Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

euromoney.com

Post reply on HN
Print view View original

251–260 of 312 posts

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

#251

Post by anonymouse008 »

smabie wrote: post #227
anonymouse008 wrote: post #20

Earlier quoted context omitted.

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.

Marketing? I'm very curious to see what you say.

Well for me, it's taking information flow off of the table. Not having access to the trade at execution (and how long it was an order) puts me at a disadvantage. I'd take the market impacts to have greater transparency.

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

#252

Post by anaphor »

aorth wrote: post #244
totalZero wrote: post #123

Earlier quoted context omitted.

Dec 2020, second half: SETTLEMENT DATE|CUSIP|SYMBOL|QUANTITY(FAILS)|DESCRIPTION|PRICE 20201215|36467W109|GME|170655|GAMESTOP CORP (HLDG CO) CL A|12.72 Not very rich data. I wonder how much of that comes from market-makers versus hedge funds.

Wait, by my own calculation it seems GME had way more shares failed to deliver than that. I count over *14 million* in December using the [two data files provided by the SEC]( https://www.sec.gov/data/foiadocsfailsdatahtm ): $ cat cnsfails202012[ab].txt | csvgrep -d '|' -c SYMBOL -r '^GME$' | csvcut -c 'QUANTITY (FAILS)' | sed 1d | paste -sd+ | bc -l 14276093 How many of those are the same shares failing to be delive…

The numbers you're looking at are aggregate data, so that includes past days I think, not just the given day. I think you have to subtract each number from the previous one.

> The figure is not a daily amount of fails, but a combined figure that includes both new fails on the reporting day as well as existing fails

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

#253

Post by JumpCrisscross »

vlovich123 wrote: post #248
rptr4 wrote: post #245

Earlier quoted context omitted.

I’ve seen that explained on WSB. I don’t think there’s much confusion about it. Nonetheless, SI being that high will inevitably drive the price up to unwind, and take quite some time to unwind. The evidence of naked shorts (which Market Makers are permitted to do to enable liquidity) seems primarily based on FTDs.

What happens if a market maker fails to deliver the promised stocks due to inability to purchase stocks? Penalties to the government?

> What happens if a market maker fails to deliver the promised stocks due to inability to purchase stocks?

Unless volume is zero, there is no “inability to purchase stocks.” Just inability at a desired price. If a market maker fails to deliver, they get hit with fines and fees from clearing infrastructure, exchanges and, eventually, the SEC.

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

#254

Post by [deleted] »

blackrock wrote: post #249
dmlittle wrote: post #221

Earlier quoted context omitted.

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...

Does your broker automatically loan out your shares? Or must you manually opt in, to allow it to be loaned out for shorting?

[deleted]

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

#255

Post by dingaling »

harryh wrote: post #186
wcoenen wrote: post #150

Earlier quoted context omitted.

> If your mental model is that the stock market is a tool to allow people to trade a fixed number of concrete objects back and forth, this probably seems odd, but since that's not really a good model of how the stock market works or is intended to work, it's not clear that means much. I'm pretty sure that's how the stock market is actually intended to work. This should be obvious if you consider things like dividends…

I'm pretty sure that's how the stock market is actually intended to work. This should be obvious if you consider things like dividends. There needs to be a fixed number of shares, each with a clear owner for that to work. This isn't really true. Let's say a company has 100 shares and they decide to issue a $1 dividend. If there is no shorting, the company just pays out $100 and everything is done. But let's say there…

So a company could discourage shorting of its stock by arranging dividends to be spread over the year? Paying out to 1/365th of shareholders each day for example.

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

#256

Post by m12k »

harryh wrote: post #186
wcoenen wrote: post #150

Earlier quoted context omitted.

> If your mental model is that the stock market is a tool to allow people to trade a fixed number of concrete objects back and forth, this probably seems odd, but since that's not really a good model of how the stock market works or is intended to work, it's not clear that means much. I'm pretty sure that's how the stock market is actually intended to work. This should be obvious if you consider things like dividends…

I'm pretty sure that's how the stock market is actually intended to work. This should be obvious if you consider things like dividends. There needs to be a fixed number of shares, each with a clear owner for that to work. This isn't really true. Let's say a company has 100 shares and they decide to issue a $1 dividend. If there is no shorting, the company just pays out $100 and everything is done. But let's say there…

> Someone loans out 10 shares to a short who then sells them to someone else. All of a sudden there are 110 shares out there.

No there isn't - there are 100 shares total at all times, and every time those 10 shares you mention change hands, the cap table is updated (or should be) to reflect this. First they are owned by the original owner. Then they are owned by the shorter (and a contract is in place to return the same amount of shares and any dividends to the original owner). Then they are owned by the person the shorter sells to. At no point are shares duplicated.

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

#257

Post by stale2002 »

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.

So then you agree that there could be situations where only a couple percent of the ownership of a company is available on the market, and if you buy all of those shares, then you would not control the company?

As in, you agree than a couple insiders could control a large majority of a company, and that this percentages of the company would not be on the open market, and therefore even if you buy all of the shares that are available on the open market (and the definition that I am using would disclude these shares owned by these insiders), you would not control the company?

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

#258

Post by wcoenen »

harryh wrote: post #186
wcoenen wrote: post #150

Earlier quoted context omitted.

> If your mental model is that the stock market is a tool to allow people to trade a fixed number of concrete objects back and forth, this probably seems odd, but since that's not really a good model of how the stock market works or is intended to work, it's not clear that means much. I'm pretty sure that's how the stock market is actually intended to work. This should be obvious if you consider things like dividends…

I'm pretty sure that's how the stock market is actually intended to work. This should be obvious if you consider things like dividends. There needs to be a fixed number of shares, each with a clear owner for that to work. This isn't really true. Let's say a company has 100 shares and they decide to issue a $1 dividend. If there is no shorting, the company just pays out $100 and everything is done. But let's say there…

As you point out, an IOU for a share doesn't pay out a dividend from the company, so it is not the same as an actual share. We seem to be in violent agreement that shares are not created out of thin air (but IOUs for shares can be).

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

#259

Post by sparsely »

m12k wrote: post #256
harryh wrote: post #186

Earlier quoted context omitted.

I'm pretty sure that's how the stock market is actually intended to work. This should be obvious if you consider things like dividends. There needs to be a fixed number of shares, each with a clear owner for that to work. This isn't really true. Let's say a company has 100 shares and they decide to issue a $1 dividend. If there is no shorting, the company just pays out $100 and everything is done. But let's say there…

> Someone loans out 10 shares to a short who then sells them to someone else. All of a sudden there are 110 shares out there. No there isn't - there are 100 shares total at all times, and every time those 10 shares you mention change hands, the cap table is updated (or should be) to reflect this. First they are owned by the original owner. Then they are owned by the shorter (and a contract is in place to return the s…

There are 110 long shares worth of economic interest in the company - the original owner will still report the shares they have lent out when looking at their current position.

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

#260

Post by beefield »

andrepd wrote: post #229
arcticbull wrote: post #31

Earlier quoted context omitted.

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.

Depends on the wealth of the friends you have who trust you.

I can pay occasionally my lunch by crediting my assets with $10 plus creating an interest-free liability for $10. Yes, and that is what the banks in effect do. And no, it is not a fraud, just a massively misunderstood thing.

Post reply on HN