Tuesday, December 06, 2005

Three Card Monte with Fails - Wall Street's Version of "Do the Hustle!"

I received an intriguing slide-show today from a friend who enjoys doing statistical analysis on stocks - some people knit their dogs sweaters, others assemble model planes, this guy enjoys applying his acumen to the stock market.

The result of the slide-show, to cut to the chase, is that someone appears to be passing the fails between brokers or accounts every 13 trading days on the most visibly abused companies on the Reg SHO list, in order to avoid more violation of Reg SHO.

The slide-show can be viewed and downloaded here.


I wonder how the SEC and the NASD and such could get hard evidence of market manipulation by someone deliberately moving large fail positions around on the most visible stocks on the Reg SHO list?

I mean, it's not like they could just do the simple pattern recognition-type search that this guy did, and within an hour have spotted an obvious manipulative trading technique.

Tut tut. No sirreee. There is far too much heavy-duty investigative talent doing important research and examination for it to be just that simple. Why, one would have to assume that they are sailing paper airplanes around the office, or tossing cards into hats or something, rather than doing the bare minimum that would constitute their job. And that can't be. Alternatively, they would have to be aware of it, and just not care that someone is obviously and deliberately violating the SHO rules, nay, flaunting them, in what looks suspiciously like an obvious pattern of deception designed to trick the system.

Why don't you send this link to them, along with this blog, and ask them for a formal explanation for what is occurring here? That should be a hoot. Maybe they will "study the problem" for a year or two before they figure out that they are being played by some hustlers doing the stock equivalent of three card Monte. Or maybe they know, and will launch their random vacuous phrase generator, or send out a wonk to stammer his way through some platitudes?

My hunch is that they will ignore it, as they have ignored everything else pertaining to egregious violations of the public trust by the market participants.

But it's always still fun to watch the gymnastics as they attempt to juggle lame excuses whilst preparing more facile bromides for consumption by a credulous and captive media.

I do so hope that they can find an award winning financial journalist to explain to us all how it isn't what it so obviously is.

That's almost my favorite part.

And if you haven't yet, check out Patrick Byrne's interview featuring the Easter Bunny at www.businessjive.com - I hear that it is the single most requested and downloaded event in that site's catalog.

Apparently the "pretend there's nothing happening and maybe they'll all forget about it" strategy of the bad guys isn't working. A lot, and I mean A LOT of folks are educating themselves as to the actual lay of the land.

And here's a wild thought. What if the number of fails, both FTD and ex-clearing, dwarfed the authorized number of shares for a company like OSTK or NFI, and there simply wasn't adequate liquidity in the offending hedge funds to extricate themselves from the positions without vaporizing? And what if the broker network supporting them knew it, and had become complicit in assisting in an obviously illegal manipulation strategy? And what if the SEC knew and understood, and fearful of vaporizing those participants, allowed the "piddly" retail investors to lose their savings so that the brokers could keep on keeping on?

Who would you sue first?

And if employees of a government agency act in an illegal manner to aid and abet felonious actions, are they then liable as individuals?

In that hypothetical scenario, would we get a NJ accented version of the Nuremberg trials, in which everyone claimed they were only following orders?

Which introduces another fun idea - given that the NYSE is about to become a "for profit" entity, are they not much more visible in the lawsuit cross-hairs for aiding and abetting illegal activity, "for profit?"

These are strange times we live in, no?


Blogger Millerd1 said...

Great point but the screen prints are not very readable, even on my high precision monitor.

Chicage trades might be the CBOE trader taking his offsetting position to an option transaction he just made.

9:33 PM  
Blogger bob obrien said...

In all those stocks, on those dates, repeatedly?

Could be.

Could also be the fails being traded around like kools at a rock concert so as to avoid detection. The fact that the last page summarizes the findings for a test group of like companies, many of which presumably trade options in similar fashion, and that almost none of their big trades occured in this fashion on this exchange, whereas these all did, is odd. The options explanation is hard to swallow, as you would think that at least a few of the test group would also get that treatment. They don't.

10:32 PM  
Blogger Tommy said...

The data is not clear to me. I just can't read it. Maybe I'm dumb.

Bur perhaps a more simplistic graphical explanation would do without all the unneeded data?

I'd like to see clear 13 day patterns, whoch would jive with the 13 day REG SHo buy-in time frame be a violation there of.

This is called "parking".

11:30 PM  
Anonymous financial_circus said...

This could be EXPLOSIVE in the right hands. Amazing how someone with some degree of sophistication can find obvious fraud but our regulators can not. (NASD-can't find any fraud with all those new German listings of heavily shorted stocks after Canada shut it down-DUH ARE WE STUPID?) Hmmmm. If this work gets legs(investigation) it will be used to finally get something done. Send it to RALPH in Conn. SEC SHO was and remains a FRAUD to continue the fleecing while pretending to deal with a problem. Years were spent in examining the "SETTLEMENT PROBLEM" and all legitimate advice was ignored in favor of the perps. All who have followed the naked shorting scandal should have by now figured SHO out but Mom and Pop are still ignorant as they were in the Savings and Loan Scandal but who ended up paying while most of the crooks and money disappeared? I see another departure from the SEC today. Rats leaving the sinking ship?

12:10 AM  
Anonymous Anonymous said...

more and more people are becoming aware so the counterfieters beware.Here come DA JUDGE

6:28 AM  
Anonymous Anonymous said...

The average drop for these stocks during this period was 26%

7:38 AM  

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