4 ms·

What naked shorts? Do you have any evidence for these claims?

by gowld 6y ago

mmastrac 6y ago
I think the fact that Gamestop is >100% shorted suggests that there is naked short selling happening _somewhere_. Clearly there were shenanigans. EDIT: apparently multiple lending of shares does happen and Overstock sued over this [1] [1] https://www.courthousenews.com/overstock-com-settles-short-sales-litigation/ https://www.courthousenews.com/overstock-com-settles-short-s...
- greenshackle2 6y ago
  Your link explains what actual naked shorting is, you should read it. It says nothing about re-lending. Naked shorting is not "re-lending", it's a very specific technical thing where you sell the stock without owning or borrowing it at all. Naked shorting results in failure to deliver. Stock trades settle a couple of days after execution, so what it means in practice is that Alice "buys" the stock from Charlie, then 2 days later when settlement should happen and the share and money are supposed to actually change hands, Charlie goes oops I don't actually have the stock. Then the trade is undone. In effect Charlie duped Alice into a fake trade that artificially depressed the market price. It's an egregious market manipulation tactic and has nothing in common with the practice of lending or re-lending shares, in fact there is not a single share involved at all. If you fail-to-deliver enough you'll get booted by other market participants and/or the SEC.
- deleted 6y ago
  [deleted]
- greenshackle2 6y ago
  No, it doesn't mean that. The same share can be borrowed more than once. If A borrows a share from B, who borrowed it from C, the same share is shorted twice without naked shorting.
  - mmastrac 6y ago
    [deleted, misunderstood how this works]
    - plouffy 6y ago
      How do you short ? You short by borrowing a stock, and selling it. Why would lending it instead of selling it be a naked short ?
    - the_pwner224 6y ago
      You can recall the shares you lent anytime. So if A borrows shares to short, and lends them out to B so B can short, if A wants to close their position they can tell B to give back the share. Not naked even though A has reloaned the share.
    - greenshackle2 6y ago
      No. Re-lending and naked shorting are nothing alike. Actually my example kinda sucked. What's more likely to happen is that B borrows the stock from A, then sells it to C. C then lends the share to D. C doesn't know or care that the share was already borrowed once, and the only way to prevent re-lending it that way would be to make shares non-fungible, which would break more-or-less everything (then again maybe that's your goal).
- grapehut 6y ago
  No, it doesn't. Imagine there is 1 share, owned by A. He lends it to B. B now (short) sells it to C. Now from C's point of view, he owns a share. So he lends it to someone. That person then short sells it. So you have 1 share, that's shorted twice. But it's impossible for A and C to both have their loan repaid, because there's only 1 physical share.
  - jfengel 6y ago
    Doesn't it unwind by just reversing the process? D buys the stock back from E and returns it to C. Then B buys the stock back from C and gives it to A. That all sounds perfectly ordinary, as long as it doesn't happen on a deadline. If you tell D or B that they have to buy that stock right now at any price, they're going to take it in the (ahem) shorts. But if they were permitted to take their time, they'd buy it up at the market price, which would on average be pretty near the price they sold it. It just so happens that there is a mechanism by which they can be forced to buy that stock right now, which is when F decides just on a whim to pay 100x the market price, and protection measures kick in. That's a screw-up on the part of B and D; they got sloppy and deserve to get raked over the coals for it. Everybody who wants to play that game needs to be aware of that scenario, and now they are. But I don't think it's because there's anything impossible about having more shorts than stocks. It just takes an already risky thing and makes it super subject to manipulation.
- plouffy 6y ago
  No. Person A has 100 stocks. Person B wants to short the stock. So Person B, borrows 50 stocks from person A and sells it to person C. The float is now > 100%.
mox1 6y ago
https://www.nyse.com/regulation/threshold-securities https://www.nyse.com/regulation/threshold-securities This is a list of stocks that have been sold, but the seller failed to deliver those shares. AKA naked shorting. GME has been on this list for a month now. SEC call this "Reg SHO". https://www.sec.gov/investor/pubs/regsho.htm https://www.sec.gov/investor/pubs/regsho.htm
- tomp 6y ago
  Wow, I though it was impossible to do "naked shorts" (i.e. why "short borrow" exists) and that people screaming "naked short" were just spreading FUD, but this proves me wrong! Of course, this list isn't indicative of the amount (i.e. coud literally be one share undelivered) but the mere existence of it is mindblowing! Someone should be paying massive penalties and/or be in jail (as I'm sure would happen to "retail investors" if they were unable to deliver...)
  - toomuchtodo 6y ago
    http://investors.overstock.com/news-releases/news-release-details/overstock-ceo-comments-secs-new-rules-against-naked-short http://investors.overstock.com/news-releases/news-release-de...
  - cldellow 6y ago
    Caveat: I don't know anything about short selling, so I may be misinterpreting this. That said, https://www.investor.gov/introduction-investing/investing-basics/glossary/threshold-securities https://www.investor.gov/introduction-investing/investing-ba... notes you only get listed as a threshold security if a few criteria are met, one of which is that the amount failed to deliver must be: > equal to at least 0.5% of the issuer's total shares outstanding Based on 70M outstanding shares, that means at least 350,000 undelivered shares. We don't know _why_ there was a failure to deliver, though. Not all failures may be related to short selling - someone's system screwing up for mundane reasons could cause such a thing, with no malice required.

What naked shorts? Do you have any evidence for these claims?

by gowld 6y ago

What naked shorts? Do you have any evidence for these claims?

I think the fact that Gamestop is >100% shorted suggests that there is naked short selling happening _somewhere_. Clearly there were shenanigans. EDIT: apparently multiple lending of shares does happen and Overstock sued over this [1] [1] https://www.courthousenews.com/overstock-com-settles-short-sales-litigation/ https://www.courthousenews.com/overstock-com-settles-short-s...

greenshackle2 6y ago
Your link explains what actual naked shorting is, you should read it. It says nothing about re-lending. Naked shorting is not "re-lending", it's a very specific technical thing where you sell the stock without owning or borrowing it at all. Naked shorting results in failure to deliver. Stock trades settle a couple of days after execution, so what it means in practice is that Alice "buys" the stock from Charlie, then 2 days later when settlement should happen and the share and money are supposed to actually change hands, Charlie goes oops I don't actually have the stock. Then the trade is undone. In effect Charlie duped Alice into a fake trade that artificially depressed the market price. It's an egregious market manipulation tactic and has nothing in common with the practice of lending or re-lending shares, in fact there is not a single share involved at all. If you fail-to-deliver enough you'll get booted by other market participants and/or the SEC.
deleted 6y ago
[deleted]
greenshackle2 6y ago
No, it doesn't mean that. The same share can be borrowed more than once. If A borrows a share from B, who borrowed it from C, the same share is shorted twice without naked shorting.
- mmastrac 6y ago
  [deleted, misunderstood how this works]
  - plouffy 6y ago
    How do you short ? You short by borrowing a stock, and selling it. Why would lending it instead of selling it be a naked short ?
  - the_pwner224 6y ago
    You can recall the shares you lent anytime. So if A borrows shares to short, and lends them out to B so B can short, if A wants to close their position they can tell B to give back the share. Not naked even though A has reloaned the share.
  - greenshackle2 6y ago
    No. Re-lending and naked shorting are nothing alike. Actually my example kinda sucked. What's more likely to happen is that B borrows the stock from A, then sells it to C. C then lends the share to D. C doesn't know or care that the share was already borrowed once, and the only way to prevent re-lending it that way would be to make shares non-fungible, which would break more-or-less everything (then again maybe that's your goal).
grapehut 6y ago
No, it doesn't. Imagine there is 1 share, owned by A. He lends it to B. B now (short) sells it to C. Now from C's point of view, he owns a share. So he lends it to someone. That person then short sells it. So you have 1 share, that's shorted twice. But it's impossible for A and C to both have their loan repaid, because there's only 1 physical share.
- jfengel 6y ago
  Doesn't it unwind by just reversing the process? D buys the stock back from E and returns it to C. Then B buys the stock back from C and gives it to A. That all sounds perfectly ordinary, as long as it doesn't happen on a deadline. If you tell D or B that they have to buy that stock right now at any price, they're going to take it in the (ahem) shorts. But if they were permitted to take their time, they'd buy it up at the market price, which would on average be pretty near the price they sold it. It just so happens that there is a mechanism by which they can be forced to buy that stock right now, which is when F decides just on a whim to pay 100x the market price, and protection measures kick in. That's a screw-up on the part of B and D; they got sloppy and deserve to get raked over the coals for it. Everybody who wants to play that game needs to be aware of that scenario, and now they are. But I don't think it's because there's anything impossible about having more shorts than stocks. It just takes an already risky thing and makes it super subject to manipulation.
plouffy 6y ago
No. Person A has 100 stocks. Person B wants to short the stock. So Person B, borrows 50 stocks from person A and sells it to person C. The float is now > 100%.

mox1 6y ago

https://www.nyse.com/regulation/threshold-securities https://www.nyse.com/regulation/threshold-securities This is a list of stocks that have been sold, but the seller failed to deliver those shares. AKA naked shorting. GME has been on this list for a month now. SEC call this "Reg SHO". https://www.sec.gov/investor/pubs/regsho.htm https://www.sec.gov/investor/pubs/regsho.htm

tomp 6y ago
Wow, I though it was impossible to do "naked shorts" (i.e. why "short borrow" exists) and that people screaming "naked short" were just spreading FUD, but this proves me wrong! Of course, this list isn't indicative of the amount (i.e. coud literally be one share undelivered) but the mere existence of it is mindblowing! Someone should be paying massive penalties and/or be in jail (as I'm sure would happen to "retail investors" if they were unable to deliver...)
- toomuchtodo 6y ago
  http://investors.overstock.com/news-releases/news-release-details/overstock-ceo-comments-secs-new-rules-against-naked-short http://investors.overstock.com/news-releases/news-release-de...
- cldellow 6y ago
  Caveat: I don't know anything about short selling, so I may be misinterpreting this. That said, https://www.investor.gov/introduction-investing/investing-basics/glossary/threshold-securities https://www.investor.gov/introduction-investing/investing-ba... notes you only get listed as a threshold security if a few criteria are met, one of which is that the amount failed to deliver must be: > equal to at least 0.5% of the issuer's total shares outstanding Based on 70M outstanding shares, that means at least 350,000 undelivered shares. We don't know _why_ there was a failure to deliver, though. Not all failures may be related to short selling - someone's system screwing up for mundane reasons could cause such a thing, with no malice required.