Seeking Alpha

H. T. Love's  Instablog

H. T. Love
Send Message
Spent over 30 years in computer systems work, many different functions. Owned my own business for awhile. Got tired of it (managing employees is not my baliwick) and stopped doing it professionally. Did other things, off and on, for some more years and finally bumped into this investing/trading... More
  • AXPW Fails-To-Deliver Charts 2/11/2013 22 comments
    Feb 11, 2013 1:47 PM | about stocks: AXPW

    For a long time I've been interested in the mechanics of the trading environment, specifically market-makers, daily short sales, and fails-to-deliver.

    For not quite as long John Petersen and I have had a slightly different view of the meanings and utility of daily short sales and fails-to-deliver.

    It's likely that we are each both right and wrong as part of our hypotheses proves correct and part wrong, likely dependent on time-frames and other factors.

    I wanted to do this because there's apparently some doubt about John's, and my, belief that the big uglies are really pretty-much exhausted. I figured if there was a second set of data that suggested such maybe John wouldn't have to repeat it so often. Refreshing your memory, John believes that daily short sales are a strong indication of the level of big uglies active while I believe that, over the long run, that daily shorts will eventually be much like the other 18K companies on the OTC - around 40% daily shorts on average across all companies.

    My intra-day statistics have been reporting for some time a metric which I believe supports the big uglies being mostly gone. But since they are totally experimental and can't be taken as gospel ...

    I threw together some charts this weekend that present some minimal data not presented before for your perusal. For both the believers and doubters, these might sway you one way or the other.

    Before trying to interpret what's there, read this Frequently Requested FOIA Document Fails-to-Deliver Data, What You Should Know About the Data.

    The most import things to take from that, IMO, are:
    - data is delayed to us for, IMO, all my usual TFH reasons - or they don't have computers I guess;
    - the numbers are cumulative - not daily transactions;
    - this means we can't, at any given time, tell what's new fails or which prior fails have been satisfied;
    - there's supposedly lots of valid reasons for fails that are not nefarious in nature, such as failure to borrow before shorting (in our case I think this is unlikely to be a concern, thanks to some education from John).

    The reason for failure to deliver I think applies in most cases are the certificate conversion issues John has informed about. There seems to be another related to where the Mega-C shares were held, since we had some movement that seems related to the time we think they came into the market. And based on the activity since we believe the big uglies exited, there are other unknown and not illicit causes ... maybe.

    Moving on ...

    I would call your attention to the 2012 charts and the big change in fails that start to appear in the August time frame, when my intra-day statistics suggested to me that exhaustion of big uglies was beginning, which I stated many times. Then notice the change subsequent to the mid-September time-frames. I don't recall exactly when, but I think both John and I were saying they were gone starting somewhere around November. I'm too darned lazy to go searching though - you'll have to do it yourself if you really want to know.

    I'll update the latest charts about every two weeks so we can try and detect (quite belatedly of course, thanks to the SEC policies and, I guess, lack of computing equipment throughout the government and industry that would permit timely dissemination of data) any changes that might affect some of our behavior ... other than carping about drying paint, etc.

    I hope you find this somewhat useful.

    Note that the scales on the volume charts are logarithmic and trading volume scale is on the left while short and fails volume scale is on the right.

    Note also that the fails to deliver data points have been offset negative three days, trying to match the anticipated T+3 settlement date to the date the trade was made and allowing the prices at the time of the sale to match. Note that the fails price is the price reported by the SEC at the end of each day, so the fails price shown is three or more days later than the estimated trade date shown on the charts.

    (click to enlarge)Axpw_Shorts_and_Fails_H1_2010

    (click to enlarge)Axpw_Shorts_and_Fails_H2_2010

    (click to enlarge)Axpw_Shorts_and_Fails_H1_2011

    (click to enlarge)Axpw_Shorts_and_Fails_H2_2011

    (click to enlarge)Axpw_Shorts_and_Fails_2013_H1

    (click to enlarge)Axpw_Shorts_and_Fails_2013_H2

    (click to enlarge)Axpw_Shorts_and_Fails_2014_H1

    (click to enlarge)Axpw_Shorts_and_Fails_2014_H2

    Disclosure: The author is long AXPW.

    Additional disclosure: Most of my stuff is experimental. I'm still early in the learning curve. I have a tin-foil hat and hate our so-called regulatory process.

Back To H. T. Love's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (22)
Track new comments
  • Stilldazed
    , contributor
    Comments (2097) | Send Message
     
    Thanks HTL,
    11 Feb 2013, 01:57 PM Reply Like
  • H. T. Love
    , contributor
    Comments (17297) | Send Message
     
    Author’s reply » Added price charts.

     

    HardToLove
    13 Feb 2013, 12:09 PM Reply Like
  • H. T. Love
    , contributor
    Comments (17297) | Send Message
     
    Author’s reply » Updated the 2013 chart through period ending 2/15/2013. Note that the fails continue to reduce and become less frequent, as has been the trend, supporting John's, and my, contention that the "big uglies" are nowhere to be found for now.

     

    What can be read into this is some corollaries:
    1. More (almost all?) of the shares traded are held at brokers and/or market makers (likely wholly owned by the brokers - possibly accounting for John's 2-sigma short sales averages change) as John has been asserting for some time;

     

    2. Short sales are *now* *not* reliable indicators of certificated holder sales.

     

    Moreover, we can reasonably conclude that selling is by one or more of retail longs, traders (not making much $ if that's the case), and/or market-makers earning their keep. I've no feeling as to a bias towards any one of these predominating, although I continue to feel some MMs are playing the stock, having short-term long positions accumulated to then be sold back into the market.

     

    MHO,
    HardToLove
    1 Mar 2013, 04:22 PM Reply Like
  • H. T. Love
    , contributor
    Comments (17297) | Send Message
     
    Author’s reply » Updated the header to reflect the trade date offset applied to the fails date.

     

    HardToLove
    2 Mar 2013, 02:12 PM Reply Like
  • RBrun357
    , contributor
    Comments (797) | Send Message
     
    HTL

     

    Good stuff, thanks again for all your hard work.

     

    Although I am not really able to support my instincts I am optimistic that March is going to offer some fun stuff for us to calculate!

     

    Enjoy your weekend,

     

    RBrun357
    2 Mar 2013, 03:43 PM Reply Like
  • H. T. Love
    , contributor
    Comments (17297) | Send Message
     
    Author’s reply » Thanks RBrun!

     

    I hope your weekend is solid - I'm considering taking a break and watching some ACC action.

     

    HardToLove
    2 Mar 2013, 03:57 PM Reply Like
  • Mayascribe
    , contributor
    Comments (9597) | Send Message
     
    HTL: This NCAA basketball season has been the best I've ever seen. 19 top 5 teams have been beaten by unranked teams; unprecedented.

     

    Alas, the more I learn how to fill out the March Madness brackets, the more I learn I need to learn more.

     

    A 4 or even a 5 seed could take it all!

     

    This year, I'd probably do better by hiring a French poodle to fill out my brackets. ;-)
    2 Mar 2013, 04:17 PM Reply Like
  • H. T. Love
    , contributor
    Comments (17297) | Send Message
     
    Author’s reply » Maya: I don't follow closely. I did get to see Kansas whup WV though.

     

    HardToLove
    3 Mar 2013, 08:05 AM Reply Like
  • H. T. Love
    , contributor
    Comments (17297) | Send Message
     
    Author’s reply » No fails to deliver in the latest reporting, through 4/12/2013.

     

    HardToLove
    6 May 2013, 07:17 AM Reply Like
  • bazooooka
    , contributor
    Comments (2350) | Send Message
     
    HT,
    When will we have the new fails data? And if your spider senses are correct and the FTD percentage is very high then what does that mean from your perspective? A "big uglies" return or maybe new investors converting and selling as quickly as possible - or worse yet the dreaded "uncovered" short?
    12 Jun 2013, 04:43 PM Reply Like
  • H. T. Love
    , contributor
    Comments (17297) | Send Message
     
    Author’s reply » It comes out about every two weeks. The last one was picked up by me 5/31 for the first half of May. So the one that covers this period s/b ~6/15.

     

    If F2D are much higher than normal, and *especially* if they persist (recall that they are rolling *cumulative* totals) for some time, it means a couple of things.

     

    From what I learned from JP, there may be certificates involved that need to be converted to electronic form and that can take some time. This is, I believe, what is evidenced by the large volumes that lasted from 2010 going forward as many certificate holders bailed for various reason.

     

    Mixed in with that *may* be what I think will be evidenced by the current period if F2Ds are high. Keep in mind the registration effectiveness date, 6/4, which is long after our daily short sales began to spike up again. So certificates couldn't be involved and the electronic form of them couldn't be registered before that, IUC.

     

    http://bit.ly/14XFYpa

     

    I believe it would indicate that some less scrupulous folks began selling w/o borrowing first (i.e. "naked shorting"), in violation of SEC rules. Then if they tried to borrow after the fact to offset those short sales and weren't able to locate shares to borrow, a fail to deliver would occur at the T+3 time.

     

    If they didn't even try to borrow (which we have no way of knowing), I would *suspect* that folks involved with the financing arrangement were doing the nefarious deed, which is no better than theft.

     

    Some scenarios one could picture from that would include two things, I think.

     

    One is that the way the financing is structured they can't lose. If price goes down, they get a better price on the next round. So they could have reason to take profits now, through any means possible, even if it drives price lower and they make little-to-nothing by selling. In that case, short the heck out of the stock, maybe do some covering buys at a lower price (which would then be used to clear the fails or the shorts before they became fails) or just ride it and cover with the next tranche of shares (but that risks the wrath of the SEC if they ever wake up and take notice). They risk triggering "Reg SHO & Rule 4320 Status" flags if they don't clear enough of the fails and the volumes meet the criteria.

     

    http://bit.ly/uGVJsb (bottom part of the page).

     

    Do keep in mind that JP believes (*IIRC*) the shares are likely difficult to borrow and I've found nothing to contradict that. So if that is correct, fails seems to suggest rules violations are occurring.

     

    If we see fails clearing (might be difficult to tell because of the rolling nature and the ability for folks to keep naked shorting), then that suggests certificates involvement or the shorters that caused the fails are doing covering buys at lower prices.

     

    One last thing: the SEC fails page notes that there are many legitimate reasons for fails, but conveniently doesn't list them all, and most fails are not due to illicit activity. For small, short-lived quantities, I can buy into this. For others, my TFH holds sway, along with my disdain for the SEC as an effective organization.

     

    That about cleans out what I know, what I suspect and what I fear, all in one "swell foop"! :-))

     

    HardToLove
    12 Jun 2013, 05:25 PM Reply Like
  • bazooooka
    , contributor
    Comments (2350) | Send Message
     
    Well Axion does seem to be a particular hard stock to get a borrow on. Hopefully the FTD don't spike too far because trying to solve this type of mystery can nearly explore one's brain. In other micro-cap stocks I've read about that had FTD problems the pedigree of management seemed suspect. AXPW doesn't have that issue so I hope the SYKEs type predators and their ilk don't come into our pond.

     

    http://goo.gl/EN1Ij
    12 Jun 2013, 05:51 PM Reply Like
  • H. T. Love
    , contributor
    Comments (17297) | Send Message
     
    Author’s reply » Bazooooka: Do you know if that reported quantity, 30^000 means 30K? The carat and following zeros makes me think 30K, but it could be a multiple, e.g. might mean 3MM, 30MM, ...

     

    Thanks,
    HardToLove
    13 Jun 2013, 05:07 AM Reply Like
  • H. T. Love
    , contributor
    Comments (17297) | Send Message
     
    Author’s reply » Just want to remind folks that the charts are logarithmic.

     

    Some possibilities about why we saw some fails in the 2nd half of may are mentioned in a short thread, which you've likely seen already, in the APC starting here.

     

    http://seekingalpha.co...

     

    HardToLove
    18 Jun 2013, 06:28 AM Reply Like
  • H. T. Love
    , contributor
    Comments (17297) | Send Message
     
    Author’s reply » He-he! Posted a comment in the intra-day 'bout the latest fails and forgot to put it here.

     

    In summary, low volume,. cleared quickly, few occurrences. Alleviated some of my concerns from the second half of May report.

     

    http://seekingalpha.co...

     

    HardToLove
    2 Jul 2013, 05:00 AM Reply Like
  • H. T. Love
    , contributor
    Comments (17297) | Send Message
     
    Author’s reply » Notice that the "density", but not the quantity or duration, of fails has picked back up in the second quarter and continued into the third quarter of '13.

     

    Data is the latest through first half of August.

     

    HardToLove
    25 Aug 2013, 01:29 PM Reply Like
  • H. T. Love
    , contributor
    Comments (17297) | Send Message
     
    Author’s reply » Data updated through mid-October. Nothing significant though.

     

    HardToLove
    10 Nov 2013, 11:17 AM Reply Like
  • H. T. Love
    , contributor
    Comments (17297) | Send Message
     
    Author’s reply » Data updated through 12/26/13. Other than that late October through early November spate of higher than normal consistent failure to clear the fails, everything. looks pretty normal, for a PIPE environment.

     

    For comparison, look at the chart that has Jan - Jun 2013 prior to the PIPE financing and note the paucity of failures and how quickly the few that did occur cleared.

     

    HardToLove
    17 Feb, 02:25 PM Reply Like
  • H. T. Love
    , contributor
    Comments (17297) | Send Message
     
    Author’s reply » P.S. That's the latest available data thanks to our opaque SEC environment.

     

    HardToLove
    17 Feb, 02:26 PM Reply Like
  • H. T. Love
    , contributor
    Comments (17297) | Send Message
     
    Author’s reply » Updated charts to latest available data, end of March 2014.

     

    As before, fails generally remain at low levels. In the raw data there were some changes that could probably be tied back to specific trades on specific days. E.g. I noted some maximum trades sizes of >= 100K in time frames when we saw fails "pop" up on the chart.

     

    02/13 108000
    02/14 180000
    02/18 099000
    02/19 110000
    02/20 080000
    02/21 125000
    02/24 110000

     

    Tying this back to JP's tracking I wonder if that's when we saw some early conversions by the pipers. Maybe even the reason?

     

    I'd have to go check the dates and it doesn't seem worthwhile at this juncture for what we might learn from it.

     

    Note that some later similar large maximum trades did *not* result in fails. We could speculate that the early conversions loaded the PIPers for bear this time, so they actually had what they sold, vs. before when they were "naked shorts" at the time.

     

    Someone could argue they weren't "naked shorts", because the risk of getting fitted for orange jump suits is too high for the potential gain. Could be, could be. They could also argue that the shares were issued and just hadn't been converted to electronic form at the time they were sold. Could be, could be.

     

    Might a market-maker have satisified a big sell order and then needed several days to get the covering buys done, thereby causing the fails and being naked short, which is *not* in violation of SEC rules because MMs are exempt from Reg SHO requirements to borrow before selling. They can create "phantom shares" as need to meet their goals. Could be, could be.

     

    Well, nothing more.

     

    HardToLove
    19 Apr, 11:22 AM Reply Like
  • H. T. Love
    , contributor
    Comments (17297) | Send Message
     
    Author’s reply » Got the latest available data, through end of April, into the chart, bottom one. One thing that caught my eye, again, is the no fails for the first six weeks, then fails sporadically.

     

    Ignore the height of the fail bars - they're logarithmic with differing scales - but the change in frequency is notable. I'm thinking the timing roughly coincides with JP's noting the early conversions had been done around the time he was thinking the PIPErs *might* be getting low on shares.

     

    If it was the case, the selling of those shares by PIPErs before they were electronically available in the PIPErs' accounts could be the cause.

     

    Note that John believes little or no relationship exists with fails to deliver though.

     

    HardToLove
    25 May, 01:43 PM Reply Like
  • H. T. Love
    , contributor
    Comments (17297) | Send Message
     
    Author’s reply » Got data for 2nd half of June and 1st half of July up and created 2nd half 2014 chart. The "spottiness" of fails that began after may, when we think the pipers were mostly out (at least I still do), continues and I see this as evidence they really are out as the big difference when we know they were in is easily seen.

     

    My interpretation of daily short sales percentages behavior suggests this also.

     

    BTW, don't let the paucity of Jan. through early Feb. fails fool you! Remember we had a modification to the PIPE financing that changed some material percentages and deferred, IIRC, a payment.

     

    I probably ought to get the details, but laziness reigns since it's in the past now.

     

    HardToLove
    3 Aug, 11:55 AM Reply Like
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.