Confirmation from FINRA on BEDA 2 Billion Short Position…

Before moving forward to read the FINRA confirmation within this post, the post within the link below should be read to understand why I believe, through logical deduction, that BEDA could very well have a short (naked short) position well over 2 billion shares:
http://************.advfn.com/boards...ge_id=47269722

After that post was made, I spoke to one of the Managers from the Market Regulation Department from FINRA at 301-590-6500. Her name is Jocelyn Mellow. It was a very interesting conversation that enlightened me on a few things. She is in charge of the department that deals with tracking the volume from short selling. Now this person was responsible for the information regarding the “short volume” generated from the daily tapes of trade data they receive from the DTC. I say ”short volume” because it’s a difference from what I have learned from her between ”short interest” and ”short volume” data. Both also have their own department within the Market Regulation section of FINRA. I have learned that the ”short interest” tapes for volume are not as completed or full as the tapes for the ”short volume.” I didn’t feel the need to go into any details about the differences as such was not my primary reason for calling.

The first thing I asked her was… Is there any way they could track when a covering takes place from the ”short volume” reported from the FINRA Index of data? She told me that there is no way for them to do such. She said that there is no code or anything that would allow for such tracking of when a cover to takes place or how much of a covering has taken place. She stated that a covering could take place within that same trading date or during the 3 day settlement period.

I think you all know where I was going next with this conversation. I had her focus our discussion on the FINRA Index for ”short volume” data that I have in my post above. My next question was… Are the final numbers reported for the “short volume” the final end result numbers after any and all covering that could have taken place for that day had finally transpired? She told me yes, that is correct. She told me that the amount of shares at the end of the days tape are the result of shares shorted after any kind of covering that could have transpired for that day. Those are bottom line numbers for the day.

So I now asked her… So shouldn’t those numbers representing the “short volume” be cumulative and added daily to reflect the total amount of “short volume” that’s ongoing for a stock? She told me no because a covering could have taken place that day or anytime with the 3 day settlement time frame.

So now I asked her… Have you heard of and are familiar with Regulation SHO? She said yes. She then made a few comments about it and how it works which convinced me that she understood Regulation SHO and what it is all about very well.

Then I asked her… So if a stock has ”short volume” that reported on your FINRA Index of data, but is still on the Regulation SHO List and have been for well over 50+ consecutive trading days, isn’t that’s proof that a covering never had taken place or the count for the number of shares shorted would have been reset back to zero removing the stock from the Regulation SHO List? She said hmmmmm? You have a point. That is true. Since that stock is still on the Regulation SHO List, apparently, a covering had never taken place during that current day of trading or during that related 3 day settlement period or the covering would have removed that stock from the Regulation SHO List.

So I then asked her… So, that makes the “short volume” for that stock to be cumulative in nature on a daily basis until a covering takes place which would be indicative whenever that stock is finally removed from the Regulation SHO List? She said yes, that is true. She said that the number of shares shorted combined with the stock still being on the Regulation SHO List shows evidence that a covering must have never taken place for that day so the ”short volume” continues to grow. This means that there are still ”Failure to Delivers” existing that must be covered. This would mean that the short from the previous day would be in addition to the next day’s short to make the ”short volume” cumulative. Let me further explain this for more clarity in an example that I think might help to better understand…

Example: Imagine on Day 1 the total volume for the day was 2,000,000 shares with 1,000,000 out of the 2,000,000 shares being considered shorted shares. Now imagine that it was you who bought those 1,000,000 shares that were shorted. It would be reflected as ”short volume” within the FINRA Index for that day.

Now imagine that on Day 2 the volume for the day was 4,000,000 shares with 2,000,000 out of the 4,000,000 shares being considered shorted shares. Now imagine that it was your best friend who bought those 2,000,000 shares that were shorted. It would be reflected as ”short volume” within the FINRA Index for the next day.

That’s a total number of ”volume” for Day 1 and Day 2 = 6,000,000 shares

That’s a total number of ”short volume” for Day 1 and Day 2 = 3,000,000 shares

If this was a stock ”NOT” on the Reg SHO List, then there is a chance that the 3,000,000 shares could have been covered between that day or during the 3 day settlement period from the volume difference between the 6,000,000 minus the 3,000,000 shares. That’s a difference of 3,000,000 shares between the total volume and short volume where a covering could have taken place between those shares. If this was a stock ”NOT” on the Reg SHO List, then it would be safe to presume that a covering has transpired from the example explained above. The data should ”not” be considered cumulative if such was the case.

However, given that same example above and with using those same numbers, consider now that the stock is actually on the Reg SHO List. This means that as of Day 1, a covering never transpired to get the deficit for the share count back down to zero. So as in the example above, picture you still holding the 1,000,000 shares short in your account that you bought from Day 1.

Now imagine your friend holding their 2,000,000 shares short in their account from Day 2. Since a break in the stock being on the Reg SHO List ”did not occur” between Day 1 and Day 2 from this now established consecutive trading pattern of days shorted, those 1,000,000 total shares short from Day 1 would have in addition the 2,000,000 shares short from Day 2 creating a new established cumulative ”short volume” number of 3,000,000 shares. Even if you sell your 1,000,000 shares, any new buying volume replaces your position within the short volume data and fall in place with the newly additionally short shares as indicative from the bottom line number of short shares reported for that day. So now that bottom line is added to the past consecutive trading days of ”short volume” for BEDA.

Again, bottom line, any kind of ”covering” that could have happened, the ”short volume” number that’s reflected for the end of the day is the amount of shares short after all covering for that day has been done. With BEDA being on the Reg SHO List for 56 consecutive trading days, this means that a covering could not have taken place or it would have been reflected by BEDA being removed from the Reg SHO List. This means that each day’s ”short volume” should be totaled to derive a cumulative number of short shares existing needing to be covered until BEDA is removed from the Reg SHO List indicating that a covering has taken place.

Ok… our conversation continued and here’s where some things started to get tricky. She then told me during our conversation that the shares that have not been covered is a mixture of ”short” and ”naked short” shares and that there is no way she could give me a cumulative breakdown of what was what. She then stated that ”eventually every short and naked short position has to be covered.” These are all known as ”Failure to Delivers.”

Some other things she mentioned that I thought was interesting were… (a) usually most or all of the volume is reported on the tapes, but there is volume not reported to the tape; (b) the same shares can be shorted multiple times; (c)naked shorting is illegal, but there is no rule stopping pink sheets or penny stocks from being ”shorted” against as it is up to the rules of that brokerage company to allow shorting of a penny stock although most don’t because it is too risky; (d) Market Makers (MMs) generally don’t want to hold their naked short positions because they don’t want to expose themselves to the risk because it costs too much for them to cover if the stock starts going up. Sometimes, the MMs do get caught needing to cover, but such is not what’s desired.

All of the above were some very interesting things, but the issue here with BEDA is not resolved as it is still on the Reg SHO List and has been for now 56 consecutive trading days. When I spoke to the manager at the FINRA Market Regulation section, I did not come at her in terms of speaking about BEDA. I kept the conversation neutral and asked my questions in generic form. Let’s revisit the new updated total of BEDA shares ”shorted and naked shorted” as some of the data below will look a little familiar from my earlier post even after reviewing the updated spreadsheets below.

BEDA Short/Naked Short Shares for Mar 2010
March 2010 Reg SHO Daily Files