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

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

#121

Post by FabHK »

Swenrekcah wrote: post #102
jaycroft wrote: post #67

Earlier quoted context omitted.

And just for completeness on your comment, a naked short is the same as a regular short, but in the opposite order. First sold short, then borrowed after the fact.

I can’t quite wrap my head around how this is possible. Are stock brokers allowed to just generate shares in their computer systems and then find a way later to actually obtain them? And when they do so, that might actually be from another broker who magicked them into existence?

Not sure this analogy answers your question, but it might help:

https://news.ycombinator.com/item?id=25944738

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

#122

Post by oblio »

Tenoke wrote: post #97
PragmaticPulp wrote: post #59

Earlier quoted context omitted.

> then it’s garbage in, garbage immutably recorded. This is the major weakness of proposals to put everything on the blockchain. In real-world scenarios, accidents happen. Records must be corrected. Voting is a great example. If we moved voting to the blockchain, it wouldn't automatically solve fraudulent voting problems. It would just record fraudulent votes on the blockchain. If your grandma accidentally loses her…

>If your grandma accidentally loses her private voting keys to hackers, do we just roll over and let the hackers vote as your grandma? Obviously not. It's not obvious to me why not. It's a trade-off. You put the responsibility on the user to keep their keys but you save a lot by not spending anything on solving fake or real issues like this. In this case if you want assurances like this you can trust a third party th…

The real world wants assurances. That's why every country has central banks, notaries, central depositories, etc.

> It's a trade-off. You put the responsibility on the user to keep their keys.

Just like for driving or flying or almost any important occupation, we don't only "put responsibility on the user". We have laws against abuse.

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

#123

Post by totalZero »

anaphor wrote: post #74
PragmaticPulp wrote: post #42

Recent events have a lot of people confusing high short interest with naked shorting. A stock can have short interest greater than 100% without any naked shorting. How is this possible? The textbook definition of a "short sale" is that someone borrows stock and then, literally, sells it short. The buyer of the stock is free and clear to do whatever they want with the stock, including re-lend it for another short sale…

If you look at the SEC data on FTDs, there have been a huge number of them for GME in the past year https://www.sec.gov/data/foiadocsfailsdatahtm So that kind of points towards a possibility of naked shorts, if I understand correctly (although by itself it doesn't prove it's happening).

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.

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

#124

Post by FabHK »

cstrat wrote: post #87
PragmaticPulp wrote: post #42

Recent events have a lot of people confusing high short interest with naked shorting. A stock can have short interest greater than 100% without any naked shorting. How is this possible? The textbook definition of a "short sale" is that someone borrows stock and then, literally, sells it short. The buyer of the stock is free and clear to do whatever they want with the stock, including re-lend it for another short sale…

In addition to the shorts, when people buy call options - doesn't that mean someone else is on the hook to provide shares at a later date, and they might not hold them at the time of selling the option?

When you buy a call from an option trader, you're long the stock, trader is short, so they will buy shares to hedge themselves.

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

#125

Post by FabHK »

Traktor wrote: post #64
PragmaticPulp wrote: post #42

Recent events have a lot of people confusing high short interest with naked shorting. A stock can have short interest greater than 100% without any naked shorting. How is this possible? The textbook definition of a "short sale" is that someone borrows stock and then, literally, sells it short. The buyer of the stock is free and clear to do whatever they want with the stock, including re-lend it for another short sale…

I dont understand how the new owner of the stock can ”re-short” it. Could you maybe explain? :)

This analogy might help:

https://news.ycombinator.com/item?id=25944738

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

#127

Post by recursive »

YZF wrote: post #111
brockwhittaker wrote: post #62

Earlier quoted context omitted.

Not all shares have voting power, and even so the voting power of those shares (if they were 2% of the company for example) may be proportionally tiny compared to the founders/board/execs. For example shareholders don't have any control at FB, since Mark controls 51% of the voting power.

It's fairly unusual to have companies with this sort of structure. Why would you ever buy shares in a company that doesn't pay dividends and where you can get infinitely diluted and have no control? (other than for speculative reasons)

Maybe the future potential of dividends?

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

#128

Post by [deleted] »

tempestn wrote: post #91
Lazare wrote: post #40

Summary: Every so often, someone gets very steamed about short selling, often with no real reason. Back in 2005, someone got very steamed about short selling, and then got a journalist to write a somewhat confused article about it. It's not clear anything was actually wrong then, but in any case, the rules have been changed a few times since then, so there doesn't seem to be any obvious relevance to current times. It…

I think you could make an argument that allowing naked shorting could in fact be beneficial. Part of what's allowing gamestop stock to explode recently is that it's next to impossible to find shares to borrow for shorting. If everyone who wanted to short the stock could do so without having to borrow shares, price discovery might work significantly better. (I assume the counter-argument would be that short squeezes c…

[deleted]

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

#129

Post by IG_Semmelweiss »

arcticbull wrote: post #82
erichocean wrote: post #81

Earlier quoted context omitted.

> In the last 100 years nobody had lost a single penny to a bank run or default including 2008s WaMu default. Debasement of the currency, however, has been…high. So you didn't "lose" that dollar from a hundred years ago, it's just worth about a penny now. Where'd the other $0.99 go?

Another irrelevant talking point. The whole point of inflation is to encourage investment as money is only worth something as it flows through the economy. You’re not supposed to save money under the mattress you’re supposed to save value by purchasing assets. A hundred years ago buying roughly speaking any asset would have preserved your entire wealth or created tons of new wealth. Wages have on average kept pace wi…

I respectfully disagree.

The whole point of inflation is to monetize the crazy debt spirals by empires. Its why the romans did it, why the Germans did it, why the british did it , and its why we do it. It doesn't take an econ degree to know that. That was the reason the gold window was closed in the first place.

If the whole point of inflation, mind you, is to encourage investment, then why does the fed react by spiking interest rates in the , 60s' 70's, 82 to address inflation...yet introducing a bona fide investment meltdown ? Thats what reveals the facade. If the purpose of inflation was to encourage investment, it is certainly an odd to react to inflation by increasing interest rates, and destroying business investment in the process.

>>>>>>You’re not supposed to save money under the mattress, s you’re supposed to save value by purchasing assets.

This sure sounds like you know better than everyone else. Its probably an attitude that would be frowned upon by someone that believes in freedom of choice, like we do in USA.

>>>>Wages have on average kept pace with inflation.

I don't know if that is true since you have no sources, but the total count of people living in the US under the poverty line is exactly where it was in 1959, and now, post pandemic, it is certainly far higher. So even if wages kept pace, which is uncertain, with technology advances and the dollar as the reserve currency, you would expect the total number of people to be lower.

https://en.wikipedia.org/wiki/File:Number_in_Poverty_and_Pov...

>>>>>>>You keep a small slush fund for a rainy day in a savings account that at least partially offsets inflation and you invest the rest. You don’t save money, you save value. You transact money. If you’re saving money you’re doing it wrong.

This is valid because there is inflation. But it saddens me to think that you think it is perfectly rational and acceptable to steal money from the savings of hardworking people, who often have to fend off scams left and right...and thus keep the money for themselves, for no real reason other than that it is what... you think.

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

#130

Post by jaycroft »

glitchc wrote: post #104
jaycroft wrote: post #73

Earlier quoted context omitted.

I borrow your car (and you even give me the title!), promise to return it to you (but not necessarily the same car, just the same make and model), and then I sell what is truly now my car to someone else. That new owner could then find someone else to lend the car to, transfer the title on a promise that they'll eventually transfer the title back, and then let the new borrower sell it, transfer the title, etc. There'…

In sports, we call these "side-bets," wherein the total value captured in the bets can be many times the purse prize of the event (fight/match, what have you). That there's a great deal of betting happening on the outcome of the stock market shouldn't surprise anyone (and yet it does!). It is, after all, the biggest game on the planet.

And what happens when the side bets begin to wag the dog - when it becomes more profitable to manipulate the underlying and pay the fines there in order to save a bigger position in the side betting market?
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