4 ms·

I can't find any documentation that a short squeeze is illegal. Can you?

TeMPOraL 6y ago
It's in the SEC rules. "Although some short squeezes may occur naturally in the market, a scheme to manipulate the price or availability of stock in order to cause a short squeeze is illegal." From https://www.sec.gov/investor/pubs/regsho.htm https://www.sec.gov/investor/pubs/regsho.htm. It's an open question whether this case is more of a natural occurrence or "a scheme to manipulate", given that it's all randos who found a Schelling point and are now hyping each other up. I think it's fair to say it's unprecedented.
- OscarCunningham 6y ago
  If I were the short-sellers I'd be a bit aggrieved at the SEC not going after WSB here. People keep saying that the hedge funds 'knew what they were getting into', and are therefore fair game. But they could well have thought that they were protected by this regulation. It's unlucky for them that they got squeezed by loveable retail investors rather than another hedge fund that the SEC would have no qualms about prosecuting. In the debate between the free market vs regulation, the worst possible outcome is to have people thinking they are protected by regulation when they in fact aren't.
  - willcipriano 6y ago
    The shorters should form a class action and sue wall street bets, I'm sure a 5 dollar check in 3 years and a year of free stonk advice will cover it right?
    - jsmith45 6y ago
      Wall street bets is not an organization, and does not really even have a defined membership, and I've never heard of a court case with a class as a defendant. But I suppose that would be a really amusing circus show. Class of shorters vs class of buyers.
      - deleted 6y ago
        [deleted]
  - seigando 6y ago
    Oh dear, those poor hedge funds.
    - floor2 6y ago
      This worldview seems like one of the biggest problems facing America right now. We should strive for equal rules and justice for all, rather than first deciding how likeable or sympathetic the parties involved are and then changing the interpretation of rules to favor the group we perceive as being inherently more deserving of our favoritism.
      - seigando 6y ago
        The rules were written, and have been interpreted with certain perceptions of 'who is deserving'. To claim that they weren't is at best ignorant.
  - jchook 6y ago
    Everyone always told me, "don't invest what you can't afford to lose" and that risk mitigation is paramount. Potentially tanking your firm on a gamble seems reckless and totally ignores the fundamentals of trading.
- blackearl 6y ago
  If the SEC isn't going to litigate the naked short selling that preceded this, it's really hard to not cry hypocrisy.
  - OscarCunningham 6y ago
    Is there any actual evidence of naked short selling? The only evidence I've seen people raising is that the total value of the shorts was over 100%, but that can happen completely legitimately if the people who buy from short sellers allow the stock to be sold short a second (or third, fourth, ...) time.
    - tolstoshev 6y ago
      I don't get why loaning out an already loaned stock is legal. Short selling should be limited to first gen loans. Otherwise it's like Beavis and Butthead in the Candy Store episode where they keep loaning the same dollar back and forth.
    - blackearl 6y ago
      While shorts were really high, GME also consistently had insane failure to deliver rates and was regularly on the threshold securities list.
  - ComputerGuru 6y ago
    You seem to be under the impression that a stock can’t be shorted more than 100% without naked short selling. This is not true.
- avereveard 6y ago
  "scheme to manipulate" is the keyword here, patting each other on the back for riding market volatility on a forum about stocks isn't neither novel nor illegal. it would be quite different if they were to coordinate the sale moment or the sale prices; for the latter, I don't see much coordination beyond memes, for the first SEC might have a point and there's many posts walking a thin line suggesting friday will be the day. however this is a billion dollar operation which include many players and wide interference by multiple actors ranging from unclear to blatant business relationships; I wouldn't be surprised by anonymous plants joining wsb trying to stir up a movement and coordinate sales/prices to create a solid case where there is just a feeble suspicion; and as a matter of fact there has been quite many fresh accounts (either low karma, no posts in a long time, no posts at all etc) joining in just to propose to hold until a certain price or date is reached.
- Rapzid 6y ago
  Interesting.. WSB was 100% orchestrating a short squeeze. They were telling anyone who would listen and in fact using it to rationalize what they were doing..
  - jaywalk 6y ago
    scheme (verb): make plans, especially in a devious way or with intent to do something illegal or wrong. Discussing buying stock on a public forum is certainly not devious, and although the goal is to cause short positions to lose a bunch of money I would argue that it's neither illegal nor wrong.
    - jeffbee 6y ago
      You could argue that but you’d be clearly wrong on American law and jurisprudence. If the goal is to cause other market participants to lose, that it specifically against the letter of the law.

It's in the SEC rules. "Although some short squeezes may occur naturally in the market, a scheme to manipulate the price or availability of stock in order to cause a short squeeze is illegal." From https://www.sec.gov/investor/pubs/regsho.htm https://www.sec.gov/investor/pubs/regsho.htm. It's an open question whether this case is more of a natural occurrence or "a scheme to manipulate", given that it's all randos who found a Schelling point and are now hyping each other up. I think it's fair to say it's unprecedented.

OscarCunningham 6y ago
If I were the short-sellers I'd be a bit aggrieved at the SEC not going after WSB here. People keep saying that the hedge funds 'knew what they were getting into', and are therefore fair game. But they could well have thought that they were protected by this regulation. It's unlucky for them that they got squeezed by loveable retail investors rather than another hedge fund that the SEC would have no qualms about prosecuting. In the debate between the free market vs regulation, the worst possible outcome is to have people thinking they are protected by regulation when they in fact aren't.
- willcipriano 6y ago
  The shorters should form a class action and sue wall street bets, I'm sure a 5 dollar check in 3 years and a year of free stonk advice will cover it right?
  - jsmith45 6y ago
    Wall street bets is not an organization, and does not really even have a defined membership, and I've never heard of a court case with a class as a defendant. But I suppose that would be a really amusing circus show. Class of shorters vs class of buyers.
    - deleted 6y ago
      [deleted]
- seigando 6y ago
  Oh dear, those poor hedge funds.
  - floor2 6y ago
    This worldview seems like one of the biggest problems facing America right now. We should strive for equal rules and justice for all, rather than first deciding how likeable or sympathetic the parties involved are and then changing the interpretation of rules to favor the group we perceive as being inherently more deserving of our favoritism.
    - seigando 6y ago
      The rules were written, and have been interpreted with certain perceptions of 'who is deserving'. To claim that they weren't is at best ignorant.
- jchook 6y ago
  Everyone always told me, "don't invest what you can't afford to lose" and that risk mitigation is paramount. Potentially tanking your firm on a gamble seems reckless and totally ignores the fundamentals of trading.
blackearl 6y ago
If the SEC isn't going to litigate the naked short selling that preceded this, it's really hard to not cry hypocrisy.
- OscarCunningham 6y ago
  Is there any actual evidence of naked short selling? The only evidence I've seen people raising is that the total value of the shorts was over 100%, but that can happen completely legitimately if the people who buy from short sellers allow the stock to be sold short a second (or third, fourth, ...) time.
  - tolstoshev 6y ago
    I don't get why loaning out an already loaned stock is legal. Short selling should be limited to first gen loans. Otherwise it's like Beavis and Butthead in the Candy Store episode where they keep loaning the same dollar back and forth.
  - blackearl 6y ago
    While shorts were really high, GME also consistently had insane failure to deliver rates and was regularly on the threshold securities list.
- ComputerGuru 6y ago
  You seem to be under the impression that a stock can’t be shorted more than 100% without naked short selling. This is not true.
avereveard 6y ago
"scheme to manipulate" is the keyword here, patting each other on the back for riding market volatility on a forum about stocks isn't neither novel nor illegal. it would be quite different if they were to coordinate the sale moment or the sale prices; for the latter, I don't see much coordination beyond memes, for the first SEC might have a point and there's many posts walking a thin line suggesting friday will be the day. however this is a billion dollar operation which include many players and wide interference by multiple actors ranging from unclear to blatant business relationships; I wouldn't be surprised by anonymous plants joining wsb trying to stir up a movement and coordinate sales/prices to create a solid case where there is just a feeble suspicion; and as a matter of fact there has been quite many fresh accounts (either low karma, no posts in a long time, no posts at all etc) joining in just to propose to hold until a certain price or date is reached.
Rapzid 6y ago
Interesting.. WSB was 100% orchestrating a short squeeze. They were telling anyone who would listen and in fact using it to rationalize what they were doing..
- jaywalk 6y ago
  scheme (verb): make plans, especially in a devious way or with intent to do something illegal or wrong. Discussing buying stock on a public forum is certainly not devious, and although the goal is to cause short positions to lose a bunch of money I would argue that it's neither illegal nor wrong.
  - jeffbee 6y ago
    You could argue that but you’d be clearly wrong on American law and jurisprudence. If the goal is to cause other market participants to lose, that it specifically against the letter of the law.