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Counterfeiting Stock – Explaining illegal naked shorting and stock manipulation

counterfeitingstock.com

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

#211

Post by dcolkitt »

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…

> The price of anything is a result of its some intrinsic value and the volume of supply.

No. The price of a stock is the value of its discounted cash flows.

Shorting creates synthetic shares, that guarantee the new longs an exactly replicated stream of cash flows. This doesn’t make the original shares any less valuable, because they still have the same cash flows.

Imagine someone conjured a new company, called Tesla-2, out of thin air. It’s future profits and dividends exactly match Tesla. Why should this make TSLA any less valuable?

If people are investing in TSLA for the company’s long term viability, the existence of TSLA-2 should be a good thing for holders of TSLA. Now they can buy even more. It’s only bad if people are buying TSLA as a speculative asset to flip to a greater fool. Which is why short selling is such an important mechanism to prevent speculative bubbles.[1]

[1] https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1540-6261....

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

#213

Post by the_mitsuhiko »

ycombigator wrote: post #103
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…

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?

> 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?

That only becomes a problem if at settlement time there are not 500 bananas. Since you can plant them that's not much of an issue.

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

#214

Post by dcolkitt »

varispeed wrote: post #201
hagy wrote: post #163

Earlier quoted context omitted.

When person A lends their share to person B, they no longer own a share, they own the right to receive a share from person B sometime in the future, interest payments on the lending, and collateral to ensure the borrower can make good on their obligations. This website seems to mainly be talking about naked short selling, which is selling a stock without first owning or borrowing it. This not necessarily illegal, alt…

Isn't selling something you don't own a fraud or the stock market has an exemption? The instance when A essentially sells the share to B accepting the right to receive the share back as a payment also wouldn't fly in any other environment, as this could just open the door to money laundering. So why is this accepted in the stock market? Or simply the law enforcement doesn't know how to tackle it?

> Isn't selling something you don't own a fraud or the stock market has an exemption?

I call up Dominos and order a pepperoni pizza. They take my order and process my credit card. They’ve just sold me a pizza that doesn’t exist. Is this fraud?

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

#215

Post by beowulfey »

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…

>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.

What happens to Person A in this scenario?

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

#216

Post by growse »

varispeed wrote: post #201
hagy wrote: post #163

Earlier quoted context omitted.

When person A lends their share to person B, they no longer own a share, they own the right to receive a share from person B sometime in the future, interest payments on the lending, and collateral to ensure the borrower can make good on their obligations. This website seems to mainly be talking about naked short selling, which is selling a stock without first owning or borrowing it. This not necessarily illegal, alt…

Isn't selling something you don't own a fraud or the stock market has an exemption? The instance when A essentially sells the share to B accepting the right to receive the share back as a payment also wouldn't fly in any other environment, as this could just open the door to money laundering. So why is this accepted in the stock market? Or simply the law enforcement doesn't know how to tackle it?

Fraud requires intent to deceive. Where's the intent to deceive in short selling?

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

#217

Post by tonyarkles »

School-Cotton wrote: post #168
myownpetard wrote: post #88

Earlier quoted context omitted.

With normal shorting the number of shares being traded is no greater than the float. Only with naked shorting can there be more shares traded than float, as in the parent's example. Interestingly, in both cases the short interest can be greater than 100%. My understanding is that naked shorting can be used to artificially lower the stock price by increasing the supply with the ultimate goal of driving the company int…

> Only with naked shorting can there be more shares traded than float Why? Imagine there exists one share of GME, owned by Alice. Bob borrows it from Alice and sells it to Charlie. Now both Alice and Charlie own one share, and no naked short sale ever happened, as far as I understand that term.

I don't know if there's a name for it, but while not naked, it's still a dubious situation unless Bob has secured some way to get the share back to Alice when Alice wants it back. Say Charlie has decided to go hold that share forever; how is Alice ever made whole?

In the only-one-share-exists situation, there's no real way out of that. In a situation where more than one share exists, Bob could, say, obtain a call option so that he at least has a plausible way to acquire a share in the future to make Alice whole.

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

#218

Post by wdn »

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…

You are mixing long term investing vs short term trading.

Short term trading has nothing to do with fundamental.

The market can be irrational.

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

#219

Post by donatj »

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…

> 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.

The price of something is just what someone else will pay. Period.

Intrinsic value factors into what people are willing to pay but only indirectly.

See: beanie babies, trading cards, status items, old land rovers.

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

#220

Post by cousin_it »

varispeed wrote: post #198
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…

This is the problem - someone is selling something they don't own. It's like you borrowed a car from a rental company and then you sold it to someone. Pretty sure that's a crime. If this is allowed on the stock market, then I think this is laziness of law enforcement that they don't know what to do with it. What if the owner wants the item back and the person you sold it to won't sell it? It seems like this may be th…

You can think of shorting as betting that the stock will go down. For example, Alice can write on a piece of paper: "Anytime anyone wants to sell this paper back to me, I'll pay a sum equal to the price of GME at that moment". Now if Alice sells the paper to Bob, Alice is short and Bob is long, even though none of them touched any stock.

Of course if many Alices do that, that will push down the price of GME, because it's market-relevant information that many people think GME will go down.

The real problem is counterparty risk. What happens if Alice runs out of money and can't pay up, or there's a run on all Alices at once? So a system of guarantors is needed. But this is far from the simple argument that "selling a borrowed car is stealing".

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