Post by jannikki on Jul 31, 2007 18:59:48 GMT -4
STOCKGATE TODAY
An online newspaper reporting the issues of Securities Fraud
Open Hunting Season; Bear Raids - July 31, 2007
David Patch
It was 1929, the mighty collapse of the stock market that sent the US economy roiling. Families destroyed, businesses destroyed, and greedy crooks walked away with the loot. In 1929 there was no Securities and Exchange Commission and in 1929 there was no pricing or tick test.
Soon that would change.
As a result of the trading abuses of 1929 Congress passed several laws including the Exchange Acts of 1933 and 1934. The result was the creation of a federal securities market regulator, the Securities and Exchange Commission. Also derived under these laws were market protections, including the tick test, to reduce the potentials of the bear raids that manifested during the 1929 crash.
June 13, 2007, the Securities and Exchange Commission voted to adopt rule amendments that removed the short sale "tick test" of Rule 10a-1 under the Securities Exchange Act of 1934. It was once again open hunting for the 'Bear Raiders' after decades of dormancy.
With guns fully loaded the short sale hunters came out of their cabins and began shooting down investor portfolios as easily as shooting fish in a barrel. Without trepidation these short selling gunslingers were wiping out market cap in companies big and small as the selling overloaded any buying interests that may have been in the markets. Volatility and panic selling responded and suddenly the market was trading without rationalization. Company financials be damned, it is hunting season.
Jim Cramer blogged last week "You can roll this market on nothing now. No specialists; unlimited downticks, faster futures than common, ETF shorts, and no takeovers, so you can run roughshod."
In 2005 the Commission tested the market effect of short sale price tests [tick test] by implementing a short-sale pilot program. Using a select number of companies the SEC evaluated the impacts to these issuers by temporarily removing the pricing tests on short sales. The Commission, at the same time presented a proposal for elimination to the public for open comment.
Public comments began pouring in and as the data from the pilot test became available the comments suggested that the SEC tread cautiously in this area. Some even suggested that the market might have played nice during this pilot period with the intent of reaping greater leverage if the SEC could be convinced to remove the pricing protections.
By 2007 the pilot program was over and the tick test gone.
Did the short sellers put up some decoys for the SEC to draw them in and now that the SEC bit the investors that followed are being slaughtered?
Again from a Cramer Blog "NEW stupid downtick rule makes it really easy to raid. How is it that NO ONE remembers why the SEC set it up to begin with?"
In the first month that the elimination of the tick test was in full force the Dow witnessed one of its most volatile months in decades. The DOW began the month of July at 13,535 before climbing to highs over 14,000 by mid month. But shortly thereafter, the DOW was freefalling, dropping to lows of 13,143 just 4 trade-days after having an intraday high of 14,039 and closing above 13,900. A near 800 point loss on the day and a more than 1000 point loss from the high just 4 days earlier.
The largest intraday delta between the high and low took place on July 26 where trade volume was the lowest it had been in months yet a 400 point swing between the daily high vs. low was recorded. It was sellers all day and sellers wiping out bids with reckless abandon. Where were the specialists to maintain order, they too could be sellers in this market and nobody would know the difference.
It is raid season on Wall Street and the guns of the millionaires and billionaires are all loaded for the kill. No specialist is about to step in front of a loaded gun handled by a billionaire looking to make a quick profit.
Now the SEC did not enter into this decision to eliminate the tick test with blinders on either. Instead, they agency brought in a group of recognized economists from across the country and had each evaluate the results of the pilot test. The SEC needed support and solicited exactly what they needed.
The problem with the panel as created by the SEC was that the SEC stacked the deck enlisting economists with very close ties to short sellers or heavily biased to the short selling strategy. 'Bear raids cannot exist in today's trading environment' was a common theme to each presentation made by the panelists. Higher liquidity and market making activities would diffuse any raid like tactics and the evidence supported that assumption.
The open public meeting was nothing short of a magic show - smoke and mirrors and all. Identify the answer first and then find the panel to conclude what you want.
The problem with the analysis, the panelists looked at the market data at such a macro level they overlooked the examples of raids taking place at a micro level and near daily. These panelists never looked at the market itself and most, I will bet, are ignorant of how a market trades. The panelists were also excluded from the fraudulent trade reporting that transpired during the pilot program where member firms were illegally marking short sales as long sales. NASD and NYSE enforcement cases listed a litany of such abuses.
The economists analysis was tainted with garbage in garbage out syndrome and a questionable bias.
But the people who watch these markets and look to protect their investments knew it was a bad idea and voiced their opinions to the Commission. Imagine that, real people with real ideas coming forward. The people decried 'Bear Raids do exist and without proper controls they will destroy our markets as they destroy investor confidence'. Opinion letters contained evidence of raids and discussions of others.
Each opinion letter drafted by an individual investor fell on the deaf ears of an agency compelled to protect the profitability of the short seller. The agency had made up their minds before the pilot program began and despite some reservations by the economists and reservations by the public change came without caution.
In securities law where caution should always be tilted towards investor protection, this Commission staff threw caution to the wind and rolled the dice on the indefinite bear raid season.
For the second time in less than 2 years the SEC drafted ill-advised rules that aided the short seller and created harm to the investing public. In 2005 the 'grandfather clause' protected short sales where settlement failed indefinitely and in 2007 the SEC again protected short sellers by making bear raids fair game again after all these years. The investing public's concerns were never heard.
In testimony this week before the Senate Banking Committee Chairman Cox opened his comments by stating "The initiatives underway at the Commission have a common theme: they are aimed at benefiting investors whose returns are dependent on healthy, well-functioning markets. This is the SEC's traditional responsibility. "
Cox would later tell an inquiring Senator Bob Bennett that the implementation of the removal of the ill-advised grandfather clause would still be months away as the SEC attorney's continue to drag their feet on draft modifications. Cox earlier this year admitting that investors suffered under the 'grandfather clause' and that the victims have the right to be upset. Apparently investors do not have enough of a right that they would see an expeditious response out of the SEC.
It is too bad we have such a politician at the SEC helm instead of the type of individual who is committed to his initiatives. Cox may have implied by his use of the term investor that the average person was within his scope of interest but the facts remain; only the wealthy investors are truly seeing their investments protected.
Chairman Cox blew smoke up the butt of Congress today as nonchalantly as the Commission has blown smoke up the butt of the retail investor these past decades. It is all a game to this agency as the real people pay the price for their arrogance.
For more on this issue please visit the Host site at www.investigatethesec.com (posted with permission)
Copyright 2007
An online newspaper reporting the issues of Securities Fraud
Open Hunting Season; Bear Raids - July 31, 2007
David Patch
It was 1929, the mighty collapse of the stock market that sent the US economy roiling. Families destroyed, businesses destroyed, and greedy crooks walked away with the loot. In 1929 there was no Securities and Exchange Commission and in 1929 there was no pricing or tick test.
Soon that would change.
As a result of the trading abuses of 1929 Congress passed several laws including the Exchange Acts of 1933 and 1934. The result was the creation of a federal securities market regulator, the Securities and Exchange Commission. Also derived under these laws were market protections, including the tick test, to reduce the potentials of the bear raids that manifested during the 1929 crash.
June 13, 2007, the Securities and Exchange Commission voted to adopt rule amendments that removed the short sale "tick test" of Rule 10a-1 under the Securities Exchange Act of 1934. It was once again open hunting for the 'Bear Raiders' after decades of dormancy.
With guns fully loaded the short sale hunters came out of their cabins and began shooting down investor portfolios as easily as shooting fish in a barrel. Without trepidation these short selling gunslingers were wiping out market cap in companies big and small as the selling overloaded any buying interests that may have been in the markets. Volatility and panic selling responded and suddenly the market was trading without rationalization. Company financials be damned, it is hunting season.
Jim Cramer blogged last week "You can roll this market on nothing now. No specialists; unlimited downticks, faster futures than common, ETF shorts, and no takeovers, so you can run roughshod."
In 2005 the Commission tested the market effect of short sale price tests [tick test] by implementing a short-sale pilot program. Using a select number of companies the SEC evaluated the impacts to these issuers by temporarily removing the pricing tests on short sales. The Commission, at the same time presented a proposal for elimination to the public for open comment.
Public comments began pouring in and as the data from the pilot test became available the comments suggested that the SEC tread cautiously in this area. Some even suggested that the market might have played nice during this pilot period with the intent of reaping greater leverage if the SEC could be convinced to remove the pricing protections.
By 2007 the pilot program was over and the tick test gone.
Did the short sellers put up some decoys for the SEC to draw them in and now that the SEC bit the investors that followed are being slaughtered?
Again from a Cramer Blog "NEW stupid downtick rule makes it really easy to raid. How is it that NO ONE remembers why the SEC set it up to begin with?"
In the first month that the elimination of the tick test was in full force the Dow witnessed one of its most volatile months in decades. The DOW began the month of July at 13,535 before climbing to highs over 14,000 by mid month. But shortly thereafter, the DOW was freefalling, dropping to lows of 13,143 just 4 trade-days after having an intraday high of 14,039 and closing above 13,900. A near 800 point loss on the day and a more than 1000 point loss from the high just 4 days earlier.
The largest intraday delta between the high and low took place on July 26 where trade volume was the lowest it had been in months yet a 400 point swing between the daily high vs. low was recorded. It was sellers all day and sellers wiping out bids with reckless abandon. Where were the specialists to maintain order, they too could be sellers in this market and nobody would know the difference.
It is raid season on Wall Street and the guns of the millionaires and billionaires are all loaded for the kill. No specialist is about to step in front of a loaded gun handled by a billionaire looking to make a quick profit.
Now the SEC did not enter into this decision to eliminate the tick test with blinders on either. Instead, they agency brought in a group of recognized economists from across the country and had each evaluate the results of the pilot test. The SEC needed support and solicited exactly what they needed.
The problem with the panel as created by the SEC was that the SEC stacked the deck enlisting economists with very close ties to short sellers or heavily biased to the short selling strategy. 'Bear raids cannot exist in today's trading environment' was a common theme to each presentation made by the panelists. Higher liquidity and market making activities would diffuse any raid like tactics and the evidence supported that assumption.
The open public meeting was nothing short of a magic show - smoke and mirrors and all. Identify the answer first and then find the panel to conclude what you want.
The problem with the analysis, the panelists looked at the market data at such a macro level they overlooked the examples of raids taking place at a micro level and near daily. These panelists never looked at the market itself and most, I will bet, are ignorant of how a market trades. The panelists were also excluded from the fraudulent trade reporting that transpired during the pilot program where member firms were illegally marking short sales as long sales. NASD and NYSE enforcement cases listed a litany of such abuses.
The economists analysis was tainted with garbage in garbage out syndrome and a questionable bias.
But the people who watch these markets and look to protect their investments knew it was a bad idea and voiced their opinions to the Commission. Imagine that, real people with real ideas coming forward. The people decried 'Bear Raids do exist and without proper controls they will destroy our markets as they destroy investor confidence'. Opinion letters contained evidence of raids and discussions of others.
Each opinion letter drafted by an individual investor fell on the deaf ears of an agency compelled to protect the profitability of the short seller. The agency had made up their minds before the pilot program began and despite some reservations by the economists and reservations by the public change came without caution.
In securities law where caution should always be tilted towards investor protection, this Commission staff threw caution to the wind and rolled the dice on the indefinite bear raid season.
For the second time in less than 2 years the SEC drafted ill-advised rules that aided the short seller and created harm to the investing public. In 2005 the 'grandfather clause' protected short sales where settlement failed indefinitely and in 2007 the SEC again protected short sellers by making bear raids fair game again after all these years. The investing public's concerns were never heard.
In testimony this week before the Senate Banking Committee Chairman Cox opened his comments by stating "The initiatives underway at the Commission have a common theme: they are aimed at benefiting investors whose returns are dependent on healthy, well-functioning markets. This is the SEC's traditional responsibility. "
Cox would later tell an inquiring Senator Bob Bennett that the implementation of the removal of the ill-advised grandfather clause would still be months away as the SEC attorney's continue to drag their feet on draft modifications. Cox earlier this year admitting that investors suffered under the 'grandfather clause' and that the victims have the right to be upset. Apparently investors do not have enough of a right that they would see an expeditious response out of the SEC.
It is too bad we have such a politician at the SEC helm instead of the type of individual who is committed to his initiatives. Cox may have implied by his use of the term investor that the average person was within his scope of interest but the facts remain; only the wealthy investors are truly seeing their investments protected.
Chairman Cox blew smoke up the butt of Congress today as nonchalantly as the Commission has blown smoke up the butt of the retail investor these past decades. It is all a game to this agency as the real people pay the price for their arrogance.
For more on this issue please visit the Host site at www.investigatethesec.com (posted with permission)
Copyright 2007