3 ms·

Okay, but this still seems like a perversion of market mechanics that should be regulated/banned.

by jtdev 6y ago

hntrader 6y ago
Sort of like fractional reserve banking? In practice it doesn't make a big difference whether it's banned or not. Stocks almost never have a short-interest above 100%, and the larger the short-interest the less attractive it becomes to join in so there's already negative feedback built in.
- Judgmentality 6y ago
  > In practice it doesn't make a big difference whether it's banned or not. Stocks almost never have a short-interest above 100% Except it just happened? This is like arguing for not fixing a really weird state in code. "It's not supposed to be able to get into that state so we just ignore it."
  - hntrader 6y ago
    > This is like arguing for not fixing a really weird state in code That's not a valid analogy. The reason we fix bugs and address code smells is that the cost of doing so is relatively low and the benefit is large from both a tail-risk mitigation perspective and technical debt perspective. If we're going to go through the rigmarole of passing new regulations in order to solve some problem, the problem should be of sufficient magnitude to justify the associated costs: (i) The cost of compliance to industry, which would be humongous, since you now need a centralized authority to track who owns the actual float versus the shorted float, and for this information to be communicated between all stakeholders & said authority. Then each stakeholder needs to build internal processes and software around this data to ensure they are compliant. (ii) The time & financial cost of enforcement and penalties, to both regulators (taxpayer) and industry. (iii) Possible unintended consequences, such as corporatist corruption of the specifics in order to entrench established interests. Evidence or reason hasn't been provided that this is even a problem, let alone a problem of any meaningful magnitude deserving of regulation.
    - Judgmentality 6y ago
      > If we're going to go through the rigmarole of passing new regulations in order to solve some problem, the problem should be of sufficient magnitude to justify the associated costs Agreed. > Evidence or reason hasn't been provided that this is even a problem Strongly disagree. I realize there's lots of noise right now, but the signal is starting to shake out in the news. > let alone a problem of any meaningful magnitude deserving of regulation This is the interesting part I'm hoping is actually debated. But somehow I don't think it's ever really going to be discussed by the SEC, the same way I feel like 2008 was just a bunch of slaps on the wrist (what happened in 2008 was much, much, much worse than what happened recently with GME to my knowledge and I am not saying they are equivalent).
      - hntrader 6y ago
        Putting analogies aside, what I'm saying is that regulating this would be extremely costly to industry and for extremely little (or no) benefit. Stocks with a short interest over 100% almost never happen, and in the rare case that it does, nobody has provided a sound rationale about why this is a bad thing and not even a good thing. If you think you have a rationale as to why it's a bad thing, please present it. I tend to lean towards the idea that naked shorting should be allowed and encouraged. I believe we'd have a healthier market with less pump and dumps, since retail won't be able to lock the float on penny stocks and cause a squeeze, because borrow supply would be greater which (i) reduces the cost of borrow, and (ii) allows large institutions to take the other side effectively and maintain efficient pricing.
        Judgmentality 6y ago
        > I tend to lean towards the idea that naked shorting should be allowed and encouraged. I believe we'd have a healthier market with less pump and dumps, since retail won't be able to lock the float on penny stocks and cause a squeeze, because borrow supply would be greater which (i) reduces the cost of borrow, and (ii) allows large institutions to take the other side effectively and maintain efficient pricing. Interesting. I'm not sure I agree, but I appreciate the perspective.
  - kelnos 6y ago
    > Except it just happened? So what? If there's that much interest in shorting a stock, and it can be done, why not allow it?
    - rantwasp 6y ago
      fair enough. but if people want to buy the stock at 350$ why disallow it? we either run with the rules or not. you don’t change the rules when the game no longer worked as you want it to work
      - hntrader 6y ago
        RH purportedly didn't change the rules, it was unexpectedly large NSCC capital requirements due to an unexpectedly large level of volume on the week.
        Judgmentality 6y ago
        Right, but this is still a second-order effect of having more than 100% short on a stock and nobody anticipating it. So this is an example of something bad happening from a situation nobody anticipated. Even if it wasn't nefarious do you agree this is a problem? I mean it's a problem in the sense we want the markets to be "fair" or at least governed by the rules we've set up, aka the SEC, FTC, etcetera. That's what I mean when I say it's a problem. I don't mean this is necessarily an existential threat on our financial system, but do you agree the markets were not working as intended because of this? Based on what we know now, it seems like Robinhood (and other brokers) should be regulated differently (not that Robinhood was exactly by-the-books before this debacle). They publicly lied about a cash flow problem which alone seems worthy of fraud (I do not see how this could possibly be interpreted otherwise). They were extremely disingenuous about margin calls, and this is important when they are specifically targeting uneducated investors. I realize nobody was expecting this squeeze and expecting Robinhood (or anyone, including Citadel) to have that foresight isn't reasonable. But why not use the power of hindsight to fix this moving forward?
deleted 6y ago
[deleted]

Okay, but this still seems like a perversion of market mechanics that should be regulated/banned.

by jtdev 6y ago

Okay, but this still seems like a perversion of market mechanics that should be regulated/banned.

Sort of like fractional reserve banking? In practice it doesn't make a big difference whether it's banned or not. Stocks almost never have a short-interest above 100%, and the larger the short-interest the less attractive it becomes to join in so there's already negative feedback built in.

Judgmentality 6y ago
> In practice it doesn't make a big difference whether it's banned or not. Stocks almost never have a short-interest above 100% Except it just happened? This is like arguing for not fixing a really weird state in code. "It's not supposed to be able to get into that state so we just ignore it."
- hntrader 6y ago
  > This is like arguing for not fixing a really weird state in code That's not a valid analogy. The reason we fix bugs and address code smells is that the cost of doing so is relatively low and the benefit is large from both a tail-risk mitigation perspective and technical debt perspective. If we're going to go through the rigmarole of passing new regulations in order to solve some problem, the problem should be of sufficient magnitude to justify the associated costs: (i) The cost of compliance to industry, which would be humongous, since you now need a centralized authority to track who owns the actual float versus the shorted float, and for this information to be communicated between all stakeholders & said authority. Then each stakeholder needs to build internal processes and software around this data to ensure they are compliant. (ii) The time & financial cost of enforcement and penalties, to both regulators (taxpayer) and industry. (iii) Possible unintended consequences, such as corporatist corruption of the specifics in order to entrench established interests. Evidence or reason hasn't been provided that this is even a problem, let alone a problem of any meaningful magnitude deserving of regulation.
  - Judgmentality 6y ago
    > If we're going to go through the rigmarole of passing new regulations in order to solve some problem, the problem should be of sufficient magnitude to justify the associated costs Agreed. > Evidence or reason hasn't been provided that this is even a problem Strongly disagree. I realize there's lots of noise right now, but the signal is starting to shake out in the news. > let alone a problem of any meaningful magnitude deserving of regulation This is the interesting part I'm hoping is actually debated. But somehow I don't think it's ever really going to be discussed by the SEC, the same way I feel like 2008 was just a bunch of slaps on the wrist (what happened in 2008 was much, much, much worse than what happened recently with GME to my knowledge and I am not saying they are equivalent).
    - hntrader 6y ago
      Putting analogies aside, what I'm saying is that regulating this would be extremely costly to industry and for extremely little (or no) benefit. Stocks with a short interest over 100% almost never happen, and in the rare case that it does, nobody has provided a sound rationale about why this is a bad thing and not even a good thing. If you think you have a rationale as to why it's a bad thing, please present it. I tend to lean towards the idea that naked shorting should be allowed and encouraged. I believe we'd have a healthier market with less pump and dumps, since retail won't be able to lock the float on penny stocks and cause a squeeze, because borrow supply would be greater which (i) reduces the cost of borrow, and (ii) allows large institutions to take the other side effectively and maintain efficient pricing.
      - Judgmentality 6y ago
        > I tend to lean towards the idea that naked shorting should be allowed and encouraged. I believe we'd have a healthier market with less pump and dumps, since retail won't be able to lock the float on penny stocks and cause a squeeze, because borrow supply would be greater which (i) reduces the cost of borrow, and (ii) allows large institutions to take the other side effectively and maintain efficient pricing. Interesting. I'm not sure I agree, but I appreciate the perspective.
- kelnos 6y ago
  > Except it just happened? So what? If there's that much interest in shorting a stock, and it can be done, why not allow it?
  - rantwasp 6y ago
    fair enough. but if people want to buy the stock at 350$ why disallow it? we either run with the rules or not. you don’t change the rules when the game no longer worked as you want it to work
    - hntrader 6y ago
      RH purportedly didn't change the rules, it was unexpectedly large NSCC capital requirements due to an unexpectedly large level of volume on the week.
      - Judgmentality 6y ago
        Right, but this is still a second-order effect of having more than 100% short on a stock and nobody anticipating it. So this is an example of something bad happening from a situation nobody anticipated. Even if it wasn't nefarious do you agree this is a problem? I mean it's a problem in the sense we want the markets to be "fair" or at least governed by the rules we've set up, aka the SEC, FTC, etcetera. That's what I mean when I say it's a problem. I don't mean this is necessarily an existential threat on our financial system, but do you agree the markets were not working as intended because of this? Based on what we know now, it seems like Robinhood (and other brokers) should be regulated differently (not that Robinhood was exactly by-the-books before this debacle). They publicly lied about a cash flow problem which alone seems worthy of fraud (I do not see how this could possibly be interpreted otherwise). They were extremely disingenuous about margin calls, and this is important when they are specifically targeting uneducated investors. I realize nobody was expecting this squeeze and expecting Robinhood (or anyone, including Citadel) to have that foresight isn't reasonable. But why not use the power of hindsight to fix this moving forward?

deleted 6y ago

[deleted]