Never miss a post…subscribe!
I came across a fascinating article this morning in an obscure journal for compliance officers. It may explain why fails to deliver in some stocks suddenly go away:
A classic example of the fox guarding the henhouse, the DTCC self-describes itself as providing “settlement services” for the financial markets, but the number of FTDs is so systemic the DTCC has created what it calls its “obligation warehouse,” where FTDs essentially go to die.
Fails to deliver are trades that never settle.
In meme stocks, they commonly shoot up only to disappear at the end of SEC reporting periods. I’ve observed this pattern numerous times in shares of AMC Entertainment Holdings, Inc.
These fails to deliver may be caused by naked short selling:
Naked short selling is among the most fraudulent of schemes. It is the illegal practice of selling shares a short seller has neither borrowed, owns, nor intends to buy, resulting in a “failure to deliver” (FTD) amounting to trillions of dollars in FTDs, as some research indicates.
“It’s like xeroxing your car title 100 times and selling that car to 100 people, but you only have one car,” [attorney Wes] Christian said. “That’s what Wall Street is doing.”
Why does the Depository Trust & Clearing Corporation (DTCC) sweep the fails to deliver under the rug? Perhaps because of how it’s funded.
The DTCC makes money by clearing trades. That means its customers are the hedge funds and mutual funds that do the bulk of the trading.
If calling attention to failed trades from some of your biggest customers might imperil your revenue stream, you shut your mouth.
Furthermore, DTCC is owned by its users. And hedge funds are among its largest users.
I’d like to see more investigation of this “obligation warehouse” issue, along with reforms at DTCC to make it more independent.
Until then, markets will continue to be a hedge fund playground.
Never miss a post…subscribe!
More on markets:
Huge Payouts for Hedge Fund Informants as SEC Vice Tightens
Melvin Capital Under Federal Investigation
If you liked this post, please share it on Twitter/Facebook/etc. using the buttons at the bottom of the page. This helps more people find the blog!
Save Money on Stuff I Use:
Amazon Business American Express Card
You already shop on Amazon. Why not save $100?
If you’re approved for this card, you get a $100 Amazon gift card. You also get up to 5% back on Amazon and Whole Foods purchases, 2% on restaurants/gas stations/cell phone bills, and 1% everywhere else.
Best of all: No fee!
This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been great so far.
More on Fundrise in this post.
If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days.
My wife and I have gotten organic produce shipped to our house by Misfits for over a year. It’s never once disappointed me.
Every fruit and vegetable is super fresh and packed with flavor.
I thought radishes were cold, tasteless little lumps at salad bars until I tried theirs! They’re peppery, colorful and crunchy!
I wrote a detailed review of Misfits here.
Use this link to sign up and you’ll save $10 on your first order.
Tremendous 
5 thoughts on “How DTCC Makes Fails to Deliver Disappear”