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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)

#231

Post by KMag »

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...

It looks like nesting got too deep, but for bkh, you are correct.

> In this case, they retain a fraction or none of their voting rights, I presume?

If you have a margin account and want to vote with your shares, you need to let your broker know prior to the vote, so they can be sure and not have your shares loaned out when they're figuring out everyone's voting shares.

Some time prior to 2010, I heard some heads rolled at my firm because such a request was screwed up for a major client, and they had fewer votes than expected for some important vote.

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

#232

Post by entangledqubit »

bhk wrote: post #220
phonon wrote: post #208

Earlier quoted context omitted.

NYSE: SNAP ("Snapchat") listed shares have no voting rights, and they seem to be doing okay.

And GOOG seems to be doing okay.

Amusingly, the voting shares are currently worth less than the nonvoting.

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

#233

Post by lazyasciiart »

FabHK wrote: post #131
lazyasciiart wrote: post #108

Earlier quoted context omitted.

Selling a share without owning it first.

Well, "having" it first. (Still owned by the guys you borrowed it from).

I actually mean owning it - I think many people are completely unaware of the concept of borrowing a share.

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

#234

Post by dleslie »

haberman wrote: post #204
harryh wrote: post #190

Earlier quoted context omitted.

Saving money requires keeping cash (sometimes a lot of it) in the bank that could otherwise be put to productive use. Options contracts allow offloading of risk without keeping this excess cash sitting there doing nothing. It can be much more capital efficient.

Call me crazy but I thought the idea is that banks would use deposits to fund loans and kick some of the profit back to the account holder in the form of reasonable interest rates. That seems capital efficient to me, but it's apparently a quaint relic of the past now that eternal 0% interest rates are the norm. I'm reminded of the scene from It's a Wonderful Life where George Bailey explains to all his account holder…

The banks still do this; they leverage deposits to back the loans they provide.

However, they have little to no impetus to provide a reasonable interest rate on savings accounts; they'd much rather pay the absolute possible minimum the market (and regulation) will allow, and pocket the rest as profit.

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

#235

Post by pottertheotter »

jkhdigital wrote: post #161
koolba wrote: post #106

Earlier quoted context omitted.

Because actual delivery does not happen until settlement time three days later. The seller has until then to acquire the shares. Naked shorting is illegal. To short the shares the seller only has to perform a “locate” first. That involves contacting someone that has the shares and is willing to lend them. Skipping the locate step is illegal. They just don’t have to actually borrow them until delivery. Additionally, i…

That last part is what really confuses me... what if the seller never resolves the failure to deliver? The buyer is walking around believing they own a share that the seller never actually gave them... I understand that the types of institutions that can engage in this behavior will true up their balance eventually, but why allow it in the first place? I can understand playing fast and loose with derivatives, since t…

That's what the clearinghouse is for. They are the counterparty for both sides. So the seller's counterparty is the clearinghouse, not the buyer, and the buyer's counterparty is also the clearinghouse. The clearinghouse requires broker margin accounts so that they can close out a trade when there's a failure. And the amount of collateral depends on risk.

(This is also why GME trading was halted by some brokers--assymetrical trades and increased volatility meant there was greater risk for trades in those stocks for those brokers, so the clearinghouse demanded more collateral from the broker. Broker doesn't have that collateral right away, they can't make the trade.)

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

#236

Post by gruez »

gridder wrote: post #200
twic wrote: post #116

Earlier quoted context omitted.

I read this, but it's not clear to me there's anything to it. It has a strong aroma of crank, and not a lot of quantitative detail. Has anyone written a useful response to this? EDIT: Specifically, I think the idea that failures to deliver create counterfeit shares is wrong. I'd love to hear from someone with intimate operational knowledge of this process. FYI, SEC SHO FAQ: https://www.sec.gov/divisions/marketreg/mrf…

I just wanted to point out that naked shorting is very easily hidden. It’s hard to prove and the system is built for allowing shadiness. At this point how can we still give them the benefit of the doubt?

Here's an analogy:

* data breaches are very easily hidden: literally anyone can walk out with a usb drive loaded with information, or download the data off an unsecured/unlogged server without a trace

* it's hard to prove: I mean, companies aren't exactly offering their logs up for public inspection

* the system is built for allowing shadiness: not sure how to quantify this one but there's definitely a problem of attribution when it comes to who did it, especially when there's multiple data brokers involved.

You read hearsay saying that company X has suffered a data breach. The company denies this. Do you give them the benefit of the doubt, or do you assume they're guilty?

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

#237

Post by rblatz »

sn_master wrote: post #18
rwmj wrote: post #16

Earlier quoted context omitted.

I think the more interesting part of the story (if I'm reading it right) is he paid $5000 to completely own a company with millions in assets.

Not sure about this case, but owning all trading shares doesn't mean owning the company. A company may have only 2% of its value as public shares and the rest owned by the company itself.

But with all the hassle of reporting earnings and being publicly traded it would have surely been cheaper for the company to buy back those shares.

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

#238

Post by lazyasciiart »

freeone3000 wrote: post #203
FabHK wrote: post #124

Earlier quoted context omitted.

When you buy a call from an option trader, you're long the stock, trader is short, so they will buy shares to hedge themselves.

They often do, but they don't have to. You can write an uncovered call, if you're brave or stupid -- after all, worst case you'll just market buy the shares to deliver on the day the option is tendered.

No, worst case is nobody is selling shares on that day. Thats the exact scenario wsb is hoping to create.

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

#239

Post by lazyasciiart »

ashtonkem wrote: post #48
nayuki wrote: post #32

Earlier quoted context omitted.

Short-selling shares is basically a form of fractional reserve banking. A short squeeze is essentially equivalent to a bank run. Where is the FDIC helping to backstop a run on shares?

From a social level, there is a huge difference between a bank run and a short squeeze. One affects regular savings, the other wipes out only those that opted into a high risk short position.

Unless those that opted in are “too big to fail”, and then everyone else pays for it.

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

#240

Post by lazyasciiart »

IG_Semmelweiss wrote: post #129
arcticbull wrote: post #82

Earlier quoted context omitted.

Another irrelevant talking point. The whole point of inflation is to encourage investment as money is only worth something as it flows through the economy. You’re not supposed to save money under the mattress you’re supposed to save value by purchasing assets. A hundred years ago buying roughly speaking any asset would have preserved your entire wealth or created tons of new wealth. Wages have on average kept pace wi…

I respectfully disagree. The whole point of inflation is to monetize the crazy debt spirals by empires. Its why the romans did it, why the Germans did it, why the british did it , and its why we do it. It doesn't take an econ degree to know that. That was the reason the gold window was closed in the first place. If the whole point of inflation, mind you, is to encourage investment, then why does the fed react by spik…

> Its probably an attitude that would be frowned upon by someone that believes in freedom of choice, like we do in USA.

Believing in freedom of choice has never stopped anyone from believing that there are bad choices.

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