DTCC Clarification on Fails to Deliver.

NEW YORK -- The Depository Trust & Clearing Corporation (DTCC) today issued a clarification of a statistic it reports each year in its annual report. The clarification is intended to provide a more accurate description of a statistic on failed transactions - including "Fails To Deliver" (FTD) - that certain third parties have persistently misinterpreted or misrepresented, seeking to buttress their contention that the levels of FTDs is evidence of abusive short selling and "naked short selling." These parties cite DTCC's reported statistic as the amount of FTDs each day. Their characterizations are grossly inaccurate and paint a distorted picture of the reality of the marketplace.

National Securities Clearing Corporation (NSCC), a subsidiary of DTCC, acts as a central counterparty to virtually all broker-to-broker trades in the U.S. As such, the numbers NSCC reports relating to "failed transactions" reflect both buy and sell sides of a trade. These numbers include both fails to deliver and their offsetting fails to receive, so that the number thus doubles the amount involved (i.e., the same transaction is counted twice, once on the "deliver" side and once on the "receive" side).

In DTCC's most recent annual report indicated that as of December 31, 2005, NSCC had fails outstanding worth approximately $6 billion. This value is persistently described by third parties as the value of FTDs as of that date. Since it is actually the value of all fails - i.e., both fails to deliver and fails to receive - effectively, the $6 billion cited by third parties actually represents $3 billion in fails to deliver, or about 1.1% of the $266.5 billion in trades processed on the average day by NSCC in 2005. Moreover, the $3 billion figure also represents all fails to deliver at NSCC, including fails in fixed income trades (corporate and municipal bonds). While the number of fails and percentage of fails in fixed income trades changes each trading day, on December 31, 2005, fixed income trade fails were equal to approximately 15% of all fails. Importantly, DTCC notes that this FTD total reported is not just for equities on the "threshold list" of companies, but rather reflects fails on all equities and corporate and municipal bonds.

For over one year, DTCC's Web site has reported that the $6 billion as "fails to deliver and receive" thus enabling people interested in the topic to understand that the figure reflects both halves of a transaction. (See http://www.dtcc.com/Publications/dtcc/mar05/naked_short_selling.html.) Nonetheless, third parties persist in applying the number to fails to deliver only. The DTCC Web site has also made clear that the figure is not a daily amount of fails, but a combined figure that includes both new fails on the reporting day as well as aged fails.

While DTCC does not know the reasons for a fail to deliver (this is only known by the broker-dealer and the marketplace), as the SEC has pointed out, "There are many reasons why NSCC members 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."

With information on the actual FTD situation readily available, DTCC believes the failure to use the proper number in any meaningful discussions of naked short selling reflects a conscious attempt to mislead the investing public and undermine the confidence in the workings of our capital markets.