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Shorting 140% of the float no less. This falls entirely on these big funds.
by vga805 6y ago
Shorting 140% of the float no less. This falls entirely on these big funds.
- aphextron 6y ago>Shorting 140% of the float no less. This falls entirely on these big funds. This is the real issue. Everyone crying "Market manipulation! Call the SEC!" is right, except it's entirely Wall Street's doing. If anything good comes of this, we will see tighter regulation around short limits after this.
- AlanYx 6y agoDoes anyone have a link to a good explanation of how 140% of the float can be shorted, given the restrictions that the SEC imposed on naked shorting in 2008? Is there a specific loophole that is being consistently exploited?
- ohgodplsno 6y agoNo loophole, simply that the SEC does not exist or matter if you're a hedge fund.
- gruez 6y agoFrom Matt Levine: >There are 100 shares. A owns 90 of them, B owns 10. A lends her 90 shares to C, who shorts them all to D. Now A owns 90 shares, B owns 10 and D owns 90—there are 100 shares outstanding, but190 shares show up on ownership lists. (The accounts balance because C owes 90 shares to A, giving C, in a sense, negative 90 shares.) Short interest is 90 shares out of 100 outstanding. Now D lends her 90 shares to E, who shorts them all to F. Now A owns 90, B 10, D 90 and F 90, for a total of 280 shares. Short interest is 180 shares out of 100 outstanding. No problem! No big deal! You can just keep re-borrowing the shares. F can lend them to G! It's fine.
- Vespasian 6y agoIs ownership recorded like this in reality or does A transfers her shares to C and gets an IOU (secured by the margin) in return? Then ownership records would not exceed the number of outstanding shares
- throwaway4good 6y agoIs that number actually correct? I don’t know the details on how margin lending of us stocks is reported. However I know from European markets that that number would be complex to measure correctly.
- voisin 6y agoYes it is correct. There’s no loophole. I borrow a share and sell it to someone. Someone else borrows that share and sells it to someone. Same share, borrowed twice and sold twice. As long as each short seller maintains the equity requirement, there’s no issue. What I am unclear on is who takes the counter party risk in the event the short seller cannot make margin calls and goes bust. The exchange I assume? Who insures the exchange if something like this happens where $10 billion is created overnight at the expense of short sellers?
- throwaway4good 6y agoIn Europe there is a settlement window of 3 days (and longer as failing to deliver only draws a fee) which makes it possible to sell stocks without holding them.