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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)

#191

Post by dragonwriter »

CTDOCodebases wrote: post #152
fractionalhare wrote: post #98

Earlier quoted context omitted.

You should cite the posts and resources you've mentioned, because there are a variety of caveats that approximately all the posts on WSB misinterpret. People will fly by a comment like this and just repeat it without any fact checking. The very page you describe specifically states that you can't infer when failures to deliver occurred because the data is reported in aggregate with no age statistics. [1] Moreover fai…

Regarding the data in question you are completely right but the unusually high numbers reported suggest possible naked short selling or a systematic lack of liquidity for that particular stock. If what’s going on is naked short selling by those who are not market makers then it’s illegal and those who are doing it need to be prosecuted. If what’s going on is due to a lack of liquidity then it suggest that price manip…

> Finally - why assume a government agency is competent and has the means and resources required to act in a timely manner?

That's not the assumption.

The assumption is that facts manually assembled and reported by a government agency are already within the knowledge of that agency, so even if they don't have “the means and resources required to act in a timely manner”, you aren't helping by reporting those facts back to them.

(This may also be an unwarranted assumption , but it's a different assumption than you describe. I've definitely in the past—on behalf of a different government agency—frequently been involved in reporting facts assembled by one office of a government agency to the parties responsible for acting on that information in another office of the same agency who hadn't been informed of it.)

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

#192

Post by nabla9 »

fastball wrote: post #189
nabla9 wrote: post #148

Earlier quoted context omitted.

>Assuming that if shorts require traders to borrow the stock, shorting more than 100% of it is impossible. That is wrong assumption. More than 100% of a company’s shares can be shorted without naked short. Matt Levine explains. https://www.bloomberg.com/opinion/articles/2021-01-25/the-ga... >There is no special limit on shorting at 100% of shares outstanding! There are 100 shares. A owns 90 of them, B owns 10. A lend…

I think the point is this: Yes you can have > 100% short interest without naked shorts. But are the circumstances that lead to such a situation (regardless of nudity) economically useful, or is it just allowing parasitism to exist in our system without good reason?

There is nothing magical about 100%. If it's useful in 99% then it's useful in 101%. Short squeezes and other things happen also before 100% of stocks are shorted. Shorts relative to float seems more important.

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

#193

Post by fastball »

nabla9 wrote: post #192
fastball wrote: post #189

Earlier quoted context omitted.

I think the point is this: Yes you can have > 100% short interest without naked shorts. But are the circumstances that lead to such a situation (regardless of nudity) economically useful, or is it just allowing parasitism to exist in our system without good reason?

There is nothing magical about 100%. If it's useful in 99% then it's useful in 101%. Short squeezes and other things happen also before 100% of stocks are shorted. Shorts relative to float seems more important.

No, there is something magical about derivatives that in general provide questionable value.

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

#195

Post by ineedasername »

cecilpl2 wrote: post #168
dmlittle wrote: post #75

Earlier quoted context omitted.

My understanding is that the following situation can lead to a short interest of over 100%. Let's imagine a hypothetical world where there exists 1 share of a particular company and it is owned by Person A. Person B then borrows the share from Person A and sells it to Person C (this is the first short). Person C now owns 1 share and Person A doesn't have a share but is contractually obligated to receive 1 share from…

This is possible, not illegal, and can be simplified even further. It's entirely possible for me to borrow a share from you, (short) sell it back to you, and then for us to repeat that process an unlimited number of times, thereby shorting an unlimited amount of stock. This would be stupid since I'd owe you more stock than exists and you could set any price you wanted for them.

Both parties could each do it with 500 shares. Then they'd each also owe each other the same amount.

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

#196

Post by ineedasername »

koolba wrote: post #55
sn_master wrote: post #18

Earlier quoted context omitted.

Not sure about this case, but owning all trading shares doesn't mean owning the company. A company may have only 2% of its value as public shares and the rest owned by the company itself.

If you own all the shares then you can control the company via voting control. That’d generally allow you to prevent the issuance of new shares and you could hand pick the board as their terms expire. It’s not immediate, but you’d eventually be in control of everything.

If you own all of the voting shares sure. But a company can have 100,000,000 shares, own 99,000,000 of them, so only 1,000,000 are trading. If you buy all 1,000,000 of those shares you don't have much power.

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

#197

Post by dragonwriter »

ineedasername wrote: post #196
koolba wrote: post #55

Earlier quoted context omitted.

If you own all the shares then you can control the company via voting control. That’d generally allow you to prevent the issuance of new shares and you could hand pick the board as their terms expire. It’s not immediate, but you’d eventually be in control of everything.

If you own all of the voting shares sure. But a company can have 100,000,000 shares, own 99,000,000 of them, so only 1,000,000 are trading. If you buy all 1,000,000 of those shares you don't have much power.

If you have 100% of the outstanding shares, you have 100% of the voting rights; treasury stock doesn't vote.

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

#198

Post by ArchD »

lmm wrote: post #176
jkhdigital wrote: post #161

Earlier quoted context omitted.

That last part is what really confuses me... what if the seller never resolves the failure to deliver? The buyer is walking around believing they own a share that the seller never actually gave them... I understand that the types of institutions that can engage in this behavior will true up their balance eventually, but why allow it in the first place? I can understand playing fast and loose with derivatives, since t…

Same as if you pay for ten tons of lumber and it doesn't show up. Stock trading grew out of traditional property trading and inherits a lot of its norms from there.

Does it have to be that way? Everything is electronic and stocks can move at the speed of the network whereas lumber cannot.

There could be some archaic processes that are not electronic but are there inherent good reasons why they cannot be converted?

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

#200

Post by gridder »

twic wrote: post #116
gridder wrote: post #89

Earlier quoted context omitted.

http://counterfeitingstock.com/CS2.0/CounterfeitingStock.htm...

I read this, but it's not clear to me there's anything to it. It has a strong aroma of crank, and not a lot of quantitative detail. Has anyone written a useful response to this? EDIT: Specifically, I think the idea that failures to deliver create counterfeit shares is wrong. I'd love to hear from someone with intimate operational knowledge of this process. FYI, SEC SHO FAQ: https://www.sec.gov/divisions/marketreg/mrf…

I just wanted to point out that naked shorting is very easily hidden. It’s hard to prove and the system is built for allowing shadiness. At this point how can we still give them the benefit of the doubt?
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