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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)

#221

Post by dmlittle »

bhk wrote: post #219
cecilpl2 wrote: post #168

Earlier quoted context omitted.

This is possible, not illegal, and can be simplified even further. It's entirely possible for me to borrow a share from you, (short) sell it back to you, and then for us to repeat that process an unlimited number of times, thereby shorting an unlimited amount of stock. This would be stupid since I'd owe you more stock than exists and you could set any price you wanted for them.

With the total long position > 100% of issued shares, who gets denied voting rights?

Whomever is the holder record has the voting rights. If you gave your stock to someone to facilitate a short you lose your voting rights until that position is closed. You can read more about it here: https://www.investopedia.com/ask/answers/05/shortsalevotingr...

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

#222

Post by colechristensen »

cstrat wrote: post #87
PragmaticPulp wrote: post #42

Recent events have a lot of people confusing high short interest with naked shorting. A stock can have short interest greater than 100% without any naked shorting. How is this possible? The textbook definition of a "short sale" is that someone borrows stock and then, literally, sells it short. The buyer of the stock is free and clear to do whatever they want with the stock, including re-lend it for another short sale…

In addition to the shorts, when people buy call options - doesn't that mean someone else is on the hook to provide shares at a later date, and they might not hold them at the time of selling the option?

You can sell naked calls. The maximum loss is infinite and so it is hard to get a brokerage to allow you to do this, but it is done. Indeed if the price goes up you are on the hook to buy the shares and deliver them.

Calls are commonly either covered by shares you own or in a spread where you buy and sell the same ticker at different prices or dates.

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

#223

Post by ineedasername »

dragonwriter wrote: post #217
ineedasername wrote: post #213

Earlier quoted context omitted.

No, someone could own the entire float of Facebook shares, and Zuckerberg still has a majority of the voting rights.

That's about two classes of outstanding stock with different rights held by different group of stockholders, not about stock held by the issuing company. That's not the hypothetical that was posed.

Fair enough, but your comment wasn't phrased specific to that example, it was a general statement about owning 100% of outstanding shares: If you have 100% of the outstanding shares, you have 100% of the voting right

Let's chalk it up to a miscommunication.

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

#224

Post by bhk »

dmlittle wrote: post #221
bhk wrote: post #219

Earlier quoted context omitted.

With the total long position > 100% of issued shares, who gets denied voting rights?

Whomever is the holder record has the voting rights. If you gave your stock to someone to facilitate a short you lose your voting rights until that position is closed. You can read more about it here: https://www.investopedia.com/ask/answers/05/shortsalevotingr...

> If you gave your stock to someone to facilitate a short you lose your voting rights...

Individuals do not loan stock for shorting, generally. But they do sometimes have margin accounts (for unrelated reasons), and this allows the broker to loan their shares out without their knowledge. In this case, they retain a fraction or none of their voting rights, I presume?

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

#225

Post by colechristensen »

zappo2938 wrote: post #188
PragmaticPulp wrote: post #42

Recent events have a lot of people confusing high short interest with naked shorting. A stock can have short interest greater than 100% without any naked shorting. How is this possible? The textbook definition of a "short sale" is that someone borrows stock and then, literally, sells it short. The buyer of the stock is free and clear to do whatever they want with the stock, including re-lend it for another short sale…

Does this mean that there is still only 100% of stocks available and the ratio of iou's to total stocks 113/100? I guess that makes sense that a person can borrow a stock, sell it, borrow it again from the second buyer, sell it again. The number of stocks floating around stay the same, however, the number of iou's increases. Likewise, a person can buy the one share, return it, then buy it again, and return it again t…

>Interesting that nobody is really explain the mechanics of how this works.

This is another case of the more popular a thing is, the less reliable the talk about it seems to be. News outlets could very much be explaining well what is going on, but they aren't. Bits and pieces of the "real" story are coming out, and lots and lots and lots of nonsense.

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

#226

Post by dragonwriter »

ineedasername wrote: post #223
dragonwriter wrote: post #217

Earlier quoted context omitted.

That's about two classes of outstanding stock with different rights held by different group of stockholders, not about stock held by the issuing company. That's not the hypothetical that was posed.

Fair enough, but your comment wasn't phrased specific to that example, it was a general statement about owning 100% of outstanding shares: If you have 100% of the outstanding shares, you have 100% of the voting right Let's chalk it up to a miscommunication.

“Outstanding shares” has a specific meaning: all authorized and issued non-treasury shares.

If you have 100% of them, you have all voting rights.

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

#227

Post by smabie »

anonymouse008 wrote: post #20
crb002 wrote: post #5

Earlier quoted context omitted.

When I was in PFG Marketer Services I saw million dollar double payout fuckups all the time and a shady SQL Server database for "manual over-rides" on commissions to brokers that seemed like an un-audited slush fund.

Now dark about dark pools and see how far up we really are

In your opinion, what is sketchy about dark pools. I have a couple answers (pertaining to marketing, but not operations of the pool), but am curious about what the popular perception of these pools are.

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

#228

Post by KMag »

dmlittle wrote: post #75
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…

My understanding is that the following situation can lead to a short interest of over 100%. Let's imagine a hypothetical world where there exists 1 share of a particular company and it is owned by Person A. Person B then borrows the share from Person A and sells it to Person C (this is the first short). Person C now owns 1 share and Person A doesn't have a share but is contractually obligated to receive 1 share from…

On a side note, if you want to vote with your shares and have a margin account, you need to let your brokerage know in advance of the shareholder meeting, so they can get those loaned shares back to you in time to vote. Otherwise, the shares showing up in your account may or may not actually be there on the day for you to vote.

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

#229

Post by andrepd »

arcticbull wrote: post #31
andrepd wrote: post #27

Earlier quoted context omitted.

Well fractional reserve banking is accounting fraud. Widespread and legal, but fraud nevertheless. Also fractional reserve banking is a thing of the past. We've now evolved to no reserve banking . The banks' ability to create money from thin air is almost unrestrained.

No it’s not. It’s legal and permitted and therefore not fraud. It’s backstopped to prevent losses. This is a talking point with no basis. Let’s stick to fact.

It is legal, yes, that is indeed what I said. But it's legalised accounting fraud. Can I pay for a car by crediting my assets with 30.000$ plus creating an (interest-free) liability for 30,000$? No, but that is what the banks in effect do.

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

#230

Post by colechristensen »

Traktor wrote: post #64
PragmaticPulp wrote: post #42

Recent events have a lot of people confusing high short interest with naked shorting. A stock can have short interest greater than 100% without any naked shorting. How is this possible? The textbook definition of a "short sale" is that someone borrows stock and then, literally, sells it short. The buyer of the stock is free and clear to do whatever they want with the stock, including re-lend it for another short sale…

I dont understand how the new owner of the stock can ”re-short” it. Could you maybe explain? :)

Owners don't short, owners lend.

A owns a widget and lends it widget to B; B sells the widget to C; C lends a widget to B; C buys another widget from B.

A has 1 IOU from B and no widgets.

B has no widgets and owes one to A and 1 to C.

C has one IOU and one widget.

There you have 2 IOUs and only one widget. To settle debts, B will have to buy a widget from C, return it to him, and then buy it again and return it to A. The widget isn't "tainted" by being at one point borrowed, anybody buying it can lend it out. Doing so can create more IOUs than there are widgets.

Imagine getting in a circle with all of your friends, you have a dollar and the person on your right borrows it from you, then the person on their right borrows from them until you get around the circle and you borrow the dollar from the person on your left. There was only ever one dollar but now there are as many IOUs as people in the circle. That's of course a silly thing to happen, but if you rearrange it to make it messier the result is the same, more IOUs than there are things to be borrowed.

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