The answer, unfortunately, is "No."
Those who hold pre-Regulation SHO fail-to-deliver securities are exempt from the mandatory closing of positions that will impact some more recent naked short stockholders. Only the relative handful of stockholders who sold short since Jan. 3 and failed to deliver the borrowed shares will be forced to cover their short positions now.
Given the level of buying last week, the market makers who are required to close out recent naked short positions have already begun to do so.
As we mentioned earlier, if there is any margin balance in your portfolio, any and all of your stock can be loaned out to market makers trying to service those who are not covered by having borrowed legitimate shares.
But a warning: I noticed in my E*Trade account that a margin balance of more than $1,000 has been showing for more than a week, and yet all my trades and transfers are settled. I suspect E*Trade is using my non-existent margin balance to give them entree to my shares, which they can then lend to their customers with naked short positions at current, not better prices.
As Gary and others have suggested, I called E*Trade this evening and told them to get the erroneous margin balance off my books so that none of my shares can be shorted.
Here's Gary's latest missive. I don't know anything about him, but his first few posts have been exceptional. In this case, his post is wrong as to the long-term shareholders but correct as to the naked short situation in which we now find ourselves.
I feel that just the fact that some naked shorts will be forced to cover ought to account for a little better share price tomorrow. Gary's post, which I have cleaned up a little for clarity, is below:
Market makers and short groups know that a good majority of OTCBB and pink securities do not succeed. Given this fact, they short for the long term and can be assured a very high % of profit. Plus, with the pre-SHO rules, they never had to cover their short sales. They will focus on the easy pickings. Take CNDD for example. It was touted on a few financial sites and via email. It reached a high of $8.90 in August/04 on record volume. W/ an o/s of 200+million, that's a market cap of 1.8 Billion dollars for a pink sheet company with virtually no assets nor revenues. It was a scam; the market makers knew it, i knew it, just about everyone knew it. The day after the record volume, it fell to $2.50. How it got so high i still wonder. The market makers, I'm sure, went short. They are still naked short, CNDD is trading at $0.195 and is on the SHO list. CNDD is a typical play that market makers will naked short knowing that it will go subpenny.
ERHC, with an approximate 550 million outstanding shares in 2003, had no real assets, filings that were a mess, and it was run by Nigerians, so market makers thought they had another easy play. They could that they could short it, hold the short forever, and since (they wrongly thought) it was a total scam, it's going selling for under a penny and they will clean up. As the price of ERHC slowly climbed, market makers averaged their short prices up, thinking that in the long term they would prevail. This will not be the case. Admittedly, ERHC wasn't in the best of shape back then. But with the awarding of blocks shortly, American partnerships, the revised filings and so forth, it is clear ERHC is not a scam. Market makers now know it. But they have a huge short position and are caught between a rock and a hard place. They will try to make the best of the worst situation they can imagine. When the awards are granted, market makers may have to scramble. Do they average up an already large position (i'm sure they can find a way to short, clothed or naked), or pull the plug and take a huge loss? If they choose the former, they will get themselves in deeper trouble as ERHC will ultimately have revenues.
Hold on to your ERHC shares fellow longs, all is well.
Gary
1 comment:
The comment is based on the scholarly paper known as the Boni report, which at the end has a chart showing the difference between the pre-revision and the revised SHO. The revised SHO says that pre-existing fails are exempt. However, you may well take issue with the date of Jan. 3. There appears to be no cutoff date, and I concluded that the cutoff date would be the day the revised regulation went into effect, as it could hardly be retroactive. please let me know if you have other information, and many thanks for your comment.
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