Sublimierte Marktmanipulation - Programtrading

               "The SEC did the right thing when it voted for the second time to
               extend temporary rules and restrict short-selling. Now, it must finish the
               job," said Jonathan Wilcox, spokesman for Americans for Securities Reform.
               "While we commend this courageous action in the face of opposition from
               greedy hedge funds and shady Wall Street players, it is only a band-aid on
               the serious corruption soiling our capital markets."
               Chairman Cox's emergency order stated: "False rumors can lead to a loss
               of confidence in our markets. Such loss of confidence can lead to panic
               selling, which may be further exacerbated by 'naked' short selling."
               The order further requires that to sell short the shares of 19
               specifically named financial institutions, traders are compelled to arrange
               to borrow the shares. This would prevent the shorting being "naked."
               ASR also detailed that unless the SEC permanently extends these
               restrictions to all traded stocks, the group plans to qualify ballot
               initiatives in 19 states - the same total of companies specially protected
               by the SEC now. Ballot language has already been written banning naked
               shorting and establishing severe penalties on those who undertake this
               fraud.
               "What's right and fair for these 19 financial firms should apply
               across- the-board," said Wilcox. "There is no reason these consumer
               protections should not apply to all traded stocks."
               Americans for Securities Reform collected more than 19,000 signatures
               and placed on the 2008 general election ballot in South Dakota language
               banning naked shorting on the state's public companies and penalizing
               broker dealers who participate in the practice.
               "We do not oppose legitimate short selling and do not seek to end it.
               Like the SEC, we only want the rules followed," said Wilcox. "While legal
               short selling provides liquidity, it occurs in an obscure corner of the
               market. So, the bottom line is: Our financial systems will benefit from the
               disinfectant that sunlight brings."
               

               For more information, please go to: http://www.VoteYes9.com
               Watch the Video at:  http://www.youtube.com/user/securitiesreform
               CONTACT: Jonathan Wilcox
               888-293-7330
               info@voteyes9.com

Evergreen had $44 million in state backing, a new factory on tap, a hefty backlog of orders, and plans to grow from 850 employees to 1,100, he said. "We needed the money."  There was supposed to be protection for the company in the contract with Lehman. If the investment bank's debt rating took a hit, or if the firm was headed for bankruptcy, Evergreen was supposed to get back its 30.9 million shares, according to the company's lawsuit, filed in US Bankruptcy Court for the Southern District of New York. With those shares locked up, Evergreen will have a harder time raising capital.

But Lehman's undoing happened quickly, over a weekend, and the firm filed for bankruptcy protection on Sept. 15. And it did not return Evergreen's shares, despite "repeated demands," and instead transferred 12 million of them to Barclays, which acquired Lehman's investment banking assets in the bankruptcy.  Evergreen said it didn't learn that the stock had been transferred to Barclays until the London firm filed a list of its stock holdings with the Securities and Exchange Commission on Oct. 8. Lehman had apparently sold about 19 mil lion shares of Evergreen stock, and handed 12.2 million to Barclays, according to the lawsuit.  "There is no legal basis under which the Barclays defendants can assert and establish ownership of the Evergreen shares," according to the lawsuit. Evergreen is looking to recover all of its 30.9 million shares and seeks unspecified damages to cover costs and attorney fees.  Neither Lehman nor Barclays had filed a court response yesterday. A Barclays spokesman declined to comment. A Lehman spokesman was not available for comment.  Stuart Bush, an analyst at RBC Capital Markets, said Evergreen is in a difficult position now, and essentially standing in line with all of Lehman's other creditors.  "They're in a real situation," Bush said. "What the company did - it's the worst of all worlds."

The immediate impact is that investors, who have already seen Evergreen's stock plummet this year, now also have to face dilution. That is, the 30.9 million shares, which were considered loaned out before, now count as part of the total shares outstanding - raising that figure 20 percent, to 162 million. That means the shares are less valuable. They fell 35 cents to $3.23 yesterday.  El-Hillow said the company has enough money to finish the Devens plant. But Evergreen wants to raise more money in 2009 - when it predicts it will be profitable.  "This has impacted anything we want to do," El-Hillow said.

Attachment Evergreen Solar complaint filed 10-20-2008.pdf

The surge in VW’s share price started after Porsche disclosed on Sunday that it had increased its stake from 35 per cent to 42.6 per cent. In addition it has options over further 31.5 per cent, making a total of 74.1 per cent. Added to Lower Saxony’s 20.1 per cent stake, this effectively left a free float of only 5.8 per cent instead of the 45 per cent many expected.

Porsche did not respond to calls asking for comment on Mr Kaldemorgen’s statement but it told Reuters news agency on Tuesday: “We vehemently reject the accusation of share price manipulation.” Under German law, companies do not have to disclose option positions if they are settled through the receipt or payment of cash rather than being converted into shares. Porsche insists it has “cash-settled options”.

There was widespread expectation in the markets that the huge rise would push some fragile hedge funds – who bet on VW’s shares falling – to collapse with losses estimated at potentially €20bn-€30bn.

Several hedge funds and banks denied they had any large exposure to VW. Citadel, a large hedge fund, said: “We have suffered no losses of substance on Volkswagen whatsoever.

Morgan Stanley, whose shares fell 16 per cent, said it had “virtually no exposure” while people close to Goldman Sachs, whose stock also dropped, took a similar line.

www.ft.com/cms/s/0/...dd-b4f5-000077b07658.html?nclick_check=1

Porsche and Volkswagen

In a time when many odd economic events are taking place, this saga nonetheless deserves comment:

Volkswagen's shares more than doubled on Monday after Porsche moved to cement its control of Europe’s biggest carmaker and hedge funds, rushing to cover short positions, were forced to buy stock from a shrinking pool of shares in free float.

VW shares rose 147 per cent after Porsche unexpectedly disclosed that through the use of derivatives it had increased its stake in VW from 35 to 74.1 per cent, sparking outcry among investors, analysts and corporate governance experts.

This seesaw has been going on for some time and German regulators haven't done much about it, despite complaints from hedge funds. Today the share price rose by a factor of nearly five (!). So for a brief while Volkswagen became the world's largest company in terms of capitalization. Who needs Exxon and WalMart?

I thank Ben, a loyal MR reader, for the pointer to this episode.

Posted by Tyler Cowen on October 28, 2008 at 09:24 AM in Economics | Permalink
Comments

Why should German regulators do anything about it? I know many hedge funds involved in what's called the Porsche stub trade, and truthfully, it was flawed from the start. Essentially what happened is that earlier this year Porsche disclosed a sizeable stake in VW. Hedge funds figured out that the value of Porsche's stake in VW exceeded the enterprise value of Porsche, meaning in effect you were getting paid to own the operating business of Porsche. So to capture that spread, you go long Porsche and short VW. I know a number of funds that put this trade on and pitched it to me. The glaring flaw in their analysis though was that they assumed that Porsche, who had announced its intention to take a "majority" stake in VW, was going to stop accumulating at 50.1% because Lower Saxony controls 20% of VW and it was thought they would never acquiesce to a takeover by Porsche. Porsche never committed to stopping at 50.1%, and as this weekend's announcement shows, they didn't.

So what ended up happening was that the hedge funds were shorting VW as Porsche was acquiring it. It's akin to a reverse risk arb; in risk arb you buy the target and short the acquiror, here the funds were shorting the target and buying the acquiror. As would be expected, this is a recipe for disaster. Once Porsche announced they controlled 74.1% of the stock through owned shares and cash settled options (where their banks effectively control the shares), it became obvious that with only 5.9% of shares now in the free float (remember Saxony controls 20%) that the 13% of shares sold short were in a, shall we say, precarious position. Thus the single greatest short squeeze I have ever seen. VW is now valued at over 2x Toyota Motor despite being smaller and less profitable.

Posted by: joe at Oct 28, 2008 9:38:24 AM

www.marginalrevolution.com/...ion/2008/10/porsche-and-vol.html

www.investors.com/editorial/...atus=article&id=308960422257922

EDITORIALS &
OPINION

Opposing Uptick Rule Is Truly Short-Sighted

INVESTOR'S BUSINESS DAILY

Posted 10/15/2008

Investing: On July 6, 2007, the Securities and Exchange Commission voted to repeal the uptick rule for short sales. The Dow industrials then stood at 13,611, just three months away from an all-time high of 14,198. The SEC's timing couldn't have been worse.



About the same time, the subprime mortgage mess was surfacing and would soon escort the market on a volatile, 12-month, 40%-plus decline. Investors worldwide have suffered. Worse yet, some of our largest and (we thought) safest financial institutions have gone bankrupt.

Culprits in this yearlong financial train wreck are many. The extremes of leverage and risk taken were unthinkable. But make no mistake: Unbridled short selling also played a role.

The SEC's fateful decision to repeal the rule has exposed us to the very same "bear raids" and "runs on the banks" that prompted the rule's original enactment in 1934. Prudent lessons learned from the crash of 1929 and the ensuing Depression have been unlearned and, in the process, left us unprotected from predatory trading abuses and financial terrorism.

Reasons given for the repeal show a regrettably shallow understanding of the issues. Fact is, politicians have been pressured for years by influential, deep-pocketed hedge funds and financial institutions that wanted faster, cheaper trading venues and looser rules.

The SEC studied the effects of repeal by conducting its pilot program on 1,000 stocks for 12 months from May 2005 to April 2006. Unfortunately, this was a period of low volatility that saw the Dow advance from 10,404 to 11,366 in an orderly fashion. The uptick rule was not enacted for such periods of tranquility. It was enacted as a lifeboat for severe financial upheavals such as those in 1929-1933.

Another excuse for repeal was that, in the era of decimal trading, the rule is impotent. But this is not about the increments of the uptick itself; it is about the negative obligation (in specialist speak) of not being able to short a security repeatedly lower and pound it into the dirt.

Besides, the rule does not have to apply to an uptick of a few cents. It can just as easily require, say, a 10-cent uptick for stocks priced below $20, and 25 cents on those above.

The evidence that volatility has increased after the rule change is powerful. A study by Birinyi Associates in April 2008 shows that after the rule change the VIX (Volatility Index) increased immediately from 13.25 to 23.55. In addition Birinyi showed that during the same period, the absolute dollar value of the daily change in each stock in the S&P 500 increased to $1.77 from $1.02.

Even more compelling is a chart showing the volume of stocks purchased on plus ticks (higher prices than prior sale) and those purchased on minus ticks (lower prices).

The real date — July 6, 2007 — shows an immediate and dramatic shift in volume from plus ticks to minus ticks, suggesting unbridled shorting pushing prices lower. Proponents of the repeal say these data are just coincidence. We think not.

Finally, much has been written and reported about the role of predatory shorting in the demise of Bear Stearns and Lehman Bros. Clearly, both of these venerable investment bankers were in serious trouble. Yet, if one carefully analyzes the price and volume action in the final five days of their dramatic declines (when most of the damage was done), the evidence is compelling.

Bear, with a float of 159,098,000 shares, traded down from $61.58 to $2.84 in just five trading days (March 14 to March 20) on stunning volume of 669,737,000 shares, or 4.2 times its total float.

Lehman had similar footprints, diving from $16.20 to 15 cents in five days on almost three times its floating supply. In the process of these startling declines, these firms' ability to fund their businesses disappeared, and both failed.

All this, according to many crusty old traders, smells like a replay of the 1929-33 bear raids that the uptick rule was designed to prevent from ever happening again. Proponents of repeal think not. The difference is that the traders can shake their heads and move on to the next trade.

Those who stand by the repeal must bear the burden of knowing that their poorly researched decision and reluctance to admit their mistake has put our very nation, our markets, our economy, and indeed our national security at risk. The uptick rule needs to be reinstated now.

Copyright 2000-2008 Investor's Business Daily, Inc.

dealbook.blogs.nytimes.com/2008/11/20/...eturn-of-uptick-rule/

Wachtell Lipton Calls for Return of Uptick Rule
November 20, 2008, 12:34 pm

   As shares of Citigroup, Blackstone and other heavyweights of the finance industry slumped to new lows on Thursday, a prominent law firm passionately repeated its call for the reinstatement of the “uptick rule.”

The firm, Wachtell, Lipton, Rosen & Katz, whose client list reads like a Who’s Who of Corporate America, said in a memo to clients that the “very same conditions that led to the adoption of the Rule in 1938 exist today” and sharply criticized the Securities and Exchange Commission, and its chairman, Christopher Cox, for failing to act sooner. “There is no tomorrow,” the memo said.

The uptick rule was created in an attempt to prevent short-sellers — who bet that a given stock will fall — from causing a sell-off in shares that were already declining. The rule, which permitted short sales only on a stock whose last trade was higher than the previous one, was abolished last year. Many believe that its removal has seriously destabilized the markets, though there is not universal agreement on this point.

Read the full text of the memo below:

   November 20, 2008

   Reinstate the “Uptick Rule”

   The worldwide securities and credit markets continue to experience unprecedented meltdowns and volatility. Millions of investors are losing their life savings and retirement assets. There continues to be widespread manipulative short-selling and bear raids. The investing public is losing confidence in the integrity of our markets.

   For the past five months, we have called on the S.E.C. to reinstate the “Uptick Rule,” which helps limit downward spirals by allowing a stock to be sold short only after a rise from its immediately prior price. Despite widespread market participants’ calls to do so, the S.E.C. has failed to act. The S.E.C. must reinstate the Uptick Rule now to address the short-selling, bear raids, and the spreading of false rumors. Nearly all the reasons that the S.E.C. gave for repealing the Uptick Rule in July 2007 are not valid in today’s turbulent markets. In fact, the very same conditions that led to the adoption of the Rule in 1938 exist today.

   Historically, the S.E.C. has played a leadership role during market crises to assure that the markets are fair and orderly. The S.E.C. has not hesitated in the past to be creative and innovative in protecting the securities markets and the financial intermediaries from manipulative conduct. Decisive action cannot await the appointment of a new S.E.C. Chairman. The S.E.C. must take a leadership role in restoring investor confidence. It is long overdue. The S.E.C. and Chairman Cox must act now. There is no tomorrow. The failure to reinstate the Uptick Rule is not acceptable.

   Edward D. Herlihy
   Theodore A. Levine

   * Double funding for the manufacturing extension partnership: The Manufacturing Extension Partnership (MEP) works with manufacturers across the country to improve efficiency, implement new technology and strengthen company growth. This highly-successful program has engaged in more than 350,000 projects across the country and in 2006 alone, helped create and protect over 50,000 jobs. But despite this success, funding for MEP has been slashed by the Bush administration. Barack Obama and Joe Biden will double funding for the MEP so its training centers can continue to bolster the competitiveness of U.S. manufacturers.
   * Invest in a clean energy economy and create 5 million new green jobs: Obama and Biden will invest $150 billion over 10 years to advance the next generation of biofuels and fuel infrastructure, accelerate the commercialization of plug-in hybrids, promote development of commercial scale renewable energy, invest in low emissions coal plants, and begin transition to a new digital electricity grid. The plan will also invest in America's highly-skilled manufacturing workforce and manufacturing centers to ensure that American workers have the skills and tools they need to pioneer the first wave of green technologies that will be in high demand throughout the world.
   * Create new job training programs for clean technologies: The Obama-Biden plan will increase funding for federal workforce training programs and direct these programs to incorporate green technologies training, such as advanced manufacturing and weatherization training, into their efforts to help Americans find and retain stable, high-paying jobs. Obama and Biden will also create an energy-focused youth jobs program to invest in disconnected and disadvantaged youth.
   * Boost the renewable energy sector and create new jobs: The Obama-Biden plan will create new federal policies, and expand existing ones, that have been proven to create new American jobs. Obama and Biden will create a federal Renewable Portfolio Standard (RPS) that will require 25 percent of American electricity be derived from renewable sources by 2025, which has the potential to create hundreds of thousands of new jobs. They will also extend the Production Tax Credit, a credit used successfully by American farmers and investors to increase renewable energy production and create new local jobs.

change.gov/newsroom/entry/...ect_biden_announce_key_white_hou/