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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

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.
- klodolph 6y ago
  > 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. The share can then, afterwards, be loaned out and sold again. This causes it to be “double sold” and you’ll see something like the 140%. Alice loans share to Bob, Bob sells to Carol, Carol loans to David, David sells to Eve. Bob and David are both short sellers. There is only one stock. It has been sold twice.
  - gokhan 6y ago
    >The share can then, afterwards, be loaned out and sold again. I've seen the same argument more than once this weekend but this flood [1] (also linked from the TFA) says otherwise: In order to meet legal requirements, the broker has to find un-lent shares (so the same shares aren’t lent twice). The PB will “tag” those shares, indicate to the client the prevailing cost to borrow, and provide the client a “locate ID” that guarantees that client those shares. [1] https://twitter.com/compound248/status/1355276755980980225 https://twitter.com/compound248/status/1355276755980980225
    - klodolph 6y ago
      That’s interesting… people in that thread have the same questions, but they are not answered. Perhaps we will eventually find out after the SEC investigation… or perhaps someone will just stop by and explain it.
    - grandmczeb 6y ago
      I think you’re misinterpreting the linked statement - they’re saying A can’t lend the same share to both B and C at the same time. If B borrows the share and then sells to C, C has a share with a clean title and can then lend to D. Otherwise there would be two different prices for lent and unlent shares, since you can make interest off one but not the other. I’m not 100% sure this is correct though, someone please let me know if I’m wrong.
- ESTheComposer 6y ago
  This is what I've been reading and lead me (I guess incorrectly?) to believe that there was naked shorting happening
markdown 6y ago
> but there's nothing illegal about this. Is there a reason why it isn't, other than the obvious one that Wall St corrupted the US govt a long time ago through bribery (lobbying)? Eg. Biden's treasury secretary has already been bribed (colloquially called "speaking fees") to the tune of $7.2M.
- smabie 6y ago
  Is there a reason why it should be illegal?
- klodolph 6y ago
  Go far enough back in the past and everything was legal. The history of the stock market is the history of new rules being added, new laws being passed, all to restrict how you can buy and sell stocks. Back in the 1920s I could make a company, issue a bunch of stock, and then go around telling people how amazing and profitable my company is, selling stock door to door.
- roenxi 6y ago
  The basic principle is that when something is made illegal, the law has to be enforced. This is done by taxpayers and/or participants in the economy spending money to hire police officers and various other agents. Therefore, laws should be deployed sparingly and only when positively justified, to keep the burden of enforcement as low as practical. There is no reason to make this illegal and put effort towards banning it. Eg, I'm not losing any money and it is entertaining. If I think the price after the shorts get involved is too low I can buy the asset in question. Why should I, in my capacity as a taxpayer, be getting involved and spending money through my government?

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.

klodolph 6y ago
> 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. The share can then, afterwards, be loaned out and sold again. This causes it to be “double sold” and you’ll see something like the 140%. Alice loans share to Bob, Bob sells to Carol, Carol loans to David, David sells to Eve. Bob and David are both short sellers. There is only one stock. It has been sold twice.
- gokhan 6y ago
  >The share can then, afterwards, be loaned out and sold again. I've seen the same argument more than once this weekend but this flood [1] (also linked from the TFA) says otherwise: In order to meet legal requirements, the broker has to find un-lent shares (so the same shares aren’t lent twice). The PB will “tag” those shares, indicate to the client the prevailing cost to borrow, and provide the client a “locate ID” that guarantees that client those shares. [1] https://twitter.com/compound248/status/1355276755980980225 https://twitter.com/compound248/status/1355276755980980225
  - klodolph 6y ago
    That’s interesting… people in that thread have the same questions, but they are not answered. Perhaps we will eventually find out after the SEC investigation… or perhaps someone will just stop by and explain it.
  - grandmczeb 6y ago
    I think you’re misinterpreting the linked statement - they’re saying A can’t lend the same share to both B and C at the same time. If B borrows the share and then sells to C, C has a share with a clean title and can then lend to D. Otherwise there would be two different prices for lent and unlent shares, since you can make interest off one but not the other. I’m not 100% sure this is correct though, someone please let me know if I’m wrong.
ESTheComposer 6y ago
This is what I've been reading and lead me (I guess incorrectly?) to believe that there was naked shorting happening

markdown 6y ago

> but there's nothing illegal about this. Is there a reason why it isn't, other than the obvious one that Wall St corrupted the US govt a long time ago through bribery (lobbying)? Eg. Biden's treasury secretary has already been bribed (colloquially called "speaking fees") to the tune of $7.2M.

smabie 6y ago
Is there a reason why it should be illegal?
klodolph 6y ago
Go far enough back in the past and everything was legal. The history of the stock market is the history of new rules being added, new laws being passed, all to restrict how you can buy and sell stocks. Back in the 1920s I could make a company, issue a bunch of stock, and then go around telling people how amazing and profitable my company is, selling stock door to door.
roenxi 6y ago
The basic principle is that when something is made illegal, the law has to be enforced. This is done by taxpayers and/or participants in the economy spending money to hire police officers and various other agents. Therefore, laws should be deployed sparingly and only when positively justified, to keep the burden of enforcement as low as practical. There is no reason to make this illegal and put effort towards banning it. Eg, I'm not losing any money and it is entertaining. If I think the price after the shorts get involved is too low I can buy the asset in question. Why should I, in my capacity as a taxpayer, be getting involved and spending money through my government?