Causes

                            Deliberate Actions:        

              1. Violation of Federal Settlement Rules
             2. Violation of State Securities Laws (Uniform Commercial Code)
             3. Exploiting the Absence of a Bona Fide Settlement System
             4. The SEC Not Ensuring Enforcement of Existing Rules and Laws
             5. The SEC Not Establishing a Settlement System


    Uniform Commercial Code Is Deliberately Misinterpreted (State Laws)
    The SEC and Wall Street firms ignore the provisions in the Uniform Commercial Code, which
    makes misrepresenting securities, transactions and transfers unlawful. Instead, they do
    acknowledge the importance of the UCC and cite it as an authority. But they interpret it differently
    than the plain English text and meaning of the UCC is, in order to imply that current industry
    practices are somehow permitted under the UCC, when in fact they are not. The solution is to
    tighten the already existing definitions in the UCC to make it so that even a 5 year old would
    understand what the intent and meaning is and to make it impossible for Wall Street firms to  
    claim that a circle is really a square.

    Via the Uniform Commercial Code, the states have a powerful say in regulating securities on a
    national level, because it is a cornerstone of the national regulatory scheme by the design of the
    U.S. Congress.

    Unenforced Federal Rules by The SEC and SROs (A small sample)
     Another reason for unsettled trades in equity securities and the misrepresentation of securities
    and transactions is because neither the SEC nor the SROs enforce already existing federal rules
    and statutes nor follow the directives in the federal statutes regarding settlement of trades.
    These complement the provisions in the UCC and both are intended to make securities markets
    fair, transparent and efficient.

    15c6-1- The Settlement Cycle
    The SEC and SROs have decided not to enforce the settlement cycle rule, 15c6-1, which has a
    settlement date delivery requirement that, when violated, creates "fails". This makes failing to
    deliver securities after the contractual delivery date illegal for all parties without exception.

    15c3-3 - Customer Protection
    When fails happen in spite of rule 15c6-1, the customer protection rule requires immediate
    corrective action and for the brokers to close out their fails promptly. This makes persistent fails
    illegal, but it is not enforced.

    Section 17A of the Securities Exchange Act of 1934, accurate settlement and clearing
    This federal Statute passed by the Congress requires the clearing agents to accurately settle
    and clear and to link the two. However, the clearing agents, mainly the DTCC has de-linked
    clearing from settlement and both are independent from each other, rather than being dependent
    on each other. The SEC has failed to ensure prompt and accurate settlement.

    When a trade fails, the NSCC often assigns the delivery liability to other participants, rather than
    ensuring settlement itself. Neither the DTCC nor the NSCC  guarantee settlement, despite their
    public claims to that effect - another systematic misrepresentation.

     Section 6(b)(5) of the Securities Exchange Act of 1934, prohibition on discrimination
    The SEC gives preferential treatment to Wall Street firms, hedge funds and broker-dealers over
    investors - the ones they are sworn to protect. This federal statute prohibits this kind of
    discrimination against investors.


    "Rules" in the Bond Market and the FED's response and scheme


    The FED and not the SEC is responsible for regulating the bond market. However, even worse
    than the SEC, the FED has left this market almost completely unregulated based on trust
    between the counter parties. The result is now that nobody trusts anyone anymore and the bond
    market has broken down with $2 Trillion in fails just in October 2008 alone.

    In this case, we will let Euromoney speak to this issue in an article that appeared on Nov. 25,
    2008:

(Click to download) Treasury Dept Letter on Fails in U.S. Treasuries Via the FICC
(Fixed Income Clearing Corporation) Subsidiary of the DTCC
The letter addresses old aged fails as well as new ones. Just how rotten is the
system?

(Click to download) US Treasury Dept White Paper on Securities lending facility
It's all due to "fails" and the systemic risks. But papering over "fails"  via lending is  
not a solution. It only alleviates "fails to receive"  not the systemic demand
imbalances nor "fails to deliver" - they just get aged

(Click to Download) Comment Letters on the Treasury Dept's proposal
Of course the prime brokers are all for this proposal. It adds legitimacy to causing
"fails" in the first place.