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> The only people allowed to naked short are market makers The SEC made naked short selling illegal after the 2008 financial crisis. Market makers are not allo

by jw1224 5y ago

> The only people allowed to naked short are market makers The SEC made naked short selling illegal after the 2008 financial crisis. Market makers are not allowed to naked short. > Clearing houses don't lose anything during a short squeeze, as long as funds committed to a trade actually clear Exactly my point — as long as funds clear, which they were at risk of not doing, thus putting clearing houses like the DTCC on the hook, in the event of a margin call. Let me break it down: - Melvin Capital were aggressively shorting GME - Retail investors used Robinhood to take advantage of a short squeeze opportunity - During the short squeeze, Citadel (who partly own Melvin Capital) bailed-out Melvin with a $2.8bn investment - Citadel is Robinhood's prime brokerage, paying them for preferential order flow - Citadel's global Head of Operations is on the board of the DTCC, the clearing house responsible for increasing collateral requirements - As a market maker, Citadel care a huge amount about GME exploding, because if Melvin Capital were margin-called, Citadel end up holding the bag - If Citadel are margin-called themselves, the DTCC clearing house end up holding the bag. This is really just the tip of the iceberg. I'm consistently surprised at how defensive comments on HN seem to be towards hedge funds and the whole short-squeeze debacle — which is still very much ongoing. I can happily point anyone with an open mind in the direction of excellent research summarising the ongoing situation, and there's mounds of evidence indicating hedge funds never actually covered in January. Not to mention the math on vote tallies in GME's latest 8-K filing from 2 days ago clearly proves more GME shares exist than should be mathematically possible, enabled only by naked short sellers who never covered. Oh, and whilst I'm at it, their 8-K also disclosed that they've been working with the SEC since May to assist them with an active investigation in to market manipulation. Doesn't get much more obvious than that, does it? But if it's easier to turn a blind eye, then each to their own.

ahtihn 5y ago
> Not to mention the math on vote tallies in GME's latest 8-K filing from 2 days ago clearly proves more GME shares exist than should be mathematically possible, enabled only by naked short sellers who never covered. You mean the 8-K that showed 55M votes out of 70M shares outstanding? How does that prove anything? Maybe you're confusing shares outstanding with the float.
- jw1224 5y ago
  Yes, that's what I'm referring to. For context, last year's 8-K showed 66% of shares voted. The 8-K also reported a total of 42,886,817 shares voted last year. This year's 8-K, issued 2 days ago, showed 55M votes out of 70M possible. Therefore, 78.5% of shares were voted. However, unusually, this year's 8-K did NOT report the total number of votes actually received. Unsurprisingly this is likely because 8-K filings cannot legally show over 100% of shares voted. GME's votes were counted by Computershare [1]. When more votes are received than shares outstanding, the vote tabulator (Computershare) will "scale" the votes proportionally to never exceed 100%. Computershare have publicly documented procedures in place for how they scale votes in the event of overvoting [2]. An off-by-1 rounding error in the 8-K on votes for Lawrence Cheng, compared to all the other board members, is highly suggestive votes have been scaled. Retail brokers like eToro reported only 63% of eligible votes were cast [3]. Countless international brokers either refused or were unable to allow their shareholders to cast votes. Since the initial squeeze, the buy-sell ratio as reported by Fidelity [4] vastly favours buying over selling. It's slightly lower than it has been at the moment (currently 76% buys), but back at April 14th when the vote deadline was, it was higher than it is today. This shows retail are not selling, only buying more. Additionally, the broker non-vote figures in this year’s 8-K are significantly less than in previous years. This is another indicator of vote scaling, given the huge push from retail investors to vote their shares. These filings are only 2 days old, and truthfully, only time will tell what will come of this. I’ve been watching the price action of GME follow very predictable patterns around option expiry and settlement dates over the past few months, clear patterns are emerging. For more on this you can search “GME FTD cycles”. My comments here really just cover the tip of the iceberg, and I hope they provided some food for thought for others. I didn’t even start on the blatant media coverups, or the obvious patterns of brand new Reddit accounts almost exclusively being used to encourage sell-offs. Nor coordinated pump-and-dumps on WSB for stocks Citadel own long positions in. Or crypto markets tanking within minutes before liquidity tests begin. Or CNBC abruptly cutting off guests who mention naked shorting. Or brokers who are unable to locate shares. Or Michael Burry, the famed investor who made billions from shorting the housing market in 2008, having taken a long position on GME. Or GameStop only actually publicly acknowledging the potential of a squeeze on their social media, the exact same day their chairman would have received the initial (non-scaled) vote counts. I could keep going on in more detail but I’ll let others do their own research. I feel I’ve read enough to be confident in my assessment that shorts have not covered, but if I’m wrong, I don’t have more skin in the game than I can afford to lose. We’ll see! --- [1] Page 11, section 9: https://news.gamestop.com/static-files/8f795a88-54a3-4320-b3e2-a2d5f28be6c4 https://news.gamestop.com/static-files/8f795a88-54a3-4320-b3... [2] https://www.computershare.com/ca/en/Documents/CPU_OVER_VOTING_OPTION_en.pdf https://www.computershare.com/ca/en/Documents/CPU_OVER_VOTIN... [3] https://twitter.com/eToro/status/1402643555403829256 https://twitter.com/eToro/status/1402643555403829256 [4] https://eresearch.fidelity.com/eresearch/gotoBL/fidelityTopOrders.jhtml https://eresearch.fidelity.com/eresearch/gotoBL/fidelityTopO...
rokobobo 5y ago
Do you have evidence that Citadel is RH’s prime brokerage? Being an executing broker or a trading counterparty or paying for order flow has nothing to do with being a prime brokerage or clearing RH’s trades.
- kasey_junk 5y ago
  RH self clears: https://blog.robinhood.com/news/2018/10/9/introducing-clearing-by-robinhood https://blog.robinhood.com/news/2018/10/9/introducing-cleari... Before that they used Apex. This commenter seems disastrously uninformed about something they have very strident beliefs about.
  - jw1224 5y ago
    I just re-read my comment and saying Citadel was Robinhood’s prime brokerage was definitely an error (too late to edit the comment now). I should’ve said market-maker. Nonetheless, all the conflicts-of-interest between Citadel, Robinhood, and Melvin still stand. Citadel own Melvin, Citadel are market-makers for Robinhood, Citadel are members of the DTCC, Robinhood users cost Melvin billions, Citadel are footing the bill.
    - kasey_junk 5y ago
      Worth noting that Robinhood is a member of the DTCC directly. As is Computershare. You don’t need the connection to Citadel. If any member of DTCC blows up DTCC holds the bag. But all that means is all members of DTCC hold the bag, including the members holding the non-settled long positions because all public equities in the US trade through DTCC or one of its members.
    - quickthrowman 5y ago
      Correction, Citadel is a PFOF customer of Robinhood, not a market maker for Robinhood. Market makers are retained by the exchanges.
quickthrowman 5y ago
> The SEC made naked short selling illegal after the 2008 financial crisis. Market makers are not allowed to naked short. Actually, they are allowed to naked short. It’s essential for them to be able to do so to hedge their exposure and provide a bid/ask at all times. https://www.sec.gov/investor/pubs/regsho.htm https://www.sec.gov/investor/pubs/regsho.htm
- jw1224 5y ago
  Thanks, that’s the first I’ve heard of that. I’ll have a read, cheers.
  - quickthrowman 5y ago
    The reason they’re allowed to is precisely for a GME type situation, if there is a massive buy-side imbalance and there aren’t enough shares to borrow to short (aka sell to buyers), market makers are allowed to naked short to remain delta neutral. Citadel (probably[0]) isn’t going to naked short GME to take a directional position, they just want to capture the bid/ask and hedge the directional risk, which sometimes requires naked shorting. I suppose they could (and might) use synthetic shorts (long atm put, short atm call) to hedge. I’m not sure if only a designated market maker is allowed to naked short, or if supplemental liquidity providers or other types of MMs I don’t know about are also allowed to naked short. [0] I say this only because I’m not Ken Griffin and don’t know with absolute certainty, but generally a market maker aims to stay delta neutral.
flefto 5y ago
On the day in question, Robinhood posted to say this is what it was doing, and it explicitly stated that it was doing so to protect its customers from volatility. It absolutely said nothing at all about doing it because of regulatory or other requirements. Robinhood has since deleted that post from its site. And no matter how you cut the cake, if you put your money into Robinhood then you risk losing it when Robinhood changes the rules. That’s the message people need to hear.
- rokobobo 5y ago
  It seems that the commenters in this thread have at least two views on what you call “changing the rules.” The fact of the matter is, no one guarantees you 100% uptime access to the markets. I think this episode should be a lesson for everyone, RH sympathizers and haters alike, that it probably makes a lot of sense to have well-funded accounts at at least 2 brokerages, if you plan to be an active trader.
- quickthrowman 5y ago
  If Robinhood hadn’t disabled GME buys, one possibility was RH customers not being able to trade any stocks. Which one do you think is the better choice, limiting a single stock, or potentially losing the ability for all customers of RH to trade all stocks?

by jw1224 5y ago

ahtihn 5y ago

> Not to mention the math on vote tallies in GME's latest 8-K filing from 2 days ago clearly proves more GME shares exist than should be mathematically possible, enabled only by naked short sellers who never covered. You mean the 8-K that showed 55M votes out of 70M shares outstanding? How does that prove anything? Maybe you're confusing shares outstanding with the float.

jw1224 5y ago
Yes, that's what I'm referring to. For context, last year's 8-K showed 66% of shares voted. The 8-K also reported a total of 42,886,817 shares voted last year. This year's 8-K, issued 2 days ago, showed 55M votes out of 70M possible. Therefore, 78.5% of shares were voted. However, unusually, this year's 8-K did NOT report the total number of votes actually received. Unsurprisingly this is likely because 8-K filings cannot legally show over 100% of shares voted. GME's votes were counted by Computershare [1]. When more votes are received than shares outstanding, the vote tabulator (Computershare) will "scale" the votes proportionally to never exceed 100%. Computershare have publicly documented procedures in place for how they scale votes in the event of overvoting [2]. An off-by-1 rounding error in the 8-K on votes for Lawrence Cheng, compared to all the other board members, is highly suggestive votes have been scaled. Retail brokers like eToro reported only 63% of eligible votes were cast [3]. Countless international brokers either refused or were unable to allow their shareholders to cast votes. Since the initial squeeze, the buy-sell ratio as reported by Fidelity [4] vastly favours buying over selling. It's slightly lower than it has been at the moment (currently 76% buys), but back at April 14th when the vote deadline was, it was higher than it is today. This shows retail are not selling, only buying more. Additionally, the broker non-vote figures in this year’s 8-K are significantly less than in previous years. This is another indicator of vote scaling, given the huge push from retail investors to vote their shares. These filings are only 2 days old, and truthfully, only time will tell what will come of this. I’ve been watching the price action of GME follow very predictable patterns around option expiry and settlement dates over the past few months, clear patterns are emerging. For more on this you can search “GME FTD cycles”. My comments here really just cover the tip of the iceberg, and I hope they provided some food for thought for others. I didn’t even start on the blatant media coverups, or the obvious patterns of brand new Reddit accounts almost exclusively being used to encourage sell-offs. Nor coordinated pump-and-dumps on WSB for stocks Citadel own long positions in. Or crypto markets tanking within minutes before liquidity tests begin. Or CNBC abruptly cutting off guests who mention naked shorting. Or brokers who are unable to locate shares. Or Michael Burry, the famed investor who made billions from shorting the housing market in 2008, having taken a long position on GME. Or GameStop only actually publicly acknowledging the potential of a squeeze on their social media, the exact same day their chairman would have received the initial (non-scaled) vote counts. I could keep going on in more detail but I’ll let others do their own research. I feel I’ve read enough to be confident in my assessment that shorts have not covered, but if I’m wrong, I don’t have more skin in the game than I can afford to lose. We’ll see! --- [1] Page 11, section 9: https://news.gamestop.com/static-files/8f795a88-54a3-4320-b3e2-a2d5f28be6c4 https://news.gamestop.com/static-files/8f795a88-54a3-4320-b3... [2] https://www.computershare.com/ca/en/Documents/CPU_OVER_VOTING_OPTION_en.pdf https://www.computershare.com/ca/en/Documents/CPU_OVER_VOTIN... [3] https://twitter.com/eToro/status/1402643555403829256 https://twitter.com/eToro/status/1402643555403829256 [4] https://eresearch.fidelity.com/eresearch/gotoBL/fidelityTopOrders.jhtml https://eresearch.fidelity.com/eresearch/gotoBL/fidelityTopO...

rokobobo 5y ago

Do you have evidence that Citadel is RH’s prime brokerage? Being an executing broker or a trading counterparty or paying for order flow has nothing to do with being a prime brokerage or clearing RH’s trades.

kasey_junk 5y ago
RH self clears: https://blog.robinhood.com/news/2018/10/9/introducing-clearing-by-robinhood https://blog.robinhood.com/news/2018/10/9/introducing-cleari... Before that they used Apex. This commenter seems disastrously uninformed about something they have very strident beliefs about.
- jw1224 5y ago
  I just re-read my comment and saying Citadel was Robinhood’s prime brokerage was definitely an error (too late to edit the comment now). I should’ve said market-maker. Nonetheless, all the conflicts-of-interest between Citadel, Robinhood, and Melvin still stand. Citadel own Melvin, Citadel are market-makers for Robinhood, Citadel are members of the DTCC, Robinhood users cost Melvin billions, Citadel are footing the bill.
  - kasey_junk 5y ago
    Worth noting that Robinhood is a member of the DTCC directly. As is Computershare. You don’t need the connection to Citadel. If any member of DTCC blows up DTCC holds the bag. But all that means is all members of DTCC hold the bag, including the members holding the non-settled long positions because all public equities in the US trade through DTCC or one of its members.
  - quickthrowman 5y ago
    Correction, Citadel is a PFOF customer of Robinhood, not a market maker for Robinhood. Market makers are retained by the exchanges.

quickthrowman 5y ago

> The SEC made naked short selling illegal after the 2008 financial crisis. Market makers are not allowed to naked short. Actually, they are allowed to naked short. It’s essential for them to be able to do so to hedge their exposure and provide a bid/ask at all times. https://www.sec.gov/investor/pubs/regsho.htm https://www.sec.gov/investor/pubs/regsho.htm

jw1224 5y ago
Thanks, that’s the first I’ve heard of that. I’ll have a read, cheers.
- quickthrowman 5y ago
  The reason they’re allowed to is precisely for a GME type situation, if there is a massive buy-side imbalance and there aren’t enough shares to borrow to short (aka sell to buyers), market makers are allowed to naked short to remain delta neutral. Citadel (probably[0]) isn’t going to naked short GME to take a directional position, they just want to capture the bid/ask and hedge the directional risk, which sometimes requires naked shorting. I suppose they could (and might) use synthetic shorts (long atm put, short atm call) to hedge. I’m not sure if only a designated market maker is allowed to naked short, or if supplemental liquidity providers or other types of MMs I don’t know about are also allowed to naked short. [0] I say this only because I’m not Ken Griffin and don’t know with absolute certainty, but generally a market maker aims to stay delta neutral.

flefto 5y ago

On the day in question, Robinhood posted to say this is what it was doing, and it explicitly stated that it was doing so to protect its customers from volatility. It absolutely said nothing at all about doing it because of regulatory or other requirements. Robinhood has since deleted that post from its site. And no matter how you cut the cake, if you put your money into Robinhood then you risk losing it when Robinhood changes the rules. That’s the message people need to hear.

rokobobo 5y ago
It seems that the commenters in this thread have at least two views on what you call “changing the rules.” The fact of the matter is, no one guarantees you 100% uptime access to the markets. I think this episode should be a lesson for everyone, RH sympathizers and haters alike, that it probably makes a lot of sense to have well-funded accounts at at least 2 brokerages, if you plan to be an active trader.
quickthrowman 5y ago
If Robinhood hadn’t disabled GME buys, one possibility was RH customers not being able to trade any stocks. Which one do you think is the better choice, limiting a single stock, or potentially losing the ability for all customers of RH to trade all stocks?