5 ms·

>On an aside, it seems the market can't ever get a break. If it crashes and unemployment skyrockets, it was due to some fat cats gambling. If the market skyrock

>On an aside, it seems the market can't ever get a break. If it crashes and unemployment skyrockets, it was due to some fat cats gambling. If the market skyrockets and unemployment is high, now the fat cats are making money off the backs of everyone else. If the market skyrockets and unemployment is low, well, everyone isn't sharing in the gains equally. I mean...this was due to fat cats gambling. Illegal gambling in fact. What else do you call shorting 140% of a company's stock? Also, this might just be me, but it feels disingenuous for you to not mention a disclaimer while posting this that you're a quant trader at a market maker. EDIT: As others have pointed out I seem to be misinformed about the legality of it, but my original point does stand. This IS happening due to fat cats gambling, and retail investors catching wind of it and blowing it up on social media (to be clear I'm aware that the majority of GME holders are still institutional)

russell_h 6y ago
I mean this as a genuine question: What law would shorting 140% of a company’s stock break?
- ESTheComposer 6y ago
  Disclaimer: I've been trading for ~8 years but only heavily researching trading strategies ~1 year, so I'm no expert in these things. But, unless I'm misinformed (which I'm hopefully not considering how much I've been reading into this lately), there's ~72.4m shares of GME floating around right now, but only 69.5m were issued; which would mean that ~3m are counterfeit or naked shorts, which are illegal
  - deleted 6y ago
    [deleted]
  - smabie 6y ago
    Hate to break it to you, but I can borrow a share and sell it to you and then I can borrow it back over and over again.
    - PeterisP 6y ago
      Perhaps the issue there is that in this scenario (I have a share; you borrow it from me and sell it to me; then you boroow it from me once more and sell it to me again) currently it's treated as if I own three shares (though two of them have marks on them that they can't be lent). Perhaps it should be explicitly treated as if I have one share, and two "claims on shares" which are likely to materialize, but are not guaranteed to do so - to make that distinction clear, to ensure that the lending for a short actually involves the lender temporarily giving up that share instead of just marking it as "used".
  - bb88 6y ago
    The number of shares reported is the number of shares existence -- not because of naked shorting or not. Naked shorting would not increase the number of share available to be bought. But not the total number of shares in existence. This is the same way banks use deposits to make loans. The dollar is the same dollar, but can be spent multiple times. Hence the money multiplier effect. The number of dollars in circulation is a constant. The number of times a dollar can be spent can be more than one. At some point the loan still has to be paid off, which requires me, eg, to acquire a dollar somehow, then pay it back to the bank -- with interest.
- akhosravian 6y ago
  Imagine a world where an individual did all this shorting. A different individual then sees it and buys all outstanding shares of the company, and decides they are long on the company and only want to hold their shares. How does the shorter now settle up their positions in this scenario? With 140% of the company’s stock shorter it becomes easier to get into this state.
  - roenxi 6y ago
    What law would that break? It isn't fraud, the individual could still reasonably expect to to be able to fulfil the contracts. Taking big risks with their own money is not illegal.
  - Jarwain 6y ago
    Matt Levine talks about something along these lines happening here: https://dealbreaker.com/2012/06/phil-falcones-alleged-piggish-behavior-made-him-some-enemies https://dealbreaker.com/2012/06/phil-falcones-alleged-piggis... The TLDR (also written by him): Falcone owned some bonds of a company called MAAX Holdings Inc. “After hearing rumors that a Wall Street financial services firm was shorting the MAAX bonds and also encouraging its customers to do the same, Falcone decided to seek revenge.” So he bought all the MAAX bonds. Then he bought more: Short sellers would borrow MAAX bonds (presumably from him), and then sell them to him, so that he ended up with “22 million more bonds than MAAX had ever issued.” Then he stopped lending them out, forcing the short sellers to buy bonds to cover their shorts. But there were no bonds to be bought, since he owned them all (and more). At some point an executive from the “Wall Street firm” called up Falcone to talk about the situation, and even in the SEC’s dry language you can tell that it was one of the greatest conversations in all of Wall Street history: > At some point, the conversation turned to the trading in the MAAX bonds. The senior officer asked Falcone how the Wall Street firm might satisfy its obligation to Harbinger. Falcone stated that the Wall Street firm should just keep bidding for the bonds. Falcone acknowledged that the Wall Street firm would suffer some losses doing so, but told the senior officer and the others that sometimes you are just on the wrong side of a trade. > In the course of this discussion, Falcone stated that he knew that the short position in the MAAX zips had created a “long” position in excess of the issue size. When the senior officer asked how he could possibly know this, Falcone stated that he was working the position himself and that he (i.e., Harbinger) had acquired approximately 190 million bonds. The senior officer and the other the Wall Street firm personnel were stunned.
kelnos 6y ago
> What else do you call shorting 140% of a company's stock? Unusual, but a thing that can happen, and not at all illegal.
Clewza313 6y ago
There's nothing illegal about 140%, because the same share can be loaned out multiple times. Anna lends Bob a book, Bob lends Charlie the book, now the book is 200% lent out. It's arguably risky and stupid to be Bob, because now he's in trouble if Anna wants the book back and Charlie doesn't want to return it, but there's nothing illegal about this.
- mgalgs 6y ago
  Not currently illegal but I'd bet good money that it will be after this fiasco
  - klodolph 6y ago
    How would you make it illegal?
- shrimpx 6y ago
  Isn't the book example broken, because only one person can have the book? In shorting, it sounds like you can sell the same share to 2 different people.
  - Clewza313 6y ago
    At the end of the day, after the stack of promises has been popped, only one person can have the share as well.
  - klodolph 6y ago
    It’s not broken, it’s just simplified because nobody’s selling the book, just lending it out. > In shorting, it sounds like you can sell the same share to 2 different people. You have to obtain (buy or borrow) the share twice in order to sell it twice.
- asynchrony 6y ago
  This isn't how short selling works. If I short a stock, I borrow the share and the sell it on the market. If I loan the share to someone else and they sell it then it is still only sold once. In my opinion it's more likely that people were either selling naked calls (which would convert into an IOU for stock) or that people were selling shares that didn't actually exist on the open market. I don't know enough about settlement to verify the latter claim, but there are some reports of shares taking an excessively long time to settle. Those kind of irregularities should probably be more closely investigated.
smabie 6y ago
140% short interest is illegal? Are you sure? The answer is no, it is not illegal.
dcolkitt 6y ago
It feels disingenuous for you to not mention a disclaimer that you're invested in GME.
- ESTheComposer 6y ago
  and you believe I am because...? I'm watching this along with everyone else
jrwiegand 6y ago
As other comments have said, this is not illegal. Matt Levine explains better than I could here [1]. 1 - https://www.bloomberg.com/opinion/articles/2021-01-29/reddit-traders-on-robinhood-are-on-both-sides-of-gamestop#footnote-8 https://www.bloomberg.com/opinion/articles/2021-01-29/reddit...
keeganpoppen 6y ago
there have already been so many explainers for how this shorting > 100% of float thing already happened i don't understand why it is still bandied about like it's some proof of naked shorting; it isn't.

russell_h 6y ago

I mean this as a genuine question: What law would shorting 140% of a company’s stock break?

ESTheComposer 6y ago
Disclaimer: I've been trading for ~8 years but only heavily researching trading strategies ~1 year, so I'm no expert in these things. But, unless I'm misinformed (which I'm hopefully not considering how much I've been reading into this lately), there's ~72.4m shares of GME floating around right now, but only 69.5m were issued; which would mean that ~3m are counterfeit or naked shorts, which are illegal
- deleted 6y ago
  [deleted]
- smabie 6y ago
  Hate to break it to you, but I can borrow a share and sell it to you and then I can borrow it back over and over again.
  - PeterisP 6y ago
    Perhaps the issue there is that in this scenario (I have a share; you borrow it from me and sell it to me; then you boroow it from me once more and sell it to me again) currently it's treated as if I own three shares (though two of them have marks on them that they can't be lent). Perhaps it should be explicitly treated as if I have one share, and two "claims on shares" which are likely to materialize, but are not guaranteed to do so - to make that distinction clear, to ensure that the lending for a short actually involves the lender temporarily giving up that share instead of just marking it as "used".
- bb88 6y ago
  The number of shares reported is the number of shares existence -- not because of naked shorting or not. Naked shorting would not increase the number of share available to be bought. But not the total number of shares in existence. This is the same way banks use deposits to make loans. The dollar is the same dollar, but can be spent multiple times. Hence the money multiplier effect. The number of dollars in circulation is a constant. The number of times a dollar can be spent can be more than one. At some point the loan still has to be paid off, which requires me, eg, to acquire a dollar somehow, then pay it back to the bank -- with interest.
akhosravian 6y ago
Imagine a world where an individual did all this shorting. A different individual then sees it and buys all outstanding shares of the company, and decides they are long on the company and only want to hold their shares. How does the shorter now settle up their positions in this scenario? With 140% of the company’s stock shorter it becomes easier to get into this state.
- roenxi 6y ago
  What law would that break? It isn't fraud, the individual could still reasonably expect to to be able to fulfil the contracts. Taking big risks with their own money is not illegal.
- Jarwain 6y ago
  Matt Levine talks about something along these lines happening here: https://dealbreaker.com/2012/06/phil-falcones-alleged-piggish-behavior-made-him-some-enemies https://dealbreaker.com/2012/06/phil-falcones-alleged-piggis... The TLDR (also written by him): Falcone owned some bonds of a company called MAAX Holdings Inc. “After hearing rumors that a Wall Street financial services firm was shorting the MAAX bonds and also encouraging its customers to do the same, Falcone decided to seek revenge.” So he bought all the MAAX bonds. Then he bought more: Short sellers would borrow MAAX bonds (presumably from him), and then sell them to him, so that he ended up with “22 million more bonds than MAAX had ever issued.” Then he stopped lending them out, forcing the short sellers to buy bonds to cover their shorts. But there were no bonds to be bought, since he owned them all (and more). At some point an executive from the “Wall Street firm” called up Falcone to talk about the situation, and even in the SEC’s dry language you can tell that it was one of the greatest conversations in all of Wall Street history: > At some point, the conversation turned to the trading in the MAAX bonds. The senior officer asked Falcone how the Wall Street firm might satisfy its obligation to Harbinger. Falcone stated that the Wall Street firm should just keep bidding for the bonds. Falcone acknowledged that the Wall Street firm would suffer some losses doing so, but told the senior officer and the others that sometimes you are just on the wrong side of a trade. > In the course of this discussion, Falcone stated that he knew that the short position in the MAAX zips had created a “long” position in excess of the issue size. When the senior officer asked how he could possibly know this, Falcone stated that he was working the position himself and that he (i.e., Harbinger) had acquired approximately 190 million bonds. The senior officer and the other the Wall Street firm personnel were stunned.

kelnos 6y ago

> What else do you call shorting 140% of a company's stock? Unusual, but a thing that can happen, and not at all illegal.

Clewza313 6y ago

There's nothing illegal about 140%, because the same share can be loaned out multiple times. Anna lends Bob a book, Bob lends Charlie the book, now the book is 200% lent out. It's arguably risky and stupid to be Bob, because now he's in trouble if Anna wants the book back and Charlie doesn't want to return it, but there's nothing illegal about this.

mgalgs 6y ago
Not currently illegal but I'd bet good money that it will be after this fiasco
- klodolph 6y ago
  How would you make it illegal?
shrimpx 6y ago
Isn't the book example broken, because only one person can have the book? In shorting, it sounds like you can sell the same share to 2 different people.
- Clewza313 6y ago
  At the end of the day, after the stack of promises has been popped, only one person can have the share as well.
- klodolph 6y ago
  It’s not broken, it’s just simplified because nobody’s selling the book, just lending it out. > In shorting, it sounds like you can sell the same share to 2 different people. You have to obtain (buy or borrow) the share twice in order to sell it twice.
asynchrony 6y ago
This isn't how short selling works. If I short a stock, I borrow the share and the sell it on the market. If I loan the share to someone else and they sell it then it is still only sold once. In my opinion it's more likely that people were either selling naked calls (which would convert into an IOU for stock) or that people were selling shares that didn't actually exist on the open market. I don't know enough about settlement to verify the latter claim, but there are some reports of shares taking an excessively long time to settle. Those kind of irregularities should probably be more closely investigated.

smabie 6y ago

140% short interest is illegal? Are you sure? The answer is no, it is not illegal.

dcolkitt 6y ago

It feels disingenuous for you to not mention a disclaimer that you're invested in GME.

ESTheComposer 6y ago
and you believe I am because...? I'm watching this along with everyone else

jrwiegand 6y ago

As other comments have said, this is not illegal. Matt Levine explains better than I could here [1]. 1 - https://www.bloomberg.com/opinion/articles/2021-01-29/reddit-traders-on-robinhood-are-on-both-sides-of-gamestop#footnote-8 https://www.bloomberg.com/opinion/articles/2021-01-29/reddit...

keeganpoppen 6y ago

there have already been so many explainers for how this shorting > 100% of float thing already happened i don't understand why it is still bandied about like it's some proof of naked shorting; it isn't.