Anatomy of a short attack

[LC]

This is a great read for some tangential understanding regarding the GameStop fiasco:

 

http://counterfeitingstock.com/CS2.0/CounterfeitingStock.html

[KCLarkin]

This is conspiracy garbage. Has everyone forgotten The WEB SPY vs HF bet?

 

If hedge funds are rich, it is because idiot institutions keep paying for risky, subpar returns.

 

You want to help the little guy? Get them a vanguard account. RH and WSB just feed the beast.

[LC]

I think you’re right that it does have a conspiratorial slant but I wouldn’t call it garbage. It does illustrate the mechanics of how over 100% of a company’s float can be shorted, the interconnectivity between funds, brokers, and clearinghouses, and some techniques used to conceal short positions.

[KCLarkin]

If you remember who got killed by naked shorts, it was the short sellers. According to Cohodes, naked short selling is not really possible anymore.

 

Short-and-distort (eg Citron) is still an issue,  but there is much more manipulation on the long side. And it is usually small investors who get hurt in these pump-and-dump schemes.

[rb]

I think you’re right that it does have a conspiratorial slant but I wouldn’t call it garbage. It does illustrate the mechanics of how over 100% of a company’s float can be shorted, the interconnectivity between funds, brokers, and clearinghouses, and some techniques used to conceal short positions.

It's not fully garbage but it is garbagy. The part about shorts having the ability to destroy companies etc.

 

Also a big part of what's not being talked about is how the float is calculated and the ability to go over the float. For example in the case of GME Blackrock owns 12% of the o/s and that amount is not included in the float but Blackrock will lend you the shares.

[KCLarkin]

Well the actual content of the article is all based on naked shorts, which are no longer possible (this article is obsolete). So I am just referring to the editorial content as garbage.

 

For GME, the gross shares outstanding look like something like this:

200% long

100% short

—-

100% net

 

There are no counterfeit shares.

[Guest cherzeca]

Well the actual content of the article is all based on naked shorts, which are no longer possible (this article is obsolete). So I am just referring to the editorial content as garbage.

 

For GME, the gross shares outstanding look like something like this:

200% long

100% short

—-

100% net

 

There are no counterfeit shares.

 

I dont understand. I understand >100% short due to rehypothecation. I dont understand 200% long.  please explain

[rb]

The person that lent the shares is long, the person that bought the shares from the short is also long .

[Guest cherzeca]

The person that lent the shares is long, the person that bought the shares from the short is also long .

thx

[LC]

Well the actual content of the article is all based on naked shorts, which are no longer possible (this article is obsolete). So I am just referring to the editorial content as garbage.

 

For GME, the gross shares outstanding look like something like this:

200% long

100% short

—-

100% net

 

There are no counterfeit shares.

 

https://www.investopedia.com/terms/n/nakedshorting.asp

 

Despite being made illegal after the 2008–09 financial crisis, naked shorting continues to happen because of loopholes in rules and discrepancies between paper and electronic trading systems.

 

Per SEC regulations, participants in naked short selling activities can be charged with a crime. In fact, in 2014, two Florida State University professors were charged with using a naked short selling strategy in 20 companies to earn more than $400,000 in revenue. In 2018, there was widespread speculation that naked shorting was endemic in the cannabis sector as shares were highly sought after and thus limited, but short interest continued to grow regardless.

[KCLarkin]

My beef with this article is that if you think the financial intermediaries are unfairly profiting, the small guy can buy Goldman, JPM, MS, Schwab, IBKR... In almost all cases, they have mediocre to slightly above average returns.

 

You really want to mess with wall street, buy a vanguard fund or a FAANMG. Trading penny stocks and options on GarbageCos just feeds the beast.

[fareastwarriors]

My beef with this article is that if you think the financial intermediaries are unfairly profiting, the small guy can buy Goldman, JPM, MS, Schwab, IBKR... In almost all cases, they have mediocre to slightly above average returns.

 

You really want to mess with wall street, buy a vanguard fund or a FAANMG. Trading penny stocks and options on GarbageCos just feeds the beast.

 

People are buying index/passive funds/etfs in great numbers. Honestly the pace is much faster than I ever anticipated.

[ratiman]

If the phrase "naked shorting" were replaced by "single stock futures" then all of the dumb conspiracy theories around it would disappear and nobody would pay any attention.

[LC]

Some interesting (perhaps conspiracy garbage) commentary:

 

 

[Okta]

My beef with this article is that if you think the financial intermediaries are unfairly profiting, the small guy can buy Goldman, JPM, MS, Schwab, IBKR... In almost all cases, they have mediocre to slightly above average returns.

 

You really want to mess with wall street, buy a vanguard fund or a FAANMG. Trading penny stocks and options on GarbageCos just feeds the beast.

 

The money does not go to shareholders, but to mgmt. Did you ever hear the word bonus? Banks are insanely profitable and overpaying top employees.

 

What I am really interested in, is the reason why GME did not issue more paper? The had a https://www.sec.gov/Archives/edgar/data/1326380/000119312520312781/0001193125-20-312781-index.htm in December.

[KCLarkin]

 

The money does not go to shareholders, but to mgmt. Did you ever hear the word bonus? Banks are insanely profitable and overpaying top employees.

 

Gotrocks

[LC]

https://www.securitiesfinancetimes.com/securitieslendingnews/industryarticle.php?article_id=224548&navigationaction=home&page=1&newssection=industry

 

It is alleged that in 2016 there were approximately 238 million shares of Concordia stock that were sold short on the Canadian and US exchanges, constituting around 58 per cent of the approximately 410 million Concordia shares traded during the period in question.

 

However, Harrington argues that only 40 million shares were actually issued for trading, meaning the short sale turnover rate was approximately 600 per cent.

 

“The enormous discrepancy between the 40 million shares issued by Concordia for trading and the approximately 410 million Concordia shares traded during this period represents an astonishingly high turnover rate of 1,000 per cent,” the suit states.

 

The fund alleges that a “strong inference can be drawn” that these figures were inflated by “millions of fictitious shares unlawfully manufactured” through naked short selling.

[ValueArb]

https://www.securitiesfinancetimes.com/securitieslendingnews/industryarticle.php?article_id=224548&navigationaction=home&page=1&newssection=industry

 

It is alleged that in 2016 there were approximately 238 million shares of Concordia stock that were sold short on the Canadian and US exchanges, constituting around 58 per cent of the approximately 410 million Concordia shares traded during the period in question.

 

However, Harrington argues that only 40 million shares were actually issued for trading, meaning the short sale turnover rate was approximately 600 per cent.

 

“The enormous discrepancy between the 40 million shares issued by Concordia for trading and the approximately 410 million Concordia shares traded during this period represents an astonishingly high turnover rate of 1,000 per cent,” the suit states.

 

The fund alleges that a “strong inference can be drawn” that these figures were inflated by “millions of fictitious shares unlawfully manufactured” through naked short selling.

 

I don’t understand the issue. It’s easy to create short positions in excess of actual share count, you don’t need “naked shorting” as an explanation. Borrow a share, sell it, borrow it from the newbuyer, sell it again, now you have two short positions for a single share.

 

Short positions aren’t shares, they are obligations to purchase shares.

[Cigarbutt]

https://www.securitiesfinancetimes.com/securitieslendingnews/industryarticle.php?article_id=224548&navigationaction=home&page=1&newssection=industry

It is alleged that in 2016 there were approximately 238 million shares of Concordia stock that were sold short on the Canadian and US exchanges, constituting around 58 per cent of the approximately 410 million Concordia shares traded during the period in question.

However, Harrington argues that only 40 million shares were actually issued for trading, meaning the short sale turnover rate was approximately 600 per cent.

“The enormous discrepancy between the 40 million shares issued by Concordia for trading and the approximately 410 million Concordia shares traded during this period represents an astonishingly high turnover rate of 1,000 per cent,” the suit states.

The fund alleges that a “strong inference can be drawn” that these figures were inflated by “millions of fictitious shares unlawfully manufactured” through naked short selling.

I don’t understand the issue. It’s easy to create short positions in excess of actual share count, you don’t need “naked shorting” as an explanation. Borrow a share, sell it, borrow it from the newbuyer, sell it again, now you have two short positions for a single share.

Short positions aren’t shares, they are obligations to purchase shares.

i would submit the opinion that it's not so simple. When selling a share short, one (or the intermediate party to which this is delegated) has to take into possession the borrowed share or at least to have a credible process in place to secure this share by settlement day.

Disclosure: i was heavily invested in Fairfax and related securities when they ran into difficulties compounded by questionable behavior at the margin by short sellers. That case and others have triggered some kind of reflection about the balance between investor protection and market efficiency.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3307186