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Media Statement on Robert Shapiro's Report on Naked Short Sales

March 15, 2006 - Robert Shapiro has admitted to DTCC he is a paid consultant for the John O'Quinn and Wes Christian legal firms, which have been suing DTCC with respect to naked short selling.

• Robert Shapiro's report is replete with errors, baseless numbers (e.g., estimated fails), faulty analysis that we believe mischaracterizes and misinforms.

• He ignores authoritative statements by SEC on these issues, which are readily available on the SEC Web site and reinforced in an amicus brief the SEC filed in support of DTCC in a recent legal proceeding. We believe he does this intentionally.

• Mr. Shapiro continuously misstates our role in the industry. DTCC does not regulate the industry and is not an enforcement agency. We are highly regulated by the SEC.

Thus for example, Mr. Shapiro states, "At any time, the DTCC could fully clear and settle every extended naked short sale or failure to deliver by doing what it once did routinely in such cases: Buy the shares itself in the market ("buying in") and charge the account of the naked short seller's broker."

Mr. Shapiro is wrong; the SEC has stated publicly that we do not have such authority:

"NSCC does not have the authority to execute buy-ins on behalf of its members. Moreover, forcing close-outs of all fails can increase risk in clearing and settlement as well as potentially interfering with the trading and pricing of securities."

• His use of the terms "fails to deliver" and "naked short selling" interchangeably throughout this report is intended to confuse reality and we believe he does this deliberately.

The SEC has stated, "There are many reasons why NSCC members (a subsidiary of DTCC) do not or cannot deliver securities to NSCC on the settlement date. Many times the member will experience a problem that is either unanticipated or is out of its control, such as (1) delays in customer delivery of shares to the broker dealer; (2) an inability to borrow shares in time for settlement; (3) delays in obtaining transfer of title; (4) an inability to obtain transfer of title; and (5) deliberate failure to produce stock at settlement which may result in a broker dealer not receiving shares it had purchased to fulfill its deliver obligations."

• In truth, failed transactions (whatever the reasons) represent less than one-tenth of one percent of the more than 26 million average daily transactions handled by DTCC.

• Mr. Shapiro asserts that Reg SHO has not reduced the total number of outstanding fails. However, in his own report, his numbers demonstrate a 10% reduction in aggregate fails (nearly 58 million shares) and a 32% reduction in companies on the threshold list?and this was within the first three months under Reg SHO (see table 1, pg 5).

• Mr. Shapiro is absolutely wrong in saying DTCC "tracks the precise number of fails for every stock, including all threshold companies, yet refuses to release those data to anyone, even affected firms."

DTCC provides data on the volume of fails daily to the regulatory bodies responsible for policing and enforcing broker conduct, including the marketplaces (NYSE, NASD, etc.) and the SEC. In addition, this data is used by these regulatory bodies for reporting on and the policing of Reg SHO compliance.

DTCC's subsidiaries do not disclose confidential information to the marketplace, including data on fails, since it could potentially be used in market manipulation.

And while we have data on the volume of fails, we have no information on the underlying causes of those fails. As noted above, there are many causes of fails.