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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

#221

Post by mcherm »

dcolkitt wrote: post #211
stupidcar wrote: post #147

Earlier quoted context omitted.

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…

> The price of a stock is the value of its discounted cash flows.

Nearly. There ARE a few other reasons to own a stock, such as the right to influence the governance of a company.

(I agree that shorting is an important market mechanism that protects against frauds and bubbles. I am much less sure that naked shorting provides value. In fact, I'm not sure I have ever heard an argument for why naked shorting is valuable... they always turn out to be arguments for why shorting is useful.)

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

#222

Post by nemo44x »

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?

People sell things they don’t own all the time line their house or car. When you borrow a share and sell it, you’re really renting it to find one much like someone rented it to you. It’s like subletting an apartment you’re renting from a landlord.

In the end there’s a chain and if the person who lent you the share wants it back then the person you loaned it to will need to produce it for you, etc.

This is why we have margin accounts (and limits to how much margin we get/can support).

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

#223

Post by JanSt »

dcolkitt wrote: post #211
stupidcar wrote: post #147

Earlier quoted context omitted.

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…

You cannot reduce ownership of a stock to discounted cash flow. Owning shares (mostly) comes with shareholder rights like voting. To me it is pretty obvious selling more of those rights than exist is fraudulent.

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

#224

Post by vladvasiliu »

dcolkitt wrote: post #211
stupidcar wrote: post #147

Earlier quoted context omitted.

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…

This seems somewhat counter-intuitive to me. Could you maybe go into how creating a second company, Tesla-2, would have zero effects on the original Tesla's future cash flows and stock price?

In my naïve view, TSLA's future cash flows have value because the company is expected to sell a lot of cars that:

1. No one else makes (or practically no one, such that TSLA has a majority of market share)

2. Many people want to buy.

Now, supposing TSLA would be able to service all the demand for its cars, how would a competing TSLA-2, presumably offering identical cars (or of identical value at least) not affect TSLA's future cash flows?

All things equal, if two companies sell products that are basically the same (same quality, price, etc), wouldn't that split the market in two? I wouldn't expect to see people buying twice as many cars because there are now two companies producing them.

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

#225

Post by nemo44x »

kebman wrote: post #73
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…

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…

You can instruct your broker to explicitly not loan your shares out.

In some cases they’ll pay you to allow them to loan it out. You can reject this if you want.

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

#226

Post by dcolkitt »

neffy wrote: post #191
rsp1984 wrote: post #185

Wow, it seems like none of the top commenters here have put in at least minimal effort to read and understand this. The author does not complain about short sellers per se or about the fact that more than 100% of a stock's float can be shorted. That is all nice and fine. Instead what the author does complain about is that fact that the (supposedly regulated) mechanisms for shorting a stock are fraught with loopholes…

Can only agree. There is a really simple reason for not allowing naked short selling and that is the potential for effectively creating a divide by 0 error, when the short sellers have to cover their short, and there aren't enough shares available. It really is that simple. While this doesn't mean a price of infinity, since price is also constrained by the available money for the purchase, in reality this then become…

> There is a really simple reason for not allowing naked short selling and that is the potential for effectively creating a divide by 0 error, when the short sellers have to cover their short

The point of a naked short system is that short sellers never need to cover their positions.

Naked shorting allows any credit worthy institution to create synthetic shares as long as they continue to pay the dividends. That’s what makes it IMO a superior system. It eliminates the disruptive problem of short squeezes. Shorts can never get recalled, because they’re simply synthetic cash flow streams.

Overall we want more short selling in the market, and therefore want to remove as many constraints to short selling as possible. Short selling improves price efficiency[1], increases liquidity[2], reduces corporate fraud[3], and helps protect against speculative bubbles[4]

[1] https://academic.oup.com/rfs/article-abstract/24/3/821/15904... [2] https://img.iex.nl/iexprofs/images/2008-12-01ResearchEvidenc... [3] https://onlinelibrary.wiley.com/doi/abs/10.1111/jofi.12369 [4] https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1540-6261....

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

#227

Post by peter_retief »

I know of a research company that deliberately smears companies to make money from selling them short "Viceroy comes up short on Capitec" https://www.timeslive.co.za/sunday-times/business/2018-02-01... Lets not be coy about these companies, they are crooks.

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

#228

Post by DarkWiiPlayer »

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…

> Nothing they are describing, if you ignore histrionic language like "counterfeiting", seems especially nefarious.

It sure does to me though:

First of all, there's the whole self-fulfilling prophecy thing. On a technical level, everything borrowed is eventually given back, so the effects should cancel out in the end.

The problem starts when the borrowing and selling of stocks happens at a scale where it influences the stock price. At that point, you're a) actively hurting the company b) expecting to profit from it c) sometimes without even expecting the stock price to fall if it weren't for your intervention.

Like, I don't see how financially hurting others for personal gain is not a bad thing, but what makes it even worse is that these might be companies producing actual goods, driving humanity forward, and this is being hindered by economic parasites that are only throwing sticks in peoples way.

It's easy to understand why many believe this should definitely be illegal, and why people without much knowledge of stock markets would expect it to actually be illegal in the first place.

This is the equivalent to shouting "fire" in a crowded theatre... intending to loot whatever people leave behind.

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

#229

Post by egwor »

freeone3000 wrote: post #83
egwor wrote: post #79

Earlier quoted context omitted.

If I want insurance to protect against the price going down, I'd buy a put option. I know a bit about this but I'm not an expert on this. Naively, those put options are effectively offered by those providing a short (they think the price is going to go down, or have a way to hedge the price decrease). Those don't get represented as shorts either. https://corporatefinanceinstitute.com/resources/knowledge/tr... The oth…

Options are bets in a way that actual sales aren't. Notably, a put explicitly a contract to sell something at a given price in the future. Nobody buying or selling a put has any intention of stock trading hands -- and the option can even be written as cash-only, where stock never actually does. So while selling a put is the same fundamental idea as a short ("I think the price will go down"), it's mechanically very di…

I agree on the mechanism. If the objection is that someone can influence the price of an instrument without owning it (like in short selling (although in short selling you can borrow the instrument and then short it)), then should the argument be that put options should also not be allowed without ownership of the underlier too?

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

#230

Post by thetanil »

rsp1984 wrote: post #185

Wow, it seems like none of the top commenters here have put in at least minimal effort to read and understand this. The author does not complain about short sellers per se or about the fact that more than 100% of a stock's float can be shorted. That is all nice and fine. Instead what the author does complain about is that fact that the (supposedly regulated) mechanisms for shorting a stock are fraught with loopholes…

I had to go way to far down in the page to find someone who actually read it.
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