Good morning, vietnam, oh man, what is up everybody welcome to trace trades. We have technical analysis and different stocks in the stock market, as well as potential buy, hold or sell opinions on these. Given stocks like your products by saying that i'm not a financial advisor nor experts - don't take my say, the greatest salt, let's get into the video so today i want to talk about a really freaking, fascinating, nscc proposal and filing this is the national securities clearing corporation. If you don't know that could drastically improve the odds of us winning this freaking short squeeze.

I want to preface by saying that this has not yet been approved by the sec, whether the sec rule finally is right here you can find this on dtcc.com legal and you can see the nscc 2021-0 proposal it has not yet been approved, so i have seen That circulating around reddit that it has been approved. This has not yet been approved. This is coming straight from the dtcc website. The meaning of this video is primarily to give you something to watch for because i think this is going to be a drastic change and you're going to like reading through this.

So let's just get right into the video. I always start off on microsoft, whiteboard at least once or twice a week. I like to freaking drop something and i drew up majin buu. This is actually super boo right here.

This is how you would spell it in japanese ma jin. This is the uh, the kanji for jean, which is essentially a a race of people and then boo, and that is him right there. So uh freaking absolute powerhouse, majin buu, is one of my favorite villains in the dragon ball z saga and i just had to draw him up to give a good, uh good shout out to the uh. You know to the show that i grew up on man.

This stuff for me, as a freaking kid kind of made his arm a little bit small, but that's all right. It's i'm not very good at it, but that's okay! You know bob ross but anyways what we're going to be running through here today. I'm going to be talking about what is being proposed in nscc202105, which is increasing uh credit, essentially from 10k to 250k, which is going to manage risk exposure. I'm going to talk about the back testing so the way they came to the results that they have and the reasoning behind it.

The overall sentiment - and this is regarding hedge fund sentiment right. They actually give an example here, which i find fascinating. Then i want to talk about some of the effects that this might end up having and i want to talk specifically about melvin capital margin, calls and liquidation. So, let's just dig straight into the actual filing itself.

Like i said, i got this straight from the dtcc website and i've highlighted some of the stuff that i think is pretty important. So, let's just start off here, the minimum required fund deposit. If you don't know what the nscc is. This is a national security clearing corporation, they essentially manage risk, they want to limit their exposure to risk, they handle transactions and, basically, all of all the different transactions that take place between buyers and sellers right, they're, they're, making sure that people are fulfilling their liquidity requirements And that they're they are not getting stuck holding the bill right.

So let's just talk about this really quick, the minimum required fund deposit they want to manage their credit exposure to members by determining the appropriate required fund deposits to the clearing fund. So i've, like i said i've highlighted stuff that i find to be important. The objective of a member's required fund deposit is to mitigate potential losses to the national security clearing corporation associated with liquidation of the member's portfolio. What does this mean right so essentially, if you've got a hedge fund like let's say, melvin, capital right and melvin capital is a little bit over leveraged.

They are not managing their risk. They're very heavily exposed to a great amount of risk. A great deal of of liquidation right margin calls their job is to limit that from happening, so they can manage their own right, the nscc's own liquidity and collateral, and not have to forward the bill right. They don't have to foot the bill so essentially their objective is to manage their risk and manage members risk so that people don't have to pay unnecessary losses in a security right now.

This is a really interesting piece right here. The rules identify when nscc may cease to act for a member in the types of actions nscc may take, cease to act for a member means. You're cut. You are exposing way too much risk to yourself and to us.

We want nothing to do with this. Get out of here essentially nscc may suspend a firm's membership with the nscc or prohibit or limit a member's access to nscc services in the event that member defaults on a financial or other obligation to the nscc. What does this mean right? This is saying: hey, melvin, capital citadel, whoever this hedge fund is that short amc and gamestop right. Let's say that they are not able to forward the bill foot the bill, they're, not managing their risk, they're, not putting out that that minimum required fund deposit to essentially minimize collateral damage, right, they're, saying that hey, if you don't want to play by the rules, you're, Not going to get to play at all right we're going to cut you out from the game, you want to play stupid game.

You're going to win stupid prizes have fun going broke right. So that's! This is essentially a punishment that may come out of. If this ruling gets this finally gets approved by the sec right uh, the securities exchange commission right, if they, if this gets approved and they don't follow the rules. This is something that might happen to them: they're just going to cut them off, suspend firms, membership right.

So, let's just dig into this a little bit more, should a defaulting member's own required fund deposit be insufficient to satisfy losses to nscc caused by liquidation of that member's portfolio. What this is talking about right rules constitute the clearing fund of nscc, which it would access. Among other instances, should the defaulting members own required fund deposit be insufficient to satisfy losses. They're saying, if, if you guys don't do this right, if you don't, if you don't play the game right, this is the consequences.

So, right now, as it sits, the nscc's minimum required deposit fund is ten thousand dollars and they have done a lot of back testing. They've done a lot of research and they've essentially found that, with only a ten thousand dollar minimum required fund deposit they're running into a lot of issues. A lot of collateral damage. A lot of lack of confidence in the members that they're they're regulating right and they have proposed the idea of increasing this minimum required fund deposit to 250 000 they've done a lot of research to back up why they think this is going to do good things And the sentiment towards this by hedge funds, from what i've read is not good.

They don't want it, which is strange because wow, i wonder why they wouldn't want it, because it means they're not going to get to play stupid games anymore, but nonetheless, the first 40 of a member's required fun deposit, but no less than the minimum required fun deposit Amount of 10 000 is required to be in cash. I highlighted this because it means they can't play margin. They can't borrow money to satisfy this requirement right, and this is important because i think melvin capital citadel all these different hedge funds that are playing the amc game right now are playing leveraged money, they're borrowing, cash from big banks like jp morgan chase, whatever it might Be right, they're borrowing, cash to basically satisfy their their heavy leveraging short positions and they're saying right now: cash. We don't want this leveraging crap.

We don't want your margin crap. We want you to have the real money, because that is minimizing our risk. It's minimizing your risk and nobody can play stupid games if there's no stupid games to play right. A back testing deficiency - i kind of talked about this before, but we're going to get into this, so nscc employs daily back testing to determine the adequacy of each member's required fund deposit.

The nscc compares their card fund deposit for each member with the simulated liquidation gains or losses using the actual positions in the member's portfolio, so they're using real positions. Right, they're, essentially saying hey based on what you own right now or do you have a high shot at getting gains, or do you have a high shot of losing your cash and the actual historical security returns? A back testing deficiency occurs when the nscc determines that a member's required fund deposit would not have been adequate to address the projected liquidation losses eliminated estimated from a member settlement activity. This should make you rub your freaking hands together. You know what this is right here.

This is them saying, based on the fact that we think you guys have heavy shots of getting liquidated a lot of securities that you're shorting or holding right. Now we don't think this ten thousand dollar set. This fun settlement is sufficient right. The nscc of the nscc pays particular attention to members of back testing deficiencies, i'm looking at you melvin and citadel at all.

I should say, and they want a 99 confidence target they're not meeting that requirement right. So i'm just kind of giving you a preface and an overview of why this is all important, so i think it's important to realize also this ten thousand dollars the 250 000 increase is drastic. That's insane! That's freaking! So if you were just went from ten thousand to a hundred thousand right, that's a 10x improvement which means that they are 25 xing. The minimum required.

You know, fund deposit which says hey. You guys are severely over leveraged for the amount of losses that you could accrue we're going to increase this the in this in this filing if it gets approved. So you can't play these dumb games right. So, let's just keep reading typical examples where members may be maintaining a minimum required fund.

Deposit amount of ten thousand dollars include, and i highly the ones i think, are important when a member generally has limited or infrequent transaction activity and when a member is winding down its business and is in the process of retiring its nscc membership. Now three is fascinating to me. Why would this happen? Why would a business be winding down melvin only because they put themselves at risk right? I think these are both very, very interesting pieces, typical examples where members may be maintaining a minimum required fund. Deposit amount of ten thousand dollars include, so this is like okay, if we think you're at risk.

This is the amount that you're gon na have to pay and they want to increase that amount, because they think the risk that they're exposing themselves to right now is way too high to be comfortable. Yet we have hedge funds that play these dumb games anyways. So, let's just keep reading on right, eventually we're gon na get to the piece which is actually talking about why they want to employ. This therefore nscc is proposing to increase the minimum required fund deposit amount of ten thousand dollars to address the risk that nscc becomes under margin in circumstances.

When a member is subject to the current minimum required fund deposit amount, they think that the nscc is under margin. In a circumstance right now, they they think that they're, so under margin for possible accrued losses that they need to 25 x. The minimum required fund deposit, as discussed below nscc, has observed that members bit that maintain a required fund deposit of less than 250 000 disproportionately account for the number of members with a confidence target below 99, due to repeat back testing deficiency. What is the back testing deficiency right? They essentially analyze previous trends, analyze previous history and say, look based on a lot of things that have already happened.

If we had employed a 250 000 minimum fund deposit requirement right, you would not have run into this margin. Call. We wouldn't have had to put forward a bill and everybody would have been a lot happier right so they're saying based on the fact that we are below our 99 uh, you know confidence target. We think we should increase this to 250 000 guys.

This is astronomical. That's absurd. That's absurd! I mean the fact that they're trying to 25 x, the minimum fund requirement, means that they see so much risk for themselves because think about this right. The national security clearing corporation they're in it basically to manage their own risk and to make money if they're increasing this 25 x, how much risk do you think they're at how much risk you think their members are at a freaking stupid amount, a stupid amount.

So this is significant and you really really really should watch for this, because if this gets passed and we're gon na get into this more later, it's gon na be 20 days later that this needs to be employed. That members need a 250 000 minimum required fund deposit in order to manage risk if they think they are an at-risk party right. Let's just keep reading the nscc believes that a proposed minimum required fund deposit amount of 250 000 would provide an appropriate balance of improving member back testing results in nscc's clearing fund coverage, while minimizing the impact of members essentially they're. Just saying look: if we have the 250 thousand dollars we're gon na be fine, you guys are gon na be fine way.

Less people are gon na, be at risk right, so they basically conducted a review of back testing deficiency during the period from june 3rd 2019. To may 29 2020., this was even before you know, amc gamestop. All this sort of stuff had any sort of issues, so i can only imagine the data that they're going to find if they continue to backtesting deficiencies. You know now, but nonetheless they found some compelling results right.

Approximately 22 percent of back testing deficiency occurred with members that maintain a required fund deposit of less than 250 000, which is why they want to increase this to 250k. In addition, those members that maintained a required fund deposit of less than 250k had a disproportionate amount of rete repeat back testing the efficiencies they were more likely to have back testing coverage below the 99 confidence target right. Approximately 45 of the members that fell below the 99 confidence target had issues right. The efficiencies that occurred for members with a required fund deposit lower than 250k accounted for 22 of the total back testing deficiencies.

22. That's almost a quarter, that's absurd and the numbers get freaking crazier. If the proposed changes had been in place, those members would constitute only 27 of members that fell below the 99 confidence target, which is comparable to those members overall representation as a class. This is huge - and i double highlighted this because that's a stupid, absurd number, approximately 88 - of the deficiencies that occurred on the days when members maintained a required funding positive less than 250 000 would have been eliminated during that period.

If the required fund deposit were 250k or higher, what does this mean for us? For retail investors? Go like this freaking say hallelujah, because this is disgusting. 88 of the deficiencies would have been avoided right. What does that mean? It means that 88 of people who had less than 250 000 deposited in the the nscc right, the national securities clearing corporation, would not have got liquidated, would not have over leveraged, would not have played a stupid game to win a stupid prize if they had just Met this fun requirement, so what does this mean for us if this gets passed? If this 250 000 gets passed, there are going to be some hedge funds that drop like dead fish in a freaking pool of poison. They will be done.

They will be sinking to the bottom of the deep freaking black lagoon scooped up by the kraken and crushed into oblivion. It's absurd 88. I can't even believe that 88, like oh, i can't i just can't 88 - is so stupid. 88 of the deficiencies that occur in these days would not have happened if we had a 250 000 requirement.

This means that hedge funds are not they're, not playing smart. This is in freaking official documents. We've been saying this forever, we've been saying forever. The hedge funds are playing dumb games, they're, not managing risk they're, just playing with pride ego, fear greed, they're, playing basic human emotions they're not as intelligent as we think they are right and they're saying it right here.

88 of these deficiencies would not have happened. If you had just played a smarter game, deposited 250 000 requirement a minimum fund requirement into the national security clearing corporation as a deposit to manage your risk so that hey, if you're wrong, we just don't have to foot the bill because that's essentially what's happening right Now, hedge funds, all their members right, they're, essentially saying look if we're wrong and we we have to you know we can't afford to pay it. We know they got it back right, but it's a lot different of a game. If you have to spot 250 000 freaking dollars, isn't it and that's not a coincidence, i'm telling you right so we're just going to keep digging into this there's more stuff that i think is fascinating to talk about and that's the implement implementation time frame.

So i kind of went over this briefly before, but the nscc would implement the proposed changes no later than 20 business days after the approval of the proposed rule changed by the securities and exchange commission or the sec right. So that's the time frame that you can expect for this to get employed essentially for some accountability to take place between members of the nscc and the nscc itself right and there's more stuff in here that i find to be pretty fascinating. The nscc believes that proposed changes are designed to assure the safeguarding of securities and funds which are in its custody or control, or for which is. It is responsible because they're designed to enable nscc to require the necessary margin for members who maintain a minimum required fund deposit to limit its exposure to such members in the event of a member default.

Remember default is i can't pay for my losses right. I can't afford my margin call having adequate margin for such members would help ensure that nscc does not need to use its own resources they're, trying to spot their back. They see that there's issues here. They see that there's the lack of confidence in their members.

Essentially look our members are committing fraudulence. I don't think they're gon na be able to pay us, so we just need to step up our freaking game only eligible clearing funds, securities and funds of non-defaulting members to cover losses in the event of a default of such members. Guys stack on stack on stack on stacks stupid, ridiculous paper, backing up everything, we've been saying, they're playing dumb games they're over leveraging. They don't have enough money to cover their losses and the nscc doesn't want to freaking foot the bill.

So they're forcing their hand they're saying: look, we know you've got jack. We want you to lay down your your bad card at hand, your hand of cards right and just take. Your l. Take your freaking hell because we're not going to pay your freaking bill as described above.

The nscc believes that the proposed changes would enable it to better identify measure, monitor and through the collection of members required fund deposits, manage its credit exposures to members by maintaining sufficient resources to cover those credit exposures fully with a high degree of confidence. Remember it has to be cash; they can't play leverage money. They can't play margin cash. They need to play settled cash, real physical, tangible money, no naked blah blah.

No, no synthetic this that right money they want it. They want that cash. We're gon na keep on going. I think that's the majority of what i highlighted, but there's one last thing: this is the actual back testing in the comments on the proposed rule change, and this is going to make you guys.

Freaking laugh, i laughed at this. I laughed at this, so the nscc conducted member outreach with each member that had an average acquired funding positive less than 500 thousand dollars for the 12-month period ending may 2019 to provide notice and an opportunity to discuss the proposed changes. These are some of the things they had to say. The proposed changes would solely burden the least active and lowest risk firms.

Their proposed changes do not have correlation with risk or any appropriate cost allocation at nscc. The proposed changes are purely attacks on small firms and nscc is intent on creating artificial barriers to entry through unjustified capital requirements, and the current policies, procedures and standards are more than adequate to guard against risk at the small firm level funny that they say that huh. That's pretty funny, you know, you know what this is. This is them going office they're going.

Oh man, this is gon na suck like we need to think of something to get this, so it doesn't pass and they debunk everything in here everything first, the proposed changes would not slowly burn the lease active on those risk firms. Second, the proposed changes are designed to address risk huh they debunk everything. The proposed increase of the required fund deposit is not purely a tax on small firms, as indicated by the back testing results by literal freaking. They they researched this stuff.

They found literal proof for their claims. The sec believes that the current minimum required fund deposit does not indicate risk with respect to those members that maintain a minimum required fund deposit of less than 250 000 and the increase in the minimum required fund deposit would reduce that risk. Finally, the member that stated, while it objected to raising the minimum required fund deposit 250k, it would not object to an increase to a hundred thousand nscc observed that the increase would have improved the clearing fund 12 month back testing coverage percentage to 99.41 overall and eliminated 10, additional back testing deficiencies during the impact study period provided by a minimum 250 000 fund deposit right, essentially they're, saying look. If we, if we had 250k years and years ago, we would, we would have never had to deal with a bunch of different issues that have addressed that we've had to address because of our lack of uh, basically, accountability, right and they're, addressing it they're saying this Is it end of the road we're cracking down on this crap and we need you guys to hold up on collateral because we're not footing the freaking bill right? So that's the majority of what's happened here in this in this freaking nfcc 2021-05 filing with the sec.

It has not yet been approved, and i kind of want to talk about some different points and bring this all home right. So essentially, they're 25 exiting their minimum fund required deposit right, uh and they're. Saying look, this is you guys are risky and we are not putting the bill. We want you guys to have some accountability.

If you're going to play stupid games, we need you to to have money to play stupid games right, we're not footing the bill for you. They're trying to manage the risk exposure, they said in clear, freaking english. They said, look we're not paying for this. You guys shouldn't have to pay for this, so don't play dumb games or we're going to make you pay for it right.

The back testing they've they've validated their claims with literal results. They looked at a couple different years 2018 to 2020 of data, saying. If we had 250 000 minimum fund required deposit right, we would have run into way less issues. 88.

Don't forget that freaking number 88 of of these deficiencies could have been avoided. Additionally, 88 of the deficiencies that occurred on the days when members maintain a required funding, positive less than 250 000 would have been eliminated during that period of the required fund. Deposit were 250k or higher right, it's been back tested, they proved it. They saw the data and the sentiment by hedge funds is not good.

They don't freaking want this. You know why, because it means they can't play stupid, games and steal from the retail investor. Like you and me, what is the effect of this right think about what this is going to do? Let's just use melvin capital as an example. Melvin capital is bleeding they're freaking on the i think, they're on the verge of death, hedge fund, melvin capital lost 49 on its investments in q1 source.

They are dying, they are losing their money. We are milking them dry. These guys are at the end of the road, and this is going to be, oh because i bet you money, i'd, be willing to bet you this, that they are playing with margin cash leverage, cash on a lot of different securities as collateral. This is how can they afford this stuff they've taken substantial losses and essentially what this means is they set it clear as day right? If you don't want to follow our rules, we will just cut you off from the national security clearing corporation.

You won't be able to make these sort of transactions with us right, which is going to lead them to margin calls which is going to lead them to liquidations, and this is just an example of one one, hedge fund - that could possibly not benefit from this right. That could that could be the end of the freaking road. Now i don't like giving any sort of hard dates. I don't like giving anything as a cause of anything guys, but this is significant information.

You should really really really want to pay attention to this. The nscc2021005 filing, if this gets sec approval 20 days after that right you, you can expect that some hedge funds are going to be hanging by the freaking rope end of the line. That's what i've got for the video today. So if you enjoyed it, please drop a like.

You know whole spiel consider subscribing if you want to see more stuff like this yada yada, that's what i've got for you guys today. Thank you for watching my friends, my family, my fellow gorilla gang peace out. Much love later.