October 21, 2008
All trades that do not settle on T+3 require individual employees to manually research the reason for the establishment of that fail. And given the fact that customers who short securities rely on a third party or another department within their organization to make deliveries of securities to NSCC the research as to the reason for the fail can involve communication between up to five different parties those parties being the customer, clearing firm, introducing broker, third party or department responsible for the physical delivery and NSCC.
As the research process is a manual process that can involve several employees of several different organizations the rules requirement that if shares are not delivered by settlement date immediately purchase or borrow securities to close out the fail to deliver position by no later than the beginning of regular trading hours on the settlement day following the day the participant incurred the fail to deliver position. Shows a lack of understanding on the commissions part as to the time needed to research fails and a lack of respect for non registered "cage" personnel who must perform the research and process deliveries.
As DTC accepts deliveries (based on type of delivery) up to 3:00PM the rule should be amended to permit firms up to 3:00PM on T+4 to make the required delivery. The firm will still have ample time to close out the fail by executing a buy in of the securities if not delivered by 3:00PM on T+4.
In addition, with all this concern regarding abusive short selling why did the commission ever repeal the short tick rule ?