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CEOs Launch Web Site To Protect Short Sellers
Harvey Pitt, of Kalorama Partners, started RegSHO.com with John Tabacco, of LocateStock.com, and Tom Ronk, of Buyins.net.
(By Dennis Brack -- Bloomberg News)
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Besides helping match borrowers and lenders with stock, RegSHO.com alerts subscribers to compliance problems. It also offers solutions, with guidance and consultation from Pitt via the site. Clients pay a monthly fee of $995 for standard access to the site and an additional per-share fee for stock locates.
Access to RegSHO.com includes access to LocateStock.com, a real-time lending-borrow marketplace specializing in hard-to-borrow stocks, and Buyins.net, which specializes in identifying demand for borrowed stocks and features a historical database of more than 2.1 billion short sale transactions. The three founders said that membership in the sites has increased by at least 30 to 40 percent since the SEC's announcement of its order.
"We've been telling people for the last couple years that they're not doing things correctly," Tabacco said. "But until somebody slams their fingers with a ruler, kids will play."
Other companies that offer similar services, to varying degrees, include ShortSqueeze.com, Stock-Borrow.com, ICAP and Quadriserv.
Regulation SHO requires short sellers to locate or have reasonable belief that they can locate stock prior to effecting a short sale. It requires a seller or broker to deliver shares to a buyer to settle the transaction within three days from the trade date. Naked short selling can result in what's called failures to deliver, or FTDs. FTDs represent trades where only half the transaction of a sale was completed. The trade went through, but the seller never delivered the shares to the buyer.
RegSHO.com uses data from SEC-mandated "threshold security lists" and National Securities Clearing Corporation, a centralized clearing and settlement house for all U.S. trades, to create their own "Naked Short Lists." The lists identify available stocks to short and those needing "imminent" buys for compliance.
In 2005, the SEC required the publishing of the daily threshold lists, which include companies that have a high degree of FTDs.
Brokers are mandated 13 days to resolve any FTDs after landing on the lists. Despite this, some companies have been there for hundreds of days, with millions of failed shares.
The incomplete trades could represent lucrative business for RegSHO.com, because they will eventually have to be resolved under the rules of Regulation SHO.
The FTD problem represents a decent chunk of change. Josh Galper, managing principal of Vodia Group, said an analysis revealed $9 billion of FTDs in 2007. Susanne Trimbath, chief executive and chief economist of California-based STP Advisory Services, calculated that FTDs in the U.S. equity market cost investors $2 million daily in lost earnings last year.
