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Counterfeiting Stock – Explaining illegal naked shorting and stock manipulation

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Re: Counterfeiting Stock – Explaining illegal naked shorting and stock manipulation

#171

Post by Daho0n »

OJFord wrote: post #154
ycombigator wrote: post #103

Earlier quoted context omitted.

If there are 5 bananas in the entire world and people are still allowed to pretend and sell 500 bananas - you dont see how this is a problem? Have you actually thought this through?

You can absolutely sell 5 bananas 500 times. You can't have 500 net buys (i.e. someone is 'long 500 bananas', or 500 people 'long' 1, etc.), but sales, fine!

>You can absolutely sell 5 bananas 500 times.

But that is not the point. The point is you had 5 bananas to sell and 500 people who bought 1 banana each. Now all 500 monkeys wants its dinner so please deliver. If you can't it is fraud.

The mental gymnastics in the stock market are insane. More shares have been sold than exists. That has nothing to do with the amount of times they were sold.

Re: Counterfeiting Stock – Explaining illegal naked shorting and stock manipulation

#172

Post by eru »

Gasp0de wrote: post #126
woopwoop wrote: post #18

The author seems to be really upset about this, but I don't understand why. Nothing they are describing, if you ignore histrionic language like "counterfeiting", seems especially nefarious. Maybe I am misunderstanding. Basically, a short is when A borrows from B a share of corporation C with the promise to return a share of corporation C at a later time, plus some cash interest. A naked short is where instead B gives…

The naked shorting reduces the value of real shares. Basically because the naked shorters can sell as many nonexistent shares as they want, while the investors who buy can only buy shares that exist.

How does naked (or any) shorting reduce the value of real shares?

Shares are worth the present value of their future dividend cash flow. Shorting doesn't change no dividend payment at all ever.

Re: Counterfeiting Stock – Explaining illegal naked shorting and stock manipulation

#173

Post by sumedh »

konschubert wrote: post #165
sumedh wrote: post #77

Earlier quoted context omitted.

It can because if you want to raise money, the banks wont accept your shares as collateral making your job to raise money very difficult.

Only if you need to raise money in order to survive. Which most companies don't.

> Which most companies don't.

and some companies do, that is the point.

Re: Counterfeiting Stock – Explaining illegal naked shorting and stock manipulation

#174

Post by eru »

konschubert wrote: post #26
sanxiyn wrote: post #23

Earlier quoted context omitted.

The second activity is dangerous because A can fail to deliver. I agree there's not much to be outraged by the first activity.

When I take a loan I may also fail to deliver loan payments. I don't think we should make risk illegal, but we should make sure that banks manage tail risks right.

That's what margin requirements and clearing houses are for.

Even during the heights of the last few financial crises, clearinghouses did not fail.

(Option writers and people trading futures are in a very similar situation to short sellers. They also have clearing houses.)

Re: Counterfeiting Stock – Explaining illegal naked shorting and stock manipulation

#175

Post by eru »

StreamBright wrote: post #127
woopwoop wrote: post #18

The author seems to be really upset about this, but I don't understand why. Nothing they are describing, if you ignore histrionic language like "counterfeiting", seems especially nefarious. Maybe I am misunderstanding. Basically, a short is when A borrows from B a share of corporation C with the promise to return a share of corporation C at a later time, plus some cash interest. A naked short is where instead B gives…

>> I don't understand why I'm supposed to be outraged by either You shouldn't. When the economy collapses because of the aforementioned practices and you family loses their jobs, housing etc, you should not be upset either.

Why would the economy collapse?

If anything, it's very good to have short sellers, because they are the only market participants who have an incentive to expose bubbles. And expose them early.

Re: Counterfeiting Stock – Explaining illegal naked shorting and stock manipulation

#176

Post by hagy »

eru wrote: post #155
JumpCrisscross wrote: post #149

Earlier quoted context omitted.

> naked short selling at volume will create a self-fulfilling prophecy To be super clear, naked short selling is banned for everyone but market makers [1]. A market maker goes naked short when there is a buying frenzy. Their economic incentive is to then cover the short given they are in a buying frenzy . The NYSE explicitly markets its specialist system to issuers as a stabiliser mechanism. It’s a selling point to l…

Though arguably, naked short selling should be allowed as well. (With certain safe guards and sufficient margin requirements.) After all, we allow something similar to naked short selling when people write options or trade futures. And those markets work just fine.

Naked short selling is allowed by market neutral market makers, but it does not function as convention short seller. Under current regulation, a naked short seller is not looking to make a profit from a future decrease in price, but instead ensuring market availability of the stock. E.g., if there is a sudden increase in buyers market makers continue to make good on their obligation to always be willing to buy and sell a certain stock. Market makers are required to buy a share back from the market sometime in the future to replace the phantom share that they sold.

Re: Counterfeiting Stock – Explaining illegal naked shorting and stock manipulation

#177

Post by Miner49er »

bremac wrote: post #130
JimWestergren wrote: post #82

"There are are 71 million shares of GME that have ever been issued by the company. Institutions have reported to the SEC via 13F filings [0] that they own more than 102,000,000 shares" Quote from https://old.reddit.com/r/wallstreetbets/comments/l97ykd/the_... [0]: https://fintel.io/so/us/gme

13F filings don't include short positions. Given how shorted GME is, I don't think it's surprising that the total long positions exceeds the number of shares outstanding. To add to the confusion we're still within the 45-day filing window for the end of the last quarter, so some investors may not have filed yet either.

So there's way more shares held long than there is actual shares. This must lower the share price then? There's way more "supply" (people that can sell a share).

Re: Counterfeiting Stock – Explaining illegal naked shorting and stock manipulation

#178

Post by krok »

stupidcar wrote: post #147
darawk wrote: post #139

This is mostly nonsense. There is nothing wrong with there being more shares short than shares outstanding. It just seems problematic, until you think it through. Person A has 1 share of company Y. Person B borrows 1 share of company Y from person A, and then sells it into the market. This is called a short sale. But person B just sold their borrowed share. Now that share is owned by person C. Person C can now lend i…

What your describing still sounds incredibly dodgy. The price of anything is a result of its some intrinsic value and the volume of supply. So a precious stone is valuable because of its beauty, but also because it's rare. If someone mines a billion such stones, it won't affect their individual beauty, but it will certainly reduce the price someone is willing to pay for one. Now, you seem to be saying that short sell…

It doesn't inflate the supply, because the amount of people who own the share is equal to the number of actual shares, plus the number of people who are short the share. All the people who are short the share have to buy it back in the future. So the additional supply has exactly been matched by additional demand.

What you are saying is like saying that lending money to your friend creates inflation by expanding the money supply, because you still have $10 (that he's holding for you), plus he also has $10. In fact, since he knows he owes you $10, he's going to have to cut back on his spending at some point in the future, to pay you back. (Your mileage may vary with actual friends.)

Re: Counterfeiting Stock – Explaining illegal naked shorting and stock manipulation

#179

Post by ClumsyPilot »

Taniwha wrote: post #108
kebman wrote: post #73

Earlier quoted context omitted.

When I purchase a stock, I do it in the express belief that I will get a physical (though digitally stored) share of that company, and possibly one that gives me a voting right if the stock is marked as such. When a stock “fails to clear” this gives me a ton of problems such as slippage and volatility, and possibly a quite substantial loss. Same if you buy an apple, I'm sure you'd only do it in the belief that you wi…

Of course that's a fiction, almost all stock in the US is owned by Cede & Co https://en.wikipedia.org/wiki/Cede_and_Company All you own are assignments of that stock

I don't thinks this interpretation of 'owns'is accurate, but if it were, it would be even worse than the original allegation!

Re: Counterfeiting Stock – Explaining illegal naked shorting and stock manipulation

#180

Post by kebman »

starfallg wrote: post #135
josalhor wrote: post #122

Earlier quoted context omitted.

I don't think he is arguing against fungibility. In fact, he compared stocks and cash under the assumption of fungibility. I think he is arguing against the idea of applying fractional reserves to brokers.

Yeah, that's what I thought the argument was until this bit - > Same if you bought a stock, and your broker suddenly decides to steal it without your knowledge, and loan it out in order to sell it in the hopes of earning money if its value drops (i.e. short the stock). Clearly you'd want to know if your property is being loanded out, because it means that you're incurring risk, no matter if you're compensated for it…

That has nothing to do with legal fungibility, and everything to do with property rights, and the conditions at which most people expect to buy a stock (licensing notwithstanding). Fungibility is merely how easily the medium is broken into smaller parts that may be exchange for convenience, and not the regulated use of third parties, unless you're really talking about liquidity. The latter can easily be solved with waivers or contractual agreements (such as an opt in). As far as I know most brokers already do that, but the implication is that some don't or are somehow able to sidestep such regulation.
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