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In order to 'rally', you need buyers with real money. If all the FTD's were forced to cover or return, the money to buy would have to come from somewhere?

Remember the proceeds of the naked sales that are sitting in limbo?

And of course there is the possiblity that they would just liquidate and run...

Yes, if they liquidate their shorts, they'd be buying. Prices would rise.

Needless to say, investor confidence would plummet, adding further downside pressure..

You lost me again. Why would rising prices cause investor confidence to plummet?

This article led me down a trail and I did some research on NSS and ended up being led to the CEO of OSTK(overstock.com).

After reading all of that I called a friend of mine who is a very wealthy retired at 33yo hedge fund manager who controlled a fund in excess of 1.5 Billion...

I explained to him what I had read and what he thought and what insight he had into NSS...and in particular this fellow who is the CEO of OSTK and is demanding physicals on big blocks.

First off the CEO has been buying in to his own stock in 50k blocks for the last year or two...and he is demanding physical delivery of the shares.

Here is what my friend JT said in a nutshell:

The reason the ceo is doing this is to force out the naked shorts and put a squeeze on the play to reap big profits himself. The ceo knows that the open shorts far exceed the dissolved number of shares, and by playing the game against the MM's and HF's he is trying to shake them out.

JT said its obvious the ceo is taking the whole security game personally and wants to drive away the shorts from his company's stock.

JT also said seeing as you cant actually find the physical stock to take possession of, that this looks like a ripe play on options on the long side by both writing and buying a bracket out of the market.

If the ceo succeeds in forcing the physical delivery, and the shorts get hammered, the options are net neutral in terms of risk, but have the possibility of returning big on the squeeze.

FWIW