I have 2 questions about SR-DTC-2003-09
- Does somebody knows where you can finds the lists from DTC.
DTC told me: Our practice is to cancel 90 days after the publication of the notice to give our clients sufficient time to respond should they have knowledge that the company is still active.
- Does your broker has to warn you?

Thanks in advance.

has any company found a way to get off the DTC chill list before ?

I think they are self clearing or they do for sure use someone diff than Penson.

What do you think of Charles Schwab's executions? I have been looking into OpenECry, who is part of Schwab now. Do you know if they are self clearing?

So who is your broker(s)? And what are you paying in illiquid fees?

I have thought about going to IB and paying their $50 commission per $10,000 trade. But I don't know what the "specialist fees will be trading OTC. They are self clearing through Timber Hill. I want to get away from the whole Penson/DTCC mess.

Yep I hear that.

Better being charged illiquid fees than rejecting the order Penson style. Trading via phone is only a last resort option.

Well I guess that would of been the DTC thing. We have so many diff negative avenues going on with the OTC its hard to keep up. But NCSS is a sub of the DTC so this penson thing would have to do something with it.


Plus I basically was trying to forget about all of it. No point in trading with all these fears looming. Still money to be made in the OTC but hard to trade with fears of this or that.


And most of all not even use Penson. Its a complete no no now. But other brokers are charging illiquid fees lately. Only a few bucks here and there so no big deals so far.

I think Ive gone brain dead after thinking I had the gist of this and had it figurd out.lol But why is all this really happening? Why are there such big requirements? What is the main reasoning for all of this? Bc of offshore people dumping shares into the market? Unrestricted shares? I just dont know why this would be happening or how it could happen. If there are 100 mil shares outstanding and people trade that 100 million it should just all be electronically sent from broker to broker and people lose, win or break even....


Why dont they have these rules for other exchanges?

Not just civil suits but also criminal lawsuits file against their executives too...They're no diff. from the Criminals in Exxon, Feddie, Fannie, Wachovia, Chase, etc...Best you a few years from now you will see a headline with one of those a holes executives on the national & international media...yet we investors/traders...are still victims of those big corporate/institution's scam...

I agree I was in one that I bought and a few weeks later it was on the Non DTC list and would of cost me like 250-700 dollars i had about 1300 worth of the stock had I sold when the stock was breaking even id of lost about 50% thanks to zecco adding them with out notice to me wish someone would start a class action suit against zecco and Penson

Selling 537K of a .0001 stock is only $53.75 but the charge that they want to charge for non dtc is $250+ ...this is pure robbery ...Zecco, DTC, NSCC, Penson all are a a big scam...the BIGGEST SCAM OF THE CENTURY!!!...yet no one sue them for this? No Federal investigation or big class action suits yet...maybe, I should start one then...

You said that "Selling more than 537.500 shares would require a call. " So could I sell more than that number or that is the max? Just to clarify here...TIA!

"Non-transferable Security Removal Request"? You meant a write off?

Again, I want to thank you for sharing your great wisdom here! =)

So for an example: if stock ABC has 18 previous days of no vol. but on day 19 it has 100 mil. total trading volume, & on day 20 (previous day) it has 7.5 mil. in total trading vol., then you would have to take 107.5 mil divide it by 20 days (107.5/20 = 5.375 mil)? So the max Zecco would allow an individual to sell stock ABC is 5.375 mil. the next day (day 21)? Is that correct?

(reply to PM)

20-day ADV stands for 20-day Average Daily Volume; just sum the volume of the 20 previous days then divide it by 20. OTCs move in bursts of small/no-activity then explode out of thin air on high volume, whereas the 20-day average increases/decreases very slowly as it's based on the volume of previous days.

Penson-clearing brokerages such as Zecco will limit order sizes to 10% of that, which means that if the stock traded small volume before, then you're pretty much screwed since the 10% of already small volume is almost nothing. To place an order whose size is greater than 10% 20-day ADV you'd have to call 'em via phone.

BTW I've checked CBYI and it's on their NON-DTC eligible list; that means the stock has been chilled by the DTC (more often than not, it's usually due to unregistered shares roaming around in the market) and trades take place in certificates instead of electronically; transaction costs are ridiculous and can get as high as $700 per trade. That can exceed the sale proceeds! (although brokerages such as eTrade, Scotty and Fidelity absorb those costs rather to passing them to customers due to the extremely low odds of having someone trade a non-DTC stock).

Since CBYI is at $0.0001 and you haven't much money on it I guess the only way to get rid of those shares would be to use Zecco's "Non-transferable Security Removal Request" as it doesn't incur in sale costs (at least that's what a Zecco rep told me when I asked).

PD: Please use public replies, I can't PM on a free luncher account!
PD2: Good weekend to you too!

Le2, the NSCC illiquid deposit requirement is calculated for stocks selling at $0.01 and below as (($0.01*number_of_shares)-trade_value).
The NSCC imposes that deposit requirement to clearing firms when a trade size exceeds 25% of 20-day ADV, "as a way to limit settlement risks" (whaaaat?), however the NSCC itself doesn't limit tradeable order sizes.
The deposit is then wired by clearing firms to the NSCC and the money is returned back to the clearing firm when the trade settles at T+3.

The amount of the requirement on subbies pretty much gets out of whack: here are a couple examples:

120,000 share trade @ $0.008 => NSCC deposit requirement of (($0.01x120,000)-($0.008x120_000)) => $1200-$960 = $240. Not much at all, right? Here comes the funny stuff...

10,000,000 share trade @ $0.0001 => NSCC deposit requirement of (($0.01x10,000,000)-($0.0001*10,000,000)) => $100,000-$1,000 = $99,000. The pain!!!

That is, $99,000 has to be wired by the clearing firm to be able to settle a trade worth $1,000! Since those funds are tied for 3 days (T+3) the chunk the brokerage misses on interest revenue of the funds they wire can be considerable. In the above example, at a 10% interest rate, they'd miss (3/365)*0.1*$99,000 = $81.

However Penson, rather than skipping those costs (like eTrade, Scotty and Fidelity do) or charging 'em as an extra fee to customers, they opted by limiting trade size to 10%-20 day ADV and rejecting online orders whose size is greater than that. They also imposed also a buy-in rule where if the NSCC deposit requirement exceeded $50,000, the shares would be bought in at T+1 in the customer account at the current market price of the stock (wouldn't that be unauthorized trading??!!, SEC where are you??!!)

Yosako, you seems to know so much about the NSCC deposit requirement. Would you care to explain how they determine how much a trader could sell a certain stock? I don't understand the 10% of the 20-day ADV thing...could you give me an example with some numbers? Thanks!

Have a great weekend old friend! =)

June 22, 2004
DTCC accused of counterfeiting shares
I had heard about Stockgate a while back when the Nanopierce lawsuit was filed. At the time, it looked like a hopeful settlement deal, but now more details have come to light [1].

And what details! This may well be bigger than the mutual funds scandal, which was the biggest scandal of all time as far as I can see. The Nanopierce class action team has 65 lawyers in it! They have (allegedly) uncovered 1200 funds and 150 broker dealers in naked short selling.

Here's how it works. Short selling is supposed to involve borrowing the stock, then selling the borrowed stock on the market, anticipating a drop in price. It's "good" because it moves information more quickly. It's "bad" because someone with a lot of time and money on their hands can just dump the stock and then buy it back at a cheaper price. Like all things valued by people over the age of 12, there are goods and bads in it.

Where it gets egregious is if the stock is not borrowed at all, and simply "sold" on a promise. Now, if you are a big bad player and you can "not borrow" enough of it, and "sell" enough of what you don't have, then the price has to go down. Supply and demand, and all that. Then you can "buy" it on the cheap, transfer a few things around in the accounts, and end up with a profit.

Having the actual stock on hand is supposed to put a brake on this practice. And, when the DTCC - the single depository and clearing agency in the US - set up its stock lending facility, it was quite popular, as it was relatively easy to just borrow the shares from DTCC, and dump them on the market.

All supposing that DTCC had acquired them from somewhere. Now it transpires that DTCC took a fee for this activity, and worked out that they could over-lend. That is, they could simply counterfeit the shares. It's alleged by the lawsuit that DTCC turned off its governance, and turned on the equity tap. Anyone who wanted to borrow, presumably could - even if there were none to borrow.

"The Stock Borrow Program was purportedly set up to facilitate expedited clearance of stock trades. Somewhere along the line, the DTCC became aware that if it could lend a single share an unlimited number of times, it could collect a fee each time, according to Burrell. "There are numerous cases of a single share being lent ten or many more times," giving rise to the complaint that the DTCC has been electronically counterfeiting just as was done via printed certificates before the Crash."

"Such re-hypothecation has in effect made the potential 'float' in a single company's shares virtually unlimited and the term 'float' meaningless. Shares could be electronically created/counterfeited/kited without a registration statement being filed, and without the underlying company having any knowledge such shares are being sold or even in existence." ...

But, says the cunning governance observer, what happens if the price moves against the naked short seller? Surely he's then caught with his pants down? No. Here's the game: DTCC, instead of taking a clearing agency role as they are supposed and covering the particpants, simply refers the dispute to arbitration between the parties! And, they leave an open position book until it has been resolved.

If true, this makes a mockery of governance, regulation, the system, and any sense of investment. What is the point in investing in shares in a small company if the big players are naked short selling it out of existance, simply to transfer wealth from your pocket into their pocket?

The mutual funds scandal was pretty rude - big players conspired with insiders to strip out percentage points worth of value every year. This sort of salami scam works as long as the amounts taken out don't appear too large. 1% per annum is fine ... always remembering that we are talking about 1% of a 7 trillion dollar amount here.

But stockgate is a whole other ballgame, as the Americans would say - here, broker dealers and investment banks were conspiring allegedly to transfer the *whole* value of small companies to them. One expert claims that 7,000 public companies and from one to three trillion dollars have been raided.

[1] http://www.investors.com/breakingnews.asp?journalid=21660437&brk=1
StockGate: London Companies on Berlin Exchange Ask for Investigation, Reg SHO Hearing Reset

Posted by iang at June 22, 2004 07:26 AM | TrackBack

Comments
Even if I don't understand half of the business terms it's still enough to make me pick up my jaw from the floor where it fell.

Posted by: Axel at June 22, 2004 10:13 AM
Yeah, it doesn't just drop the jaw, it sends it skidding out the room...

Perhaps I should explain the context ... Financial Cryptography systems have pretty much solved the problems shown in Stockgate and Mutual Funds scandals. Yet, implementing systems with FC faces huge institutional barriers, not the least of which is that opportunities to make money out of the system's ropiness are somewhat lost.

Meanwhile, scandals keep coming. One estimate of the mutual funds scandal has it at half a trillion dollars, and this Stockgate thing is coming in over a trillion in lost and stolen money. A trillion here, a trillion there, pretty soon you're talking real money.

Posted by: Iang at June 22, 2004 11:11 AM
Further info on the scam has come to light on how the cycle works. I can't be bothered to write the details right now, but it can be basically limited to the PIPE market. This means that the amount raided is probably in the billions, and wouldn't come close to the trillions suggested above by some observers.

Posted by: Iang at June 25, 2004 07:02 AM
How does this get rectified? Who is investigating this problem? What is the SEC doing? Are they even aware of the problem?

John

Posted by: John Valentino at June 30, 2004 12:31 PM
There is only one solution that is "real" and that is RTGS. That won't happen any time soon. In the meantime, expect the system to limp along and hope that nobody gets too greedy, because that's when firms start failing.

The SEC can't do anything, but they are certainly aware of the problem. It's caught between an outraged congress, an apathetic public, the powerful vested interests of trillion dollar money managers, and an impossible mission.

None of that is going to change either, but the real thing that needs to be done is to change the mission, which was some socialist objective set after the crash of '29. Until that happens, expect the SEC to get forced into more and worse regulation, in order to appear to be meeting its congress-mandated goals.

Posted by: Iang at June 30, 2004 12:57 PM
Well, the unreconciled difference with DTC is easily taken care of since the shorts come home to roost eventually. So when they do they can be applied and netted away. It is of course illegal to do this type of operation and many of the technical aspects of how it is done are not clear, nor will they be made clear.

The simple matter that the pump and dump stocks complain about - the naked short sellers - is taking the attention away from their own robbery of shareholders via dilutive transactions that make suspect use of funds like PIPEs.

There is another area of play not taken into consideration which is the Contracts for Difference Markets of London that basically allow synthetic shorts to be placed without regard to US short sale rules or stock loan requirements. I suggest the Deep Throat suggestion of follow the money is the answer; the PIPE transaction, ie convertible debt issuance via a privately negotiated transaction, is the root of the problem since it allows for the closing of the short positions. The average Hedge fund that does PIPEs makes between 10 and 25% on their funds per year and it is a safe bet to make.

Posted by: Jim at June 30, 2004 01:49 PM
The PIPE products and the DTCC seem like separate issues to me. The intelligent course would be to dump the DTCC and find a path to RTGS but I wouldn't hold my breath. Until this happens anyone who invests in Equities is out of his mind.

As far as PIPEs are concerned, any board that makes such an issue should be kicked out, hard, by their shareholders. There's no such thing as governance at the individual firm level either.

Of course the answer will be more regulation. What do you expect when you ask regulators to solve a problem for you? We already have an economy that is floated on fiat currencies; why not go one step further and legitimize the DTCC into a Fed-like foundry for the fabrication of imaginary equity?

Corrupt Statement by Larry Thompson = The DTCC has fought back by saying the regulation of trading activities is the job of the SEC and the national exchanges, not its own. In a statement earlier this year accompanying the news that yet another lawsuit against it was dismissed, DTCC General Counsel Larry Thompson said, "Short-selling and naked short-selling are trading strategies and are not connected to the post-trade clearance and settlement of securities transactions.”

http://www.forbes.com/2006/10/10/stocks-shorting-dtcc-biz_cx_lm_1010dtcc.html

DTCC’s Faryniarz Warns of Move From U.S. on Dodd-Frank Concern
October 25, 2011, 12:03 PM EDT

By Eleni Himaras


Oct. 25 (Bloomberg) -- The Depository Trust & Clearing Corporation may move its data outside the U.S. should an American law spur companies in other countries to stop sending it information on trades, an executive said.

The U.S. Dodd-Frank Act, passed in 2010, requires foreign market overseers to compensate U.S.-based trade repositories for legal expenses when shared information becomes public. That will fragment oversight because foreign regulators won’t be willing to pay and may require firms that trade derivatives to report to local entities instead of a global one, Dan Faryniarz, managing director of derivatives market structure and industry relations at DTCC, said in Hong Kong today.

The DTCC, the biggest trade repository for over-the-counter derivatives, collects details on trades, such as their size and the identities of the counterparties, for use by regulators. Forcing overseas authorities to compensate the DTCC for lawsuits that may arise if its data are released will hinder the free flow of information, Faryniarz said during a panel at an International Swaps and Derivatives Association conference.

“A trade repository will just be bits and bytes if it doesn’t have all of the information,” he said. “We will need to look at the idea of moving our global dataset offshore.”

Regulators worldwide are increasing scrutiny of over-the- counter derivatives after their relative opacity was blamed for masking systemic risk before the 2008 collapse of Lehman Brothers Holdings Inc. The market reached $601 trillion last year, according to Bank for International Settlements data.

The DTCC houses a trade repository for credit-default and equity swaps. In May, it won a global contract from ISDA to collect trade information on interest-rate swaps, which make up the largest portion of the OTC derivatives market. All global derivatives dealers and more than 2,100 asset-management firms in 71 countries are linked to the depository, according to DTCC.

--With assistance from Nina Mehta and Matthew Leising in New York. Editor: Joanna Ossinger

To contact the reporter on this story: Eleni Himaras in Hong Kong at ehimaras@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

:)

It's $5,000 for the info.

Thank you very much!

DTC-chills are often due to the DTCC spotting unregistered shares in the market (aka not properly registered with the SEC via a S-1) so the solution is likely to be to file a S-1, then contact a DTCC participant (usually a clearing firm) to forward a DTC-eligibility request to the DTCC.

Question for the board: How do DTC stocks become "unchilled"? Thanks.

Great article here... It says that the DTCC is the only firm controlling securities clearing in USA... and it´s unregulated.

http://www.marketrap.com/article/view_article/9165/the-dtcc-unregulated-buying-clearing-settling-and-short-selling

$Hellking, it looks like you have had your share of non-DTC experiences. I heard that there´s some kind of Amnesty occasionally, when the ban is lifted for some time and you can sell. What do you know about that?

There is always a way. Buy these non dtcs really really cheap and sell them for really really high.lol

And how do you make a living out of this?

Its possible. I probably wont go after them. I dont even want to mess with my brokers and get kicked out. Id prob rather just let them screw me.lol Sucks but this is my livelihood.

I sent a public comment to the SEC.

As of the un-chilling times, it's the first time I hear about them...

The 20-day ADV means 20-day Average Daily Volume.

I don´t live in USA, but I guess there must be some Consumer Defense League or similar institution where our situation could be consulted. What do you think?

This is pure theft...

Yeah true. my azz it cost 600 bucks to mail freaking paper from one state to another. they are definitely ripping us off. Ok I can see 20 bucks or max 50 or something but this is ridiculous. Trust me, I prob got charged more fees than anyone on IHUB.lol So Im pissed too. I would have to add it up but prob over 10k.

OK. But I am not talking about the motives, just about how it can be stopped. About if it´s legal or not. It CAN'T be legal. If you think of us as consumers (strictly speaking, we are), we hire a service under certain rules, and those rules must be clear, transparent and respected. Here everything is diffuse and arbitrary. If a stock is trading normally and keeps to be listed on the OTC or Pinks and is not going BK, this shouldn´t happen.

Well looks like most of the MM shorting stuff and all that was actually promoters, friends and family who received discounted unregistered shares. But probably wont matter all those guys are moving offshore to deposit those certs.


I believe at some point the brokers were eating the fees for a long time. Not certain but I believe a lot were for a long time. At least USAA was. So I think they just got tired of it and decided they were losing too much money. TA started realizing they could make money too and started charging Fed Ex fees and other fees.



Its just the same ole few rotten apples that screwing everyone over. Some of the clearing firms its appears were taking the biggest hit bc they got stuck with tons and tons of unsettle securities.

That´s not an excuse for freezing our shares. The "scam" threat is a typical witch hunt in trading. All the time we hear about supposed or real "scams". The Chinese scams are sadly famous, even if just a few are real. BUT, even if they are real or if a stock goes bankrupt, you NEVER have to pay over $400 to sell a position. That´s bullshit and something needs to be done to stop that.

Hey, Yosako, you know an awful lot about this... I think that if we put some pressure we can at least be heard. I already sent my complaint to Finra.

They have an online form. I will write to the SEC too. This is too bad to be true. A total outrage.

Something else. I heard that there are some UNchilling times, when the ban is lifted and you can finally sell at a normal commission. Have you heard about that? How often is that?

It´s incredible, really, because even if stocks announce they are going bankrupt, you can buy and sell them for some days. But in the non-DTC case, nothing really clear or real or definitive is happening to the stock. But still, suddenly the DTCC, like you say, decides do consider it non-DTC.

What is 20-day ADV?

Mostly the DTCC, which is playing Penny Stock Police by DTC-chilling any stock which sells unregistered shares via the 504 exemption, when it's a legal way of raising shares. Tracking frauds is the job of the SEC, not theirs.

Penson has also done some wrong moves, such as restricting online trading of a stock to 10% of the 20-day ADV which forces illiquid stocks to be traded via phone. That, however, is because in order to clear subpenny stock orders whose size is 10% 20-day ADV, the NSCC imposes outrageous deposit requirements on clearing firms until the trade is settled.
The formula to calculate the NSCC deposit requirement is (($0.01*number_of_shares)-trade_value).

As a example, to clear 3.000.000 shares of a $0.0001 stock (a trade worth $300), clearing firms must deposit $29,700 at the NSCC until the trade is settled at T+3. That requirement is plain nuts.

I guess they have to crack down some way and we are taking a hit. Well the brokers and clearing firms are taking hits too. Its all bc of mostly scamming dishonest penny stock co owners.

What can e do about this whole thing? Who is to blame? Finra? Sec? Penson? Zecco? Sogo?

Who?

Why do WE have to pay if we did nothing wrong???

I wrote about it to the SEC.

Zecco's reps are even messier.
Yesterday I chatted with a rep, which told me GPGD wasn't on the non-DTC list, which is updated in a intraday basis.
However, since GPGD still appears on the publically available non-DTC list from Zecco, I asked for an update via customer support chat and another rep told me the public list was updated 2 weeks ago and that they can't get an update. Telling him that information which isn't CURRENT is as good as worthless as it can change anytime didn't help. Another rep also told me they don't know the stock's tranfer agent. Holy cow.

Since updated DTC-eligibility information is critical as it involves fees, refusing to call the DTC/Penson/whoever knows its CURRENT status to "disclose material facts about an investment" is prohibited conduct by FINRA.

The system is ridiculous, arbitrary and lacks credibility. I am filling a complaint with Finra.

http://www.finra.org/Investors/ProtectYourself/p118628

This simply CAN'T be legal

Is there any lawyer out there? How come I buy some stocks paying the usual commission and then some days after that, someone decides my stocks look fishy and they decide to charge me $300 to sell them. We need to stop these crooks. Seriously, I would like to hear a lawyer saying some words about it. We should get legal advice. Any ideas?

This is downright WRONG...

Do it quick, then! Tomorrow is last day for comments (comments due October 31).
Must say that once they're submitted they'll take a while to get published online. Mine was published several hours after it was received. I've also found that symbols such as exclamations (!) and asterisks (*) don't work.

Things like this need to stop for sure. I can probably send them MANY comments.

The SEC has been informed about this. Actually, the SEC itself opened the topic of microcap clearing and execution for discussion and it's open for comments till October 31.

SEC Roundtable on MicroCaps "Video" has been archived, It's worth listening to even if it's over 3 Hrs long :)



Roundtable on the Execution, Clearance and Settlement of Microcap Securities Monday, October 17, 2011


http://www.sec.gov/news/otherwebcasts/2011/microcaproundtable101711.shtml



http://investorshub.advfn.com/boards/read_msg.aspx?message_id=68186849 (posted by Janice Shell)

I was of course thinking on using a bank wire. Good to hear they got their asses PWNED .

If you had transferred assets to another broker they would wire a negative balance to that new broker.... Had it done a few times with the paper cert fees coming in late. But yeah if you took all money out via bank wire that would leave them with a bill.