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Naked shorting: The curious incident of the shares that didn't exist (2005)

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Re: Naked shorting: The curious incident of the shares that didn't exist (2005)

#91

Post by tempestn »

Lazare wrote: post #40

Summary: Every so often, someone gets very steamed about short selling, often with no real reason. Back in 2005, someone got very steamed about short selling, and then got a journalist to write a somewhat confused article about it. It's not clear anything was actually wrong then, but in any case, the rules have been changed a few times since then, so there doesn't seem to be any obvious relevance to current times. It…

I think you could make an argument that allowing naked shorting could in fact be beneficial. Part of what's allowing gamestop stock to explode recently is that it's next to impossible to find shares to borrow for shorting. If everyone who wanted to short the stock could do so without having to borrow shares, price discovery might work significantly better. (I assume the counter-argument would be that short squeezes could be even more intense. But perhaps they would be less likely to occur in the first place.)

Re: Naked shorting: The curious incident of the shares that didn't exist (2005)

#92

Post by nabla9 »

ouid wrote: post #58
nabla9 wrote: post #26

Note: Shorting more than 100% of shares outstanding does not imply that there is naked shorting happening. You can re-borrowing the shares someone shorted and it happens.

I thought naked short selling was just short selling without a collar, which is what is actually causing the problems here.

Naked short selling is selling stock that you don't have.

In normal short selling–lending a stock, then selling it–there is always chain back to real stock. Someone is always holding the stock. If 100% of the shares are short, then there are 200% of the shares owned, but only half of them can be sold (you can't reload or sell the stock you have loaned)

Re: Naked shorting: The curious incident of the shares that didn't exist (2005)

#93

Post by monadic3 »

Ntrails wrote: post #63
koolba wrote: post #55

Earlier quoted context omitted.

If you own all the shares then you can control the company via voting control. That’d generally allow you to prevent the issuance of new shares and you could hand pick the board as their terms expire. It’s not immediate, but you’d eventually be in control of everything.

Owning a controlling share, and owning company are not the same thing - even from a simple net worth point of view.

Obviously not, but many times they are equivalent in role. Many times when people say "own" they mean "control"—I'm guilty of this myself, as high valued companies are rarely wholly individually owned.

Re: Naked shorting: The curious incident of the shares that didn't exist (2005)

#94

Post by airstrike »

dalbasal wrote: post #52
fractionalhare wrote: post #6

Should have a [2005] in the title. This is probably showing up on HN because naked short selling is topical, but the information in the article might be misleading if it's out of date.

This is basically a crosspost from reddit. /wallstreetbets are, in their own insane way, doing research into the most extreme tactics that short sellers have employed in the past.. expecting the entire arsenal to be employed tomorrow when trading begins.

Good old DD

Re: Naked shorting: The curious incident of the shares that didn't exist (2005)

#95

Post by vkou »

rybosworld wrote: post #83
throwawaysea wrote: post #43

Note that there are a lot of conspiracy theories going around on WSB, populist leftist Twitter, and populist right wing Twitter. For example, https://www.reddit.com/r/wallstreetbets/comments/kr98ym/gme_... With GME there isn’t evidence of naked shorting. There are legitimate ways for shorts to be greater than the float. See https://seekingalpha.com/instablog/6850771-bachhandel/554975... for an explanation

The very high rates of failure-to-deliver on GME are in fact, suggestive of naked shorting.

No, they are evidence of people who woke up to find out that they owe you their shirt, in addition to six decades of indentured labour of their children, grand-children, and yet-to-be-born great-grandchildren... Deciding that maybe they aren't going to pay you right this instant.

If you're shorting on margin, and the market moves too far before your position gets closed... Your position might get wiped out, your margin might get wiped out, and you may owe an unbounded number of dollars to your counterparty.

Generally speaking, your broker will then sue you for that money... But lawsuits take a long time to resolve. And to a bystander, this sort of thing looks just like a naked short falling apart.

Re: Naked shorting: The curious incident of the shares that didn't exist (2005)

#96

Post by heavenlyblue »

arcticbull wrote: post #76
kleton wrote: post #70

Earlier quoted context omitted.

> As announced on March 15, 2020, the Board reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions. https://www.federalreserve.gov/monetarypolicy/reservereq.htm Not fraud though, because "When the president does it, that means it is not illegal"

It’s not fraud in the same way going to prison isn’t kidnapping.

It is when government is corrupt

Re: Naked shorting: The curious incident of the shares that didn't exist (2005)

#97

Post by Tenoke »

PragmaticPulp wrote: post #59
arcticbull wrote: post #23

Earlier quoted context omitted.

Fractional reserve banking in the real economy is utterly irrelevant thanks to the FDIC backstopping a run. In the last [edit: 88] years nobody had lost a single penny to a bank run or default including 2008s WaMu default thanks to the FDIC. Crypto fractional reserve like tether has no backstop and that’s a completely different beast. It’s what exacerbated the Great Depression. As with all blockchain unless the state…

> then it’s garbage in, garbage immutably recorded. This is the major weakness of proposals to put everything on the blockchain. In real-world scenarios, accidents happen. Records must be corrected. Voting is a great example. If we moved voting to the blockchain, it wouldn't automatically solve fraudulent voting problems. It would just record fraudulent votes on the blockchain. If your grandma accidentally loses her…

>If your grandma accidentally loses her private voting keys to hackers, do we just roll over and let the hackers vote as your grandma? Obviously not.

It's not obvious to me why not. It's a trade-off. You put the responsibility on the user to keep their keys but you save a lot by not spending anything on solving fake or real issues like this.

In this case if you want assurances like this you can trust a third party that handles that stuff for you.

Re: Naked shorting: The curious incident of the shares that didn't exist (2005)

#98

Post by fractionalhare »

sweettea wrote: post #69
toast0 wrote: post #61

Earlier quoted context omitted.

I don't know the specific outcome of this case. However, naked short selling is now prohibited by SEC regulation SHO, except for by 'bona fide market makers'. Broker/dealers have an obligation to fix failure to deliver by their clients with specific timelines; etc. Bona fide market makers have an exception, because their business is to always be being buying and selling around market prices, and in a market with lots…

You might take aa look at the SEC's December reports of fail-to-delivers, before the GME rocket lit: there were three days with over a million shares failed to be delivered, and several more weeks with over .5%. WSB had a post encouraging everyone to file a SEC report over this back then.

You should cite the posts and resources you've mentioned, because there are a variety of caveats that approximately all the posts on WSB misinterpret. People will fly by a comment like this and just repeat it without any fact checking.

The very page you describe specifically states that you can't infer when failures to deliver occurred because the data is reported in aggregate with no age statistics. [1]

Moreover failures to deliver can occur on both the long and short side, and do not necessarily represent that a naked short sale occurred. [2] And when they are associated with a naked short sale, it may still be legitimate. Market makers are legally allowed to engage in naked short sales to facilitate liquidity, and if they can't fulfill the borrow in time (which would itself happen for legitimate reasons), that failure to deliver would also be reported.

Finally - reporting an increase in apparent naked sales to the SEC by gesturing towards data on the SEC website doesn't make sense. The SEC is definitionally aware of it. There may not be an active investigation, but these kinds of datapulls are pretty manual and staffed by people familiar with the data.

1. https://www.sec.gov/data/foiadocsfailsdatahtm

2. https://www.sec.gov/investor/pubs/regsho.htm

Re: Naked shorting: The curious incident of the shares that didn't exist (2005)

#99

Post by arcticbull »

heavenlyblue wrote: post #96
arcticbull wrote: post #76

Earlier quoted context omitted.

It’s not fraud in the same way going to prison isn’t kidnapping.

It is when government is corrupt

No. Lol. We’re talking about a strict definition here. You have other issues in that situation, though.

Re: Naked shorting: The curious incident of the shares that didn't exist (2005)

#100

Post by [deleted] »

vkou wrote: post #95
rybosworld wrote: post #83

Earlier quoted context omitted.

The very high rates of failure-to-deliver on GME are in fact, suggestive of naked shorting.

No, they are evidence of people who woke up to find out that they owe you their shirt, in addition to six decades of indentured labour of their children, grand-children, and yet-to-be-born great-grandchildren... Deciding that maybe they aren't going to pay you right this instant. If you're shorting on margin, and the market moves too far before your position gets closed... Your position might get wiped out, your marg…

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