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I'm pretty sure you're wrong about this and this isn't 'naked shorting'. I have pretty low confidence in the detailed specifics here, but I saw some discussion

I'm pretty sure you're wrong about this and this isn't 'naked shorting'. I have pretty low confidence in the detailed specifics here, but I saw some discussion on Twitter that naked shorting being legal could have actually prevented the squeeze we're seeing. [0] The reason for the extra >100% has to do with how the stock lending works (Matt Levine wrote a bit about this recently). [1] Quoted below. -- "This does not necessarily mean a lot of people are doing evil illegal nefarious naked shorting! Really, I promise! There is no special limit on shorting at 100% of shares outstanding! Here is an explanation of how options market makers (discussed below) are allowed to short without a locate, but I want to offer an even simpler explanation. 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, but 190 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." -- I still think what Robinhood did here is both wrong and a stupidly short-sighted that will damage their brand, but there's so much over confident misinformation about what's happening surrounding this that it makes it harder to understand. The NYT is no better - another dumb Taylor Lorenz article got less right than most random Twitter threads. [0]: https://twitter.com/simoj_/status/1354664677364609026 https://twitter.com/simoj_/status/1354664677364609026 [1]: https://www.bloomberg.com/news/newsletters/2021-01-25/money-stuff-the-game-never-stops https://www.bloomberg.com/news/newsletters/2021-01-25/money-...

kevmo 6y ago
It isn't going to just damage their brand -- Robin Hood the blockbuster business is basically over. They will never recover from this. Amusingly, them blowing up Robin Hood made me put up an order for $GME. If their position is so valuable that Citadel would destroy a business worth billions, then I am convinced this is an amazing speculative play.
- fossuser 6y ago
  I'd guess the truth is dumber here than you think.
- Tenoke 6y ago
  For what is worth, people said very similar things during RH's infinite money glitch fiasco and everyone basically forgot about it by now.
- chrisco255 6y ago
  How do I short Robinhood stock?
djeiasbsbo 6y ago
I don't think that Robinhood had any other choice here. Their partner is Citadel, which is basically a "middleman" broker. Citadels main business is this, for every incoming stock purchase, they buy stock at an amount that is just slightly lower, driving up the stock price a tiny bit, and then sell the stock to the buyer, pocketing the difference. They can do this because they have direct access to the stock market and are fully autonated. Robinhoods access to the stock market is also through Citadel. Citadel also bailed out the Melvin Capital hedge fund earlier this week. I would imagine that Citadel can simply force one of their partners like Robinhood to do anything by threatening to cut them off from the market entirely. I think their main goal now is to make sure that the lawsuits and fines they will be hit with will cause them to loose less than a short squeeze in this stock would eventually have. But all of this is just speculation. I don't actually know anything about the stock market, I started reading about it two days ago. I don't want to "conspire" or anything like that, just my theory.
- Tenoke 6y ago
  I don't see how Citadel can force them into that when that will be much more clearly market manipulation. Though at any rate, I am not convinced Citadel had much of a stake at this point - Melvin had supposedly closed its shorts and the current short sellers were very possibly different actors.
  - stonogo 6y ago
    Nobody needs to "force" anyone to do anything. Money works great as a motivator.
zaroth 6y ago
Obviously it should be illegal to lend the same shares out multiple rounds. If it's not, that's an absurd hole in the regulation. A owns 90 shares, B owns 10. A lends 90 shares to C who sells them to D. D lends 90 shares to C who sells them to E. E lends 90 shares to C who sells them to F... C in this hypothetical is borrowing and selling the same shares over and over again to various 3rd parties. Shorting the same shares twice is truly naked short selling. If there's three people in a room, and only one pair of pants, what would you call it?
- ChrisLomont 6y ago
  There's no problem with shorting multiple times - you simply have to be trusted to pay up the time comes. It's easy to do. Suppose there is 1 share in existence, A promises to sell it to B and to C if price reaches X. If price gets there, A is on the hook to pay up. So now A has to buy the share if not held, or have it already. A sells out to B, fulfilling the contract to B. Now A needs that share again, so has to offer B a price to buy it, and does so. Now A closes out with C. It's vastly easier when there's lots of shares, because it's easier to find a seller each time you have to close out multiple contracts. This is done in pretty much every part of the economy. When you put money in a bank, it can be lent. Now the bank has a debt (to you) and an asset (money owed to them by the lendee) that balance. That lendee can also lend the same money, again incurring a matching debt and asset. None of this is voodoo back market evil. It's common sense used to allocate resources, has been done for millennia in many forms. It's funny watching naive traders get upset over it simply because they don't understand how their own markets work. It will be funny and sad watching them learn even more about how markets work in the coming days.
  - zaroth 6y ago
    Banks are legally permitted to lend (create) money with less than 100% reserves. That’s the whole intent. Whereas in public markets, a random hedge fund should not be able to essentially issue new shares / increase the float. My point is simply a ban on “naked shorting” is obviously useless if you allow chain lending, therefore a ban on naked shorting implies a ban on chain lending.
fossuser 6y ago
Well the RH decision may have been more reasonable than I thought (and have to do with clearing house details I didn’t understand) - just communicated terribly: https://marginalrevolution.com/marginalrevolution/2021/01/why-was-share-trading-restricted.html https://marginalrevolution.com/marginalrevolution/2021/01/wh...

kevmo 6y ago

It isn't going to just damage their brand -- Robin Hood the blockbuster business is basically over. They will never recover from this. Amusingly, them blowing up Robin Hood made me put up an order for $GME. If their position is so valuable that Citadel would destroy a business worth billions, then I am convinced this is an amazing speculative play.

fossuser 6y ago
I'd guess the truth is dumber here than you think.
Tenoke 6y ago
For what is worth, people said very similar things during RH's infinite money glitch fiasco and everyone basically forgot about it by now.
chrisco255 6y ago
How do I short Robinhood stock?

djeiasbsbo 6y ago

I don't think that Robinhood had any other choice here. Their partner is Citadel, which is basically a "middleman" broker. Citadels main business is this, for every incoming stock purchase, they buy stock at an amount that is just slightly lower, driving up the stock price a tiny bit, and then sell the stock to the buyer, pocketing the difference. They can do this because they have direct access to the stock market and are fully autonated. Robinhoods access to the stock market is also through Citadel. Citadel also bailed out the Melvin Capital hedge fund earlier this week. I would imagine that Citadel can simply force one of their partners like Robinhood to do anything by threatening to cut them off from the market entirely. I think their main goal now is to make sure that the lawsuits and fines they will be hit with will cause them to loose less than a short squeeze in this stock would eventually have. But all of this is just speculation. I don't actually know anything about the stock market, I started reading about it two days ago. I don't want to "conspire" or anything like that, just my theory.

Tenoke 6y ago
I don't see how Citadel can force them into that when that will be much more clearly market manipulation. Though at any rate, I am not convinced Citadel had much of a stake at this point - Melvin had supposedly closed its shorts and the current short sellers were very possibly different actors.
- stonogo 6y ago
  Nobody needs to "force" anyone to do anything. Money works great as a motivator.

zaroth 6y ago

Obviously it should be illegal to lend the same shares out multiple rounds. If it's not, that's an absurd hole in the regulation. A owns 90 shares, B owns 10. A lends 90 shares to C who sells them to D. D lends 90 shares to C who sells them to E. E lends 90 shares to C who sells them to F... C in this hypothetical is borrowing and selling the same shares over and over again to various 3rd parties. Shorting the same shares twice is truly naked short selling. If there's three people in a room, and only one pair of pants, what would you call it?

ChrisLomont 6y ago
There's no problem with shorting multiple times - you simply have to be trusted to pay up the time comes. It's easy to do. Suppose there is 1 share in existence, A promises to sell it to B and to C if price reaches X. If price gets there, A is on the hook to pay up. So now A has to buy the share if not held, or have it already. A sells out to B, fulfilling the contract to B. Now A needs that share again, so has to offer B a price to buy it, and does so. Now A closes out with C. It's vastly easier when there's lots of shares, because it's easier to find a seller each time you have to close out multiple contracts. This is done in pretty much every part of the economy. When you put money in a bank, it can be lent. Now the bank has a debt (to you) and an asset (money owed to them by the lendee) that balance. That lendee can also lend the same money, again incurring a matching debt and asset. None of this is voodoo back market evil. It's common sense used to allocate resources, has been done for millennia in many forms. It's funny watching naive traders get upset over it simply because they don't understand how their own markets work. It will be funny and sad watching them learn even more about how markets work in the coming days.
- zaroth 6y ago
  Banks are legally permitted to lend (create) money with less than 100% reserves. That’s the whole intent. Whereas in public markets, a random hedge fund should not be able to essentially issue new shares / increase the float. My point is simply a ban on “naked shorting” is obviously useless if you allow chain lending, therefore a ban on naked shorting implies a ban on chain lending.

fossuser 6y ago

Well the RH decision may have been more reasonable than I thought (and have to do with clearing house details I didn’t understand) - just communicated terribly: https://marginalrevolution.com/marginalrevolution/2021/01/why-was-share-trading-restricted.html https://marginalrevolution.com/marginalrevolution/2021/01/wh...