3 ms·

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.

by 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.
  - ChrisLomont 6y ago
    There is no ban on what was done. You don't understand the SEC regulations on naked short selling, which specifically allow the fund activity on GME. As you wrote, the rules were created because this activity is the whole intent. Go carefully read the SEC rules regarding this, specifically the exemptions which are written in law. As I posted above, there is nothing illegal, immoral, evil, or deceptive about these practices. It's only when people don't understand the rules and most importantly why the rules are what they are that those people get upset. It's like watching natives throw rocks at the moon to scare it off.

by zaroth 6y ago

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.
- ChrisLomont 6y ago
  There is no ban on what was done. You don't understand the SEC regulations on naked short selling, which specifically allow the fund activity on GME. As you wrote, the rules were created because this activity is the whole intent. Go carefully read the SEC rules regarding this, specifically the exemptions which are written in law. As I posted above, there is nothing illegal, immoral, evil, or deceptive about these practices. It's only when people don't understand the rules and most importantly why the rules are what they are that those people get upset. It's like watching natives throw rocks at the moon to scare it off.