One concept you guys might want to get your arms around is that of a “synthetic long position”. In the U.S. an investor has the right to sell any “security” in his account that is being “held long” by the clearing firm of his broker. A “long position” can consist of shares that were purchased and successfully delivered OR mere readily sellable “security entitlements” that denote yet (if ever) to be delivered shares that were already paid for. A “security entitlement” is an electronic book entry that serves as a “placeholder security”. It’s not a “share” but it is technically a “security” that is technically being “held long”. It amounts to a readily sellable IOU. The purchaser of yet (if ever) to be delivered shares holds in his a/c a “synthetic long position” or SLP. It was created out of thin air.

These SLPs are not “shares” but they trade all day long right next to shares and they are indistinguishable from “shares” on a monthly brokerage statement. Why? Because your monthly brokerage statement does not refer to “shares owned” it refers to “securities held long”. This is true even if the “security” was created out of thin air and is often the evidence of a crime. The DTCC management’s default presumption when a delivery failure/delivery refusal occurs is that its bosses, the co-owning “participants” of the DTCC, are incapable of criminal behavior. It’s just that certain “participants” seem to have a whole lot of “delivery delays” that last for years and years.

These “security entitlements”/SLPs are “derivatives” of shares. Their value is “derived” from the value of an underlying asset i.e. a legitimate “share”. “Derivatives” are very, very scary. Abuses of derivatives allow criminals to manipulate markets in a “tail wagging the dog” fashion. This involves abuses of derivatives that allow the derivative to manipulate downwards the value of the underlying asset from which it was “derived”. The concept is insane. An analogy might be the Insurance Commissioner allowing known arsonists to take out a fire insurance policy on his neighbor’s house and name himself as the beneficiary. An Insurance Commissioner does not allow this obviously fraudulent behavior. Most SEC Commissioners have no problem with this behavior. They say it injects liquidity into our markets. What’s the difference between an SEC Commissioner and an Insurance Commissioner? Most Insurance Commissioners don’t have a “revolving door” to a much higher paying job for the arsonist whose behavior he is mandated to monitor. Similarly, most arsonists don’t employ powerful industry lobbyists and don’t donate heavily to the political campaigns of politicians willing to represent their financial interests.