottom line by the panelists when it was over: The World should be very afraid of a pump and dump in our markets and because of that, short sellers should be afforded every luxury in the world to sell as many non-existent shares as necessary [for a profit no less] in order to control such actions.
And with that conflicted rationalization, Overstock.com, Netflix, Martha Stewart, Delta Airlines, United Airlines, Taser, and many others become by default the biggest pump and dump scams in existence as each has lived on the Regulation SHO threshold list for near eternity as excessive and persistent fails deliver have only created radical volatility and long investor losses.
And there you have it. This was the open and objective public discussion set up by the SEC’s Division of Market Regulation. The Division set up a stacked deck of panelists with a common opinion and used their pedigreed background to convince the unsuspecting public that there are no problems. For his part in this smoke and mirrors game, Chairman Cox spoke before the House Financial Services Committee Tuesday and claimed that the SEC “had a very successful roundtable last Friday” when asked about the naked shorting issues.
Cox never mentioned the stacked deck he and his team created to make it “successful”.
If history repeats itself, the SEC will use this roundtable conference full of one-sided opinions to refrain from taking the positive steps necessary to protect the investing public.
Missing from this conference was not so much the bear raid evidence available but the subtleties necessary in evaluating Pilot programs and reforms in general. Missing were the specifics like, How did fails in the system impact the equity value at the time of the fails taking place? How did the fails cleanse themselves from the system once entered? What were the trading techniques that specifically created these fails? And more succinctly, did these fails executed at opportune times create mini bear raids that impacted the investing public?
Instead of looking into the fine details, the SEC and the panelists looked at the macro scale and in doing so missed the tell tale signs of a problem.
The only question that remains, how does the SEC justify conducting an open roundtable discussion on a subject matter when 100% of the panelists represent only one side of the discussion ? Success comes from an open debate of ideas and a global view of the data. Success comes from the microanalysis as well as the macro and yet none was taken or if it had the issues of those companies identified above would have been discussed openly.
We have already seen the SEC’s OEA analysis being questioned over accuracy of information being disseminated to the public and now this. How much more deceit can we tolerate from this agency?
www.investigatethesec.com/20060920.htm
David Patch
The recent proposal change to Regulation SHO up for public comment, and the follow-on hearings before the Securities and Exchange Commission to discuss this proposal continue to shed light on the mindset of the Commission staff. Specifically, the non-objective mindset of the staff members responsible for maintaining fair markets.
Consider, last Friday the SEC held a roundtable public conference to evaluate Regulation SHO. According to the SEC press release the roundtable discussion will focus on empirical evidence learned from the Regulation SHO Pilot.
The morning session started with a group of six panelists comprised of economists and finance professors who evaluated the trade data [liquidity, volatility, market efficiency] obtained during a Pilot program that eliminated the “tick test” rule from a grouping of securities. Essentially the Pilot program allowed short sellers to sell into bids. While these economists appeared adept at calculating numbers their understanding of the market dynamics, how trades are executed, were not as easily distinguishable. By the end all six came to similar conclusions, that being that the SHO Pilot program did not have a significant impact on the liquidity and efficiency of the markets.
While these macro conclusions may or may not be accurate, the issue of how deep these evaluations delved is. The panelists evaluated SHO like it was a simple financial statement of a leading bank with little human trading realities being applied.
The afternoon session was more enlightening as a second set of six panelists was brought in to interpret the evidence presented in the early morning session. This set of panelists also included economists and finance professors but also included industry members. The objectivity of this panel was set early on.
With each panelist being afforded a 5-minute warm up speech prior to interpreting the data each took this opportunity to defend the short selling industry instead of discussing the subject matter of the Pilot program.
Panelist Larry Harris, Chair in Finance for USC Marshall School of Business started the show and identified short sellers as a necessary tool to offset the more serious issue of a market pump and dump. Pump and Dump having little to do with SHO but we were on notice as to where this panelists mind was. Harris went on to say that market bear raids are infrequent and impossible to detect. These comments being evidence that Mr. Harris had never fully researched the realities of the daily market real time.
A most recent bear raid is illustrated in Escala Group where the level of settlement failures grew steadily from 50,000 shares to 3.2 Million shares in a matter of a week while the value of the stock dropped from over $30.00 to $4.50. The level of fails equated to nearly 50% of all shares trading within the public float.
Larry Harris was followed by Pete Kyle, Professor of Finance for the University of Maryland who admitted to seeing the views of short selling in nearly identical light to Mr. Harris. With the statements already on record by Harris, Kyle simply added on the pile his opinion of short sellers as market heroes and the important role these investors play as police in our markets. Short sellers are the “allies” of the SEC and SEC enforcement according to Kyle and he made sure we were aware of this by stating it several times over this short 5-minute speech. For Kyle, short sellers mitigate pump and dump schemes through a series of offsetting short selling trades.
Kyle neglected to consider that it is not a solid legal position to offset one crime with another but that was the position Mr. Kyle considered. The best approach taken by Kyle in this gang war is to arm one side with bullets [short sellers] and one side with slingshots [investors] and somehow justify the fight as fair.
Kyle went further to satisfy his opinion by declaring that the SEC should refrain from any kind of mandatory buy-in provisions when addressing persistent settlement failures in the system. Instead the SEC should simply impose a series of escalating fines for those who have executed the sale of unregistered securities. Settlement failures are now a critical component of the market theorized Kyle.
Now, 10 minutes into the second session and nary a word about the pilot program up for discussion but plenty of comments about how a short seller is the American hero of our markets. The ethics and credibility of these individuals should afford them unlimited opportunity to trade on non-existent shares because the short seller, unlike the regulators, can smell out a pump and dump.
The remaining four panelists mimicked the comments of these first two with one panelist now representing hedge funds in former Yale Professor Owen Lamont and two panelists representing Wall Streets Tier I firms in Bear Stearns and Goldman Sachs.
Bottom line by the panelists when it was over: The World should be very afraid of a pump and dump in our markets and because of that, short sellers should be afforded every luxury in the world to sell as many non-existent shares as necessary [for a profit no less] in order to control such actions.
And with that conflicted rationalization, Overstock.com, Netflix, Martha Stewart, Delta Airlines, United Airlines, Taser, and many others become by default the biggest pump and dump scams in existence as each has lived on the Regulation SHO threshold list for near eternity as excessive and persistent fails deliver have only created radical volatility and long investor losses.
And there you have it. This was the open and objective public discussion set up by the SEC’s Division of Market Regulation. The Division set up a stacked deck of panelists with a common opinion and used their pedigreed background to convince the unsuspecting public that there are no problems. For his part in this smoke and mirrors game, Chairman Cox spoke before the House Financial Services Committee Tuesday and claimed that the SEC “had a very successful roundtable last Friday” when asked about the naked shorting issues.
Cox never mentioned the stacked deck he and his team created to make it “successful”.
If history repeats itself, the SEC will use this roundtable conference full of one-sided opinions to refrain from taking the positive steps necessary to protect the investing public.
Missing from this conference was not so much the bear raid evidence available but the subtleties necessary in evaluating Pilot programs and reforms in general. Missing were the specifics like, How did fails in the system impact the equity value at the time of the fails taking place? How did the fails cleanse themselves from the system once entered? What were the trading techniques that specifically created these fails? And more succinctly, did these fails executed at opportune times create mini bear raids that impacted the investing public?
Instead of looking into the fine details, the SEC and the panelists looked at the macro scale and in doing so missed the tell tale signs of a problem.
The only question that remains, how does the SEC justify conducting an open roundtable discussion on a subject matter when 100% of the panelists represent only one side of the discussion ? Success comes from an open debate of ideas and a global view of the data. Success comes from the microanalysis as well as the macro and yet none was taken or if it had the issues of those companies identified above would have been discussed openly.
We have already seen the SEC’s OEA analysis being questioned over accuracy of information being disseminated to the public and now this. How much more deceit can we tolerate from this agency?
www.investigatethesec.com/20060920.htm