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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

#301

Post by formerly_proven »

auntienomen wrote: post #247
jml78 wrote: post #200

Earlier quoted context omitted.

> But, this happens both ways good and bad so it's probably a wash. Only if you ignore reality. Huge hedge funds are called market movers for a reason. These hedge funds decide to short your company's stock and they have a direct impact on your stock value regardless of whether the hedge fund has any basis for actually shorting. Their "reason" can be 100% bullshit. Doesn't matter. They put a large short position on y…

There's a fallacy in your claims. Shorting affects the owners of the stock. But publicly traded companies don't normally own a large amount of their own stock. Their stock price doesn't have that direct an effect on their balance sheets. It affects their credit worthiness, but not in a mechanistic way. (Believe me, Gamestop isn't finding it easier to borrow just because its price has gone bonkers.)

That's also a key reason why market cap is relatively meaningless outside of the actual stock market. E.g. TSLA has a giant market cap for an automaker, but that has no real operational impact and has essentially no relation to their behavior and performance in their market.

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

#302

Post by kgwgk »

thatguy0900 wrote: post #271
kgwgk wrote: post #95

Earlier quoted context omitted.

What do you mean by "temporary dilution of shares"? All the shareholders will get dividends, for example. The same as if there were no shorts. The only thing that those who lend their shares will lose is the voting rights - and those who don't lend their shares will vote normally.

That doesn't make sense. If I have to pay each share 5$, and I have given out 500 shares, but when it's time to pay out dividends 700 shares show up to claim them,then someone has to lose money right? Either I have to give 5$ to 200 shares that I never sold to people to begin with, or the 500 people who actually bought shares from me lose some of their portion to the extra 200. What am I missing if that's not the cas…

Comes from the short-sellers. If I lend a share to you, you owe me a share and all the dividends that I would be receiving.

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

#303

Post by growse »

varispeed wrote: post #283
growse wrote: post #246

Earlier quoted context omitted.

Is a future contract fraudulent then? If I sell you an August-settled coffee future, that's a promise to deliver you coffee in August. Is it fraudulent if I don't have the coffee right now? After all, I've sold you something I don't own. Of course it isn't. What matters is that the contract is fulfilled, and for equity sales in the US, the contract states that a share will be delivered to the buyer 2 days after the t…

You are comparing apples to oranges. Paying for a product in advance is quite different from selling something you don't own.

You're going to have to fill in some of the blanks explaining how paying someone to deliver a share 2 days from now is fraud but paying someone to deliver coffee 6 months from now isn't.

How about if you sell a share that you bought within the last two days. I mean, your buy trade hasn't settled yet so you technically don't own it yet. Is that fraud?

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

#304

Post by neffy »

dcolkitt wrote: post #226
neffy wrote: post #191

Earlier quoted context omitted.

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 wh…

You know that widely acknowledged problem that a large part of current economic theory is completely divorced from the systems it is studying? This would be one of those parts.

The real world is not a special case.

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

#305

Post by thatguy0900 »

kgwgk wrote: post #302
thatguy0900 wrote: post #271

Earlier quoted context omitted.

That doesn't make sense. If I have to pay each share 5$, and I have given out 500 shares, but when it's time to pay out dividends 700 shares show up to claim them,then someone has to lose money right? Either I have to give 5$ to 200 shares that I never sold to people to begin with, or the 500 people who actually bought shares from me lose some of their portion to the extra 200. What am I missing if that's not the cas…

Comes from the short-sellers. If I lend a share to you, you owe me a share and all the dividends that I would be receiving.

Alright, thank you. That makes sense.

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

#306

Post by MrMan »

rcMgD2BwE72F wrote: post #21
konschubert wrote: post #12

Shitty companies failing is a necessary and important mechanism of a functioning economy. Look at the Soviet Union for an example of what happens when no companies ever go bankrupt. Short activists expose shitty companies and as such, they play an important role in the economy. Maybe Wirecard's fraud scheme would still be going on if it wasn't for short sellers. Maybe shorting, in particular naked shorting, is not id…

>Shitty companies failing is a necessary and important mechanism of a functioning economy. True >Look at the Soviet Union for an example of what happens when no companies ever go bankrupt. The Soviet Union was not a free market economy. >Short activists expose shitty companies and as such, they play an important role in the economy. In free market economies, shitty companies fail by themselves because their competito…

in free market economies people can lend each other ownership shares in public companies

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

#307

Post by thatguy0900 »

auntienomen wrote: post #299
thatguy0900 wrote: post #268

Earlier quoted context omitted.

That doesn't make sense. If I have to pay each share 5$, and I have given out 500 shares, but when it's time to pay out dividends 700 shares show up to claim them,then someone has to lose money right? Either I have to give 5$ to 200 shares that I never sold to people to begin with, or the 500 people who actually bought shares from me lose some of their portion to the extra 200. What am I missing if that's not the cas…

The money goes to whoever holds the real share. A loans a share to B. Now A owns an iou, which doesn't have any voting rights. B agrees to pay A an amount of money equal to a dividend payment if a dividend is paid by the company. B goes short by selling the share to C. C owns a share of stock. When the company pays dividends, C is paid and B pays A.

Alright, thank you. That makes sense. How do the voting rights work for share A? I was under the impression that brokerages loaned the shares out without the explicit knowledge of the original owners that it was happening. Is it just that people with margin accounts functionally don't get a vote?

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

#308

Post by [deleted] »

nmfisher wrote: post #297
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…

Is "market maker" an officially/legally designated status?

[deleted]

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

#309

Post by MrMan »

RivieraKid wrote: post #170

Can't believe this nonsense is upvoted on HN. Short-selling helps to correct market prices of capital, which is good. It even directly helps the average retail investor because when you buy an index, you want the prices to be as close as possible to the "actual value".

it is worse than the HFT hysteria ten years ago

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

#310

Post by intotheabyss »

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…

In other words, people continue to conflate money and credit.
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