/biz/ - Business & Finance

>>27113469
>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.

“Just keep bidding for the bonds,” “sometimes you are just on the wrong side of a trade,” I love it so much.

>>27113528
>>27113469
based

>>27113528
Where were we? Oh, right, GameStop. I suppose a really coordinated successful effort to squeeze borrow might count as market manipulation, at least in the SEC’s view, but I’m not sure how serious this effort was. In any case it hasn’t worked. “Despite a punishing two weeks and relentless chat-room taunting, GameStop Corp. haters are showing no signs of surrender,” Bloomberg reported yesterday; short interest has barely budged, and there are still shares available to borrow.

I don’t know. Taking a step back: Should the SEC care about all of this? On the one hand, I do not see a whole lot of deception in this GameStop situation. The SEC’s core concerns, about people lying about stocks and tricking the innocent, don’t seem especially implicated here; everyone is having reasonably informed and consensual fun.

On the other hand it is all pretty dumb? Like if you are a securities regulator, you can think of your job narrowly as preventing people from lying about stocks, or more broadly as encouraging capital formation and fostering confidence in markets and moving markets toward efficiency and perfection. And, you know, this is the opposite of that. A popular conclusion from the GameStop story is “well I guess the stock market is nonsense now,” and I’m not sure that conclusion is wrong. Seems like the sort of thing the SEC wouldn’t like. But what can they do about it?

>>27113469
The only insider trading so far has been Citadel.

Imma post the rest:
Infinite Game
Of course the chart of GameStop Corp.’s stock price from yesterday is nuts. It closed on Friday at $65.01, opened yesterday at $96.73, got as high as $159.18 and as low as $61.13, and closed at $76.79. Almost 178 million shares traded, worth almost $17 billion. GameStop’s 10-day realized volatility is 308%. I am typing these words before the market opens on Tuesday, but by the time I send them the stock will have been trading for hours, and I am sure that it will have touched $4 and $4,000 and every number in between. It seems meaningless to talk about the price of GameStop stock, as though a single number could represent such an elusive concept. GameStop stock has all the prices at once.

Maybe the craziest thing in the chart is not the wild spikes up and down, but the flat lulls when no one was trading because the stock exchange wouldn’t let them. “The stock surged as much as 145% to $159.18 on Monday,” reports Bloomberg News, “triggering at least nine trading halts.” The theory behind a trading halt is basically that the stock has moved around too much, too quickly, for people to really mean it. The stock has gapped up or down because people aren’t paying attention: It is “really” worth $100 or whatever, and lots of people in the world would happily buy it for $100 and lots of other people would happily sell it at $100, but they’re all out at lunch and there are just a few algorithms trading the stock and they have accidentally pushed it down to $90. (Or up to $110.) So the exchange halts trading for five or ten minutes, so that everyone who wants to buy or sell has time to get back to their desks and put in orders. “This stock is trading at $90, that’s a steal,” people will think, if they have five minutes to think about it, and they’ll put in buy orders and push the stock back to its natural price when it reopens.

>>27114050
I do not think this theory really applies to GameStop. It has all the prices at once. If you halt GameStop for going up too much, people are just going to hang out on Reddit talking it up more until it reopens. Or the other way: Between 10:45 and 11:15 yesterday, GameStop fell from $159.18 to $88.09, with four trading halts along the way. When the stock plummeted from $159.18 to $132.32, and then was halted for five minutes, nobody said “oh wow this $159 stock is trading at $132, what a bargain, I’d better jump in.” Those concepts mean nothing now.

Here (via Robin Wigglesworth) is a post on Reddit’s r/wallstreetbets forum asking “Can I get a flair for buying GME at the literal top ($155.29)?” (It was not the literal top, but close.) “This is the way,” a chorus of redditors replied. It is a way! Gleefully getting top-ticked on a stock—buying it at its highest price ever and then bragging about it as the price collapses—in order to earn the strange respect of your friends on Reddit: That is a thing you can do. You might enjoy it. I am not going to say it is irrational; people have spent their money on worse things. But it is not the sort of rationality that the stock market is set up for. “When stock prices get too high, sensible value motives will take over”: Nope.

>>27114210
We talked a lot about GameStop yesterday, but I missed this terrific article by Bloomberg’s Brandon Kochkodin taking the long view of Reddit’s infatuation with the stock. GameStop first came to WallStreetBets’ attention in March 2019, when it was trading around $10, and a user made a deep-value case that was “not contingent on a turnaround or business expansion.” Stuff soon got weird though, with another poster proposing a WallStreetBets takeover of GameStop. And then the main character appeared on the scene. We talked about him briefly yesterday; he goes by “Roaring Kitty” on YouTube, and by an unprintable name on Reddit. He started buying GameStop in 2019, took a victory lap on Friday with chicken tenders and champagne, and as of yesterday he seems to have turned a $53,566.04 investment into $13.9 million.

>>27114293
But is it securities fraud?
If a lot of people on Reddit band together to drive the price of a stock higher, is that illegal? I have been asked that question a lot recently, and I want to be clear that:

I don’t know, and
If I did know, I wouldn’t tell you, because I do not give legal advice in this newsletter, and I particularly do not give legal advice that people on Reddit might read while pumping up stocks.
That said I suppose we should talk about the question in general and extremely not-legal-advice terms. I guess my answer would be that it might be illegal in all sorts of ways, but it is not obviously illegal, and if the U.S. Securities and Exchange Commission were to go after WallStreetBets for this stuff they will be breaking new ground and going beyond their previous cases. I do not want to say “this stuff is all fine,” but I will say I am not all that bothered by it.


There are two main things that are illegal. One is “securities fraud.” This basically means lying about a stock. The other is “market manipulation.” Nobody knows what this means. Legally, it means something like:

To effect, alone or with 1 or more other persons, a series of transactions in any security … creating actual or apparent active trading in such security, or raising or depressing the price of such security, for the purpose of inducing the purchase or sale of such security by others.

>>27114386
So if you buy stock with the purpose of pushing the price up so that other people will buy it, that’s market manipulation. If you buy stock hoping that the price will go up because other people buy it, that’s not market manipulation; that’s just normal. Those things are not so different. There is a “traditional four-part test for manipulation that has developed in case law”:

(1) That the accused had the ability to influence market prices;
(2) that the accused specifically intended to create or effect a price or price trend that does not reflect legitimate forces of supply and demand;
(3) that artificial prices existed; and
(4) that the accused caused the artificial prices.

So consider the general concept of a “pump-and-dump” scheme. The most classic pump-and-dump goes like this:

I buy some GameStop stock.
I put out rumors—in my subscription newsletter, on Reddit, in fake press releases, whatever—about some catalyst for the stock to go up. “Hey I hear from an inside source that GameStop just got an exclusive contract to supply downloadable video games in Tesla cars,” etc.
People see these rumors, believe them and buy GameStop stock, pushing the price up.
I sell the stock to them at the higher prices.

>>27114505
This is very straightforwardly illegal and the SEC goes after this stuff all the time, alleging securities fraud. Lying about stocks. Here is the SEC’s “Investor Alert: Social Media and Investing -- Stock Rumors,” which pretty much defines a pump-and-dump this way:

For example, in a “pump-and-dump” scheme, promoters “pump” up the stock price by spreading positive rumors that incite a buying frenzy and they quickly “dump” their own shares before the hype ends. Typically, after the promoters profit from their sales, the stock price drops and the remaining investors lose money.

There are variations. The SEC has gone after forms of dishonesty that aren’t quite lying about the stock. For instance, if you are a widely followed stock promoter with a subscription tip newsletter, and you email tips to your subscribers and then sell your stock to them while saying that you’re buying, that seems dishonest, and the SEC will go after you. Or if you are a promoter or research firm and you put out positive research about a company, but you don’t disclose that the company paid you to put out the research, that is also bad.

Now, I think you could do a pump-and-dump without any actual lying. For instance:

I email subscribers to my expensive private newsletter saying “hey let’s pump GameStop.”
We all buy GameStop, knowing that we’re just doing it for the pump, with no real or fake catalyst for the stock to go up.
It goes up, because we bought a lot of it.
Other people, innocents and high-frequency trading algorithms, see it go up on heavy volume and think “hey this is a good stock, we should buy it.” They buy it, pushing the price up.
We sell the stock to them at the higher prices.

>>27114636
In this version, I have not lied about a stock. On the other hand, I have effected transactions in the stock to create trading activity and raise the price, for the purpose of inducing people to buy it. Seems like market manipulation, “painting the tape” or something. The SEC goes after stuff like this occasionally.

I think that in modern markets you could even do a bit better than that and have a completely honest pump-and-dump:

I show up on Reddit and say “hey let’s pump GameStop.”
We all buy GameStop, knowing that we’re just doing it for the pump, with no real or fake catalyst for the stock to go up.
It goes up, because we bought a lot of it.
Other people see us doing this, read my Reddit post, know we are pumping the stock, and also buy it, because we seem to be having fun, and they like fun too.
Eventually some of us get bored and start selling and the price collapses.
The point here is that it is at least theoretically possible that no one buys stock for any reason other than “hey it’s a fun pump.” That is, no one is deceived about the fundamentals (there’s no fake news about the company), and also no one is deceived about the technicals. No one says “huh this stock is up on a lot of good buying pressure, I should buy some”; everyone who buys says “hey this stock is up because it’s being pumped, and if I get in now I might still get out before it collapses, and that’ll be fun.” It is “respect the pump” as a quasi-mystical mantra.

>>27114747
I bet the SEC would say that’s market manipulation, but I am not so sure. I suppose we did our trading “for the purpose of inducing the purchase or sale of such security by others,” but not by deceiving them about what’s going on. “Join us in a fun game of chicken,” was our basic message here. Did we try “to create or effect a price or price trend that does not reflect legitimate forces of supply and demand”? Who’s to say what’s “legitimate”? Surely the price did not reflect expectations about future cash flows, but just as surely the price reflected supply and demand: We all wanted to own it because we were having fun, so the price went up.

Anyway, the actual GameStop situation. I suppose it’s possible that someone on Reddit has posted fake rumors about GameStop’s business, but I haven’t seen any. The posts I’ve seen about GameStop have been either (1) substance-free “GME to $1,000” stuff or (2) arguments based on publicly available information plus personal opinion and guesses about the future. They might be wrong or exaggerated or misstated, but it’s not, like, core fraud.

Is it manipulation? Well, there is not a lot of deception here. No one is buying GameStop stock because they think to themselves “boy this stock is going up a lot on heavy volume, must be a bunch of big institutions who see fundamental value here.” There is absolutely wall-to-wall coverage of GameStop in financial media, and it pretty much all says “lol those crazy redditors, pushing up the stock for no reason.” So at worst this is a sort of honest pump, people banding together to do it for the lolz and hoping they can get out before it collapses.

>>27114824
I’m not even convinced it’s that though. The stock closed Friday at its all-time high. Roaring Kitty was up $11 million. Everyone came back on Monday and did it again. My model here—and I should emphasize this is purely a guess—is that the people most identified with the GameStop trade on Reddit, at this point, are much more interested in securing their legendary status on Reddit than they are in taking profits at the expense of whoever came in later.

You could have other miscellaneous theories about words like “collusion” and “short squeezes.” Is it illegal for people to band together to all buy stock at the same time? “If institutional investors had an internet site or chat where they arguably cajoled each other or coordinated to buy stock to move the price higher,” one reader asked me by email, “wouldn’t that be stock manipulation and wouldn’t the SEC get involved?”

Well, a while back there were reports that the SEC was looking into hedge fund “idea dinners,” where hedge funds get together to pitch each other on their third-best ideas. 1 That sounds like institutional investors having a chat where they cajole each other to buy stock in a coordinated way. But the SEC wasn’t concerned about market manipulation. The SEC was concerned that the hedge funds might be a “group” under the securities laws, if they teamed up to own more than 5% of the stock, and that they hadn’t made the necessary group disclosures. This is less of a concern for small retail investors, just because they are less likely to get above 5% of the company. 2 Also it doesn’t seem like the idea-dinner probe went anywhere. Telling your friends that you like a stock and they should buy it is, more or less, fine.

>>27114916
Or is a short squeeze illegal? One popular topic on WallStreetBets is recalling stock borrow. Kochkodin’s article describes one call to action in April 2020:

The final all-caps sentence imploring GameStop owners to call their brokers and tell them to not lend them short opened a new theater to wage war against short-sellers.

It’s a little known fact, and one that you wouldn’t expect to learn on a Reddit message board, that a stockholder can request that shares they own outright not be lent out to short-sellers.

The rest is continued in the first two posts.
Matt Levine on Bloomberg is a great read, he's extremely informed and intelligent on finance, and great at explaining it to non-experts.

good article OP
I dont think theyll be able to stretch the falcon ruling even remotely close to what WSB did
By the sounds of it he got off pretty easy kicking like a mule all the way down in odd circumstance. No way they could do that to millions

Why do short sellers need to cover their positions? I don't understand that part. It's going to go back down, significantly, at some point in the future. What is stopping them from holding onto their shares until it does?

>>27113743
>A popular conclusion from the GameStop story is “well I guess the stock market is nonsense now,” and I’m not sure that conclusion is wrong
true.

>>27115573
Shorts have an expiry date, a date by when they have to be repaid or returned.

>>27115573
They can't just wait it out like retail can, I think. Retail obviously has to buy the dip to keep it going high enough to hurt shortsellers.

This is no financial advise. I don't know jack.

>>27115966
>>27115914

both correct

>>27115914
This. They are borrowing shares to sell, they can't just hodl them forever waiting for a price drop, they start paying interest and it just increases the pain.

>>27115573
Word is they're bleeding millions (maybe billions) in interest

Who's buying GameStop?
Yesterday many big retail brokerage firms told their customers that they would no longer be able to buy GameStop Corp. stock because it was getting too crazy. This led to a lot of outrage from people who are famous and online:

Among others rebuking the moves by the brokerages were Rep. Alexandria Ocasio-Cortez (D., N.Y.), Sen. Ted Cruz (R., Texas), billionaire Mark Cuban and Dave Portnoy, the founder of the popular digital media company Barstool Sports Inc. Mr. Portnoy was one of countless individual investors who dove into the markets this year, often streaming his trades to his followers on Twitter.

Ms. Ocasio-Cortez tweeted: "We now need to know more about @RobinhoodApp's decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit."

The popular story here is that small-time retail investors, who stereotypically trade stock on the Robinhood app and egg each other on in the WallStreetBets Reddit forum, have been pushing up the stock of GameStop for a few weeks, and they got it to pretty dizzying heights: GameStop started the year at $18.84 per share; at one point yesterday morning it traded at $483, up almost 2,500%. They are doing this partly for fun and partly for profit but also, especially, to mess with the hedge funds on the other side of the trade, who had bet against GameStop by shorting the stock and who suffered and surrendered as it went up. We have, uh, talked about this a bit this week.

>>27116432
Given that story, it was natural to get mad at Robinhood—other brokerages too, but mostly Robinhood—for bailing out the hedge funds and stopping the retail traders from having their fun. The hedge funds who were betting against GameStop still get to trade however they like, and had a good day yesterday; the Reddit heroes who were battling them were summarily ejected from the game. Seems unfair.

You could tell a different version of the story, a more traditional one really. In this one, innocent retail investors who have succumbed to Robinhood's gamification of markets, and who have been bamboozled by the maniacs on WallStreetBets, have been buying GameStop stock at ridiculous prices and hoping to unload it on a greater fool. In this story GameStop is more or less a classic pump-and-dump scheme; to protect retail investors, they must not be allowed to buy the stock anymore. "These small and unsophisticated investors are probably going to get hurt by this," said Massachusetts Secretary of the Commonwealth William Galvin, as he called for the stock exchange to consider suspending trading in GameStop for a month.

In that story, Robinhood saved its clients from themselves, though at the expense of its other clients who had already bought the stock. In a classic pump-and-dump, if there are no new buyers—because their brokers won't let them buy anymore—then the stock collapses, and the last buyers are left holding the bag.

>>27116517
The stock collapsed, I guess, but it's all relative. It closed yesterday at $193.60, down 60% from yesterday's high, but also up 31% from Tuesday's close and up 928% so far in January. The stock's doing great, really. The … near total prohibition on retail buying? … didn't hurt it as much as you might expect. (After the close, Robinhood "said clients would be able to make limited purchases of some of the companies that it blocked, but did not provide further details," and the stock rallied; it opened at $379.71 today.)

So that's a little weird. One natural conclusion to draw from it might be, well, maybe a lot of the move in GameStop's price was not caused by retail traders on Robinhood and Reddit, but by professionals, hedge funds and proprietary trading firms and professional day-trading shops. When retail buying was shut down, other buying continued.

Here is some suggestive data on that. Many of the big retail brokerages, including Robinhood, route a lot of their customer orders to Citadel Securities, so it ends up seeing a large percentage of retail trades in U.S. stocks. It can see if retail traders are mostly buying or mostly selling or mostly pretty balanced. You might expect—I certainly expected—to see that retail traders were buying more than they were selling this week. The stock seemed to be rocketing up on frenzied retail sentiment, and the posters on WallStreetBets were all claiming that they would never sell and keep buying until it hit $1,000.

>>27114210
>Here (via Robin Wigglesworth) is a post on Reddit’s r/wallstreetbets forum asking “Can I get a flair for buying GME at the literal top ($155.29)?” (It was not the literal top, but close.) “This is the way,” a chorus of redditors replied. It is a way! Gleefully getting top-ticked on a stock—buying it at its highest price ever and then bragging about it as the price collapses—in order to earn the strange respect of your friends on Reddit: That is a thing you can do. You might enjoy it. I am not going to say it is irrational; people have spent their money on worse things. But it is not the sort of rationality that the stock market is set up for. “When stock prices get too high, sensible value motives will take over”: Nope.
Fucking lol.

>>27115121
good post OP

i'll be reading more of this fellow

>>27116597
But here's what Citadel Securities' retail flow looked like in GameStop this week: (pic related)


Source: Citadel Securities

Retail investors were net buyers on Monday but net sellers for the rest of the week (through yesterday), and all in all quite balanced: About 49.8% of retail orders (that Citadel Securities saw) were to buy, and 50.2% were to sell.

What do you make of that? One reading would be: "Retail investors on Reddit might have started the GameStop rally, but they're not piling into this stock now, and the price action this week is coming from professionals." Or as one Twitter user put it, "past the retail ignition, the rocket ship was mostly intra-fast money warfare." This story doesn't exactly tell you who the professionals are, whether they're traditional Wall Street (hedge funds, etc.) or algorithmic high-frequency traders or just semiprofessional crews of day-traders who don't access the market through traditional retail brokers. Someone other than Robinhood traders, anyway.[2]

You could tell a related story like: "Retail investors on Reddit started the rally to squeeze professional short sellers, and then this week the professional short sellers capitulated and started buying the stock at even higher prices from those redditors, who claimed victory and took profits." This is probably true, at least in part. It also matches the popular story reasonably well, except that in the popular story the short squeeze is in the future, and the Reddit traders are supposed to be holding firm so that short sellers can't cover even at recent high prices.

>>27116778
Another reading would be: "Lots of retail investors are piling into this stock, and the price action is coming from them, but they're mostly buying stock from other retail investors."[3] Those other retail investors could be normal people who bought 100 shares of GameStop in 2005, forgot about them, and then remembered and sold them into this rally, or they could be Reddit posters who got in early, pumped the stock on WallStreetBets, and then happily got out as more people piled in to buy.

I don't want to make too much of this. There are always as many buyers as sellers, so it's not really a surprise that about half of the retail investors playing the GameStop game were buying and about half, or a little more, were selling. GameStop has about 69.7 million shares outstanding, but almost 180 million shares traded on both Monday and Tuesday, meaning that on average each GameStop share turned over 2.5 times on each of those days. Of course people were buying and selling and selling and buying; the fact that the retail crowd was not overwhelmingly on one side is pretty much a mathematical requirement.

Still I think this complicates the popular story of "everyone on Robinhood was buying GameStock at once, and none of them were selling, so the stock went up in a demonstration of the power of small-time traders to take on Wall Street." Retail investors were both buying and selling, and selling a bit more than they were buying, as the stock was rocketing and (some!) hedge funds were losing their shirts.

>>27116933
This also, incidentally, helps clear up one of the biggest mysteries, for me, in modern equity market structure. We talk a lot around here about "payment for order flow," the system by which Citadel Securities (and other wholesalers) pays Robinhood (and other retail brokers) to trade with its customers' orders. I like to tell a fairly textbook version of that story. Market makers stand ready to buy or sell stock from or to customers; they try to buy for a bit less than they sell at, and pocket the spread. If you go out into the market and say "hey I'll buy anyone's stock for $10," and a really smart hedge fund comes to you and sells you stock for $10, that's probably bad. You've probably made a mistake. The hedge fund is selling you the stock for $10 because it knows it's worth $8. This is called "adverse selection."

More subtly, if a really big mutual fund comes to you and sells you stock for $10, that also may be bad. The mutual fund is probably selling lots of stock, because it's so big; it sells you a little, then sells a little more, then a little more, until it pushes the price down to $8. The mutual fund isn't necessarily smart, but by virtue of being big and doing big trades, it moves the price; if you are on the other side of its trades, you get run over. This is also a kind of adverse selection: You buy at $10 and are stuck selling at $8. Part of the spread that market makers earn in public markets—the difference between their buying and selling prices—compensates them for adverse selection, the risk of being run over by a counterparty who knows something they don't.

>>27117009
Market makers, the textbook theory goes, would much rather trade with retail orders. Retail investors generally don't know much, so if you buy stock from them you're probably not making a mistake. And retail orders are generally small and uncorrelated: One investor buys a little, another comes along a moment later and sells a little, it's all pretty random, and you're not facing an avalanche of steady sell orders that push the price down. Trading with retail is so nice that market makers—wholesalers—will both give retail orders a tighter spread (pay more to buy their stock, charge less to sell stock to them) and pay their broker for the privilege of doing it.

The rise of Robinhood-y meme stocks, it seemed to me, changed that dynamic. If everyone on Robinhood decides all at once to buy Tesla Inc. stock, and Tesla shoots up, then the wholesaler on the other side of that trade is getting run over. It's selling Tesla at $700 and $750 and $800 and $850, selling more and more at higher prices without ever being able to buy back at lower prices from other retail investors who want to sell. No retail investor wants to sell; everyone on Robinhood wants to do the same thing at the same time. It seemed to me that Robinhood orders are now worse than orders from big mutual funds and hedge funds, more likely to move the price against the market maker who interacts with them. Why would anyone pay to be on the other side of that?

>>27117091
But ... nope? That stereotype of new-style Robinhood trading might just be wrong. Even in one of the wildest melt-ups in stock-market memory, the absolute epitome of insane one-way retail buying, actual retail order flow was pretty balanced. People were buying, people were selling, it was fine, you could still make money trading with them.

>>27117173
Why did Robinhood stop them?
You don't think about it much, but every stock trade involves an extension of credit. You see a price on the stock exchange and push a button and instantaneously get back a confirmation that you bought some shares of stock, but you actually get the shares, and pay the money for them, two business days later. This is called "T+2 settlement," and it might seem a little silly in an age when a "share of stock" is an entry in an electronic database and "money" is also an entry in an electronic database. Why not just update the databases when you push the button? T+2 settlement feels like a vestige of the olden days, when traders agreed to trades on the stock exchange but then had to go back to their vaults to dig up stock certificates to hand over in exchange for sacks of cash. Back when I worked on Wall Street it was T+3. These days it is not hard to find people who want to talk to you about moving to instantaneous settlement on the blockchain. Bitcoin trades settle immediately. But U.S. stocks, for now, settle T+2.

This means that the seller takes two days of credit risk to the buyer.[4] I see a stock trading at $400 on Monday, I push the button to buy it, I buy it from you at $400. On Tuesday the stock drops to $20. On Wednesday you show up with the stock that I bought on Monday, and you ask me for my $400. I am no longer super jazzed to give it to you. I might find a reason not to pay you. The reason might be that I'm bankrupt, from buying all that stock for $400 on Monday.

>>27117247
The way that stock markets mostly deal with this risk is a system of clearinghouses. The stock trades are processed through a clearinghouse. The members of the clearinghouse are big brokerage firms—"clearing brokers"—who send trades to the clearinghouses and guarantee them. The clearing brokers post collateral with the clearinghouses: They put up some money to guarantee that they'll show up to pay off all their settlement obligations. The clearing brokers have customers—institutional investors, smaller brokers—who post collateral with the clearing brokers to guarantee their obligations. The smaller brokers, in turn, have customers of their own—retail traders, etc.—and also have to make sure that, if a customer buys stock on a Monday, she'll have the cash to pay for it on Wednesday.[5]

This is not stuff most people worry about most of the time. Generally if you buy a stock on Monday you still want it on Wednesday; even if you don't, we live in a society, and you'll probably cough up the money anyway because that's what you're supposed to do. But at some level of volatility things break down. If a stock is really worth $400 on Monday and $20 on Wednesday, there is a risk that a lot of the people who bought it on Monday won't show up with cash on Wednesday. Something very bad happened to them between Monday and Wednesday; some of them might not have made it. You need to make sure the collateral is sufficient to cover that risk. The more likely it is that a stock will go from $400 to $20, or $20 to $400 for that matter,[6] the more collateral you need.

>>27117322
Anyway why did Robinhood (and other retail brokers) shut down purchases of GameStop (and other meme stocks)? Here is a good explanation from Bloomberg News:

>One key consideration for brokers, particularly around high-flying and volatile stocks like GameStop, is in the money they must put up with the DTCC while waiting a few days for stock transactions to settle. Those outlays, which behave like margin in a brokerage account, can create a cash crunch on volatile days, say when GameStop falls from $483 to $112 like it did at one point during Thursday's session.

>"It's not really Robinhood doing nefarious stuff," said Bloomberg Intelligence analyst Larry Tabb. "It's the DTCC saying 'This stuff is just too risky. We don't trust that these guys have the cash to be able to withstand settling these things two days from now, because in two days, who knows what the price could be, it could be zero.'"

>The trouble on Thursday began around 10 a.m., when after days of turbulence, the DTCC demanded significantly more collateral from member brokers, according to two people familiar with the matter.

>A spokesman for the DTCC wouldn't specify how much it required from specific firms but said that by the end of the day industrywide collateral requirements jumped to $33.5 billion, up from $26 billion.

>Brokerage executives rushed to figure out how to come up with the funds. Robinhood's reaction drew the most public attention, but the firm wasn't alone in limiting trading of stocks such as GameStop and AMC Entertainment Holdings Inc.

In fact, Charles Schwab Corp.'s TD Ameritrade curbed transactions in both of those companies on Wednesday. Interactive Brokers Group Inc. and Morgan Stanley's E*Trade took similar action Thursday.

>>27117444
And here is the Wall Street Journal:

>At least three brokerages said the trading restrictions stemmed from mandates from their clearing firm, which process the securities on the back end after a user executes a trade with their brokerage. Webull Chief Executive Anthony Denier said his platform's clearing firm, Apex Clearing Corp., notified him Thursday morning that Webull needed to shut off the ability to open new positions in certain stocks. Otherwise, Apex wouldn't be able to settle the trades, he said. ...

>Mr. Denier at Webull said the restrictions originated Thursday morning when the Depository Trust & Clearing Corp. instructed his clearing firm, Apex, that it was increasing the collateral it needed to put up to help settle the trades for stocks like GameStop. In turn, Apex told Webull to restrict the ability to open new positions in order to prevent trades from failing, Mr. Denier said.

>DTCC, which operates the clearinghouses for U.S. stock and bond trades, is a key part of the plumbing of financial markets. Usually drawing little notice, it facilitates the movement of stocks and bonds among buyers and sellers and provides data and analytics services.

>In a statement, DTCC said the volatility in stocks like GameStop and AMC has "generated substantial risk exposures at firms that clear these trades" at its clearinghouse for stock trades. Those risks were especially pronounced for firms whose clients were "predominantly on one side of the market," a reference to brokers whose customers were heavily betting for stocks to rise or fall, rather than having a mix of positions.

>>27117559
Robinhood drew down "at least several hundred million dollars" from its bank credit lines and "said on Thursday that it was raising an infusion of more than $1 billion from its existing investors." The volatility of those stocks is approaching infinity as their trading volume increases, so the traditionally mild and technical credit risk around settling trades has become real and scary. Brokerages have to put up more money to guarantee against that risk, and also think about ways to prevent the risk from coming true. "Stop buying super volatile stocks" is one obvious way. It has become expensive and risky to be a broker for the meme stocks, so some of them tried to stop.[7]

There are conspiracy theories floating around, because this feels weird, but it is actually pretty normal? Byrne Hobart writes:

>In a way, WallStreetBets' GameStop experience is the culmination of efforts to give retail investors an institution-quality experience. As Josh Brown points out, WallStreetBets is a scaled-up version of an idea dinner. It might seem more raucous than how financial professionals behave, but competitive hyper-bullishness and hyper-boorishness are not restricted to reddit and Discord. Most individual investors don't lever up enough, or get into crowded enough trades, that their broker raises collateral requirements at the most inconvenient possible moment, but this does happen to institutions. And professional investors often develop somewhat conspiratorial instincts—the more research you've done before a trade, the more losing money on it feels like the result of sinister forces trying to thwart you. After many layers of indirection, WallStreetBets and Robinhood have given retail investors a version of the professional experience.

>>27117664
What about the short sellers?
Short selling—borrowing stock and selling it, hoping that it will go down and you can buy it back at a profit—is a hard business. It is a hard business because most stocks go up most of the time: If you are mediocre at buying stocks you will make money, but if you are mediocre at shorting them you will lose money. (In fact if you are great at shorting them you will also lose money, but in a good way?) It is a hard business because stocks can only go down 100% but can go up any percentage you want, and sometimes (GameStop) they do: If you are terrible at buying stocks the worst you can do is lose your whole investment, but if you are terrible at shorting stocks the worst you can do is lose everything you own. It is a hard business because you have to borrow the stock and post collateral and pay fees, and as the stock goes up you have to post more collateral and pay more fees: Even if you are right about a short bet, and the company ends up going to zero, if it goes up a lot first you might be forced out of your position and lose money.

>>27117809
Especially, though, it is hard because everyone hates you? I have nothing intelligent to say about this. It seems to me that selling stock is as legitimate as buying it, that betting that prices will go down is as legitimate as betting that they'll go up, that for prices to be accurate and capital allocation to be efficient you need to let skeptics express their opinions, and that anyway a lot of actual short selling is for helpful market-plumbing reasons (market making, hedging options, etc.) rather than big negative bets against companies. Lots of people reading this are like "duh yes of course." Lots of other people are like "no it is mean to root against companies and fraud to sell stock you don't own." (One of those people is the richest man in the world, who got that way in part by selling cars he hadn't built.) Some of them are typing emails to me right now saying "but surely it's illegal that people are short 140% of GameStop's stock," even though I keep explaining that it isn't.[8] I do not really understand this perspective, I suspect they don't understand mine, we will just have to agree to disagree, and it is so boring to write about.

One result of everyone hating short sellers is that professional short sellers tend to be cantankerous sorts, but that's not all that unusual in the financial industry. Another result is that there are occasional regulatory threats against short sellers: When anything bad happens, it is politically tempting to blame short sellers and try to crack down on them. Every so often regulators do, and that is bad for business, but for the most part, in the U.S., regulators tend to share the "eh short selling is fine" perspective and don't try to ban it, even though lots of people would like them to.

interesting stuff

Thanks for these posts, dude. I"m like 3 behind but reading all of them

>>27117870
One possible reading of the GameStop story is that the people who would like to ban short selling got together to bypass the regulators and ban it themselves. Like, short selling was not illegal last month, and it is not any more illegal now, but perhaps it is impossible now? Just as a populist, aggregation-of-preferences, social-norms-backed-by-sanctions matter, now if you sell stocks short you will be fined millions of dollars, by Reddit, so you might as well not do that. Or maybe you can short stocks, but you can't noisily short them; you can't bet against them and then announce that they're bad to try to drive the price down. Lots of people think that should be illegal, and now it kind of is, not as a matter of actual law but as a matter of, like, community norms backed up by enforcement power. The enforcement power of WallStreetBets taking all your money.

I am not being especially serious about this—I do not think that short selling, even noisy or activist short selling, will be permanently ended by a couple of crazy weeks on Reddit—but there is this:

>Outspoken activist short seller Andrew Left on Friday said that after 20 years, his firm Citron Research will exit the business of writing reports focusing on companies whose value may fall.

>Via Twitter and YouTube video, Left explained his decision with a headline saying: "Citron Research discontinues short selling research. After 20 years of publishing Citron will no longer publish 'short reports'."

>Citron said it would focus instead "on giving long side multibagger opportunities for individual investors."

>>27117989
If your business model isn't allowed anymore, you need a new model. "Hopefully we can put our experience to add some sanity, and most of all, some kindness back in this market," Left says in his video. It's a pivot!

>>27118080
But! Is! It! Securities! Fraud!
No? Lawyers gonna lawyer though:

>Robinhood can now add a class action lawsuit to its growing list of headaches after it said it would restrict users from trading GameStop and other stocks. A class action lawsuit was filed in New York Thursday, alleging that Robinhood "deprived their customers of the ability to use their service," in an effort "to manipulate the market for the benefit of people and financial intuitions."

>The lawsuit comes hours after Robinhood informed users that it would restrict a handful of stocks, including GameStop, Blackberry, AMC, and American Airlines, due to "recent volatility." The company also said it would raise margin requirements for some securities. "We continuously monitor the markets and make changes where necessary," Robinhood said.

Here's the complaint. Feel free to read it I guess. Before all this stuff, Robinhood had achieved a certain level of fame for being a retail brokerage that lets you buy all the fun stocks, but whose app crashes when too many people want to buy too many fun stocks. This is not the first time that people have gotten mad online about Robinhood not letting them buy stocks that were going up. Usually it's by accident—the app crashes so you can't buy the stocks you want—and this time it's on purpose, but still. If Robinhood was legally obligated to let you buy all the stocks you want whenever you want, it would have been sued into oblivion long ago. They write the contracts better than that.

>>27118167
Elsewhere in securities fraud, here's the latest statement from the Securities and Exchange Commission about all this:

>The Commission is closely monitoring and evaluating the extreme price volatility of certain stocks' trading prices over the past several days. Our core market infrastructure has proven resilient under the weight of this week's extraordinary trading volumes. Nevertheless, extreme stock price volatility has the potential to expose investors to rapid and severe losses and undermine market confidence.

>As always, the Commission will work to protect investors, to maintain fair, orderly, and efficient markets, and to facilitate capital formation. The Commission is working closely with our regulatory partners, both across the government and at FINRA and other self-regulatory organizations, including the stock exchanges, to ensure that regulated entities uphold their obligations to protect investors and to identify and pursue potential wrongdoing. The Commission will closely review actions taken by regulated entities that may disadvantage investors or otherwise unduly inhibit their ability to trade certain securities.

>In addition, we will act to protect retail investors when the facts demonstrate abusive or manipulative trading activity that is prohibited by the federal securities laws. Market participants should be careful to avoid such activity. Likewise, issuers must ensure compliance with the federal securities laws for any contemplated offers or sales of their own securities.

>>27118268
I don't know how much that means: If you're manipulating GameStop stock, you're in trouble, but on current evidence I am not all that convinced that anyone is. On the other hand that last sentence is ominous. I have written before that GameStop should sell a ton of stock into this huge demand, both because it would be funny and also because what is the point of a high stock price if not to channel money to a company that can use it? But I have also written that, if I were GameStop's board of directors, I'd be nervous about actually doing that: I think it's probably fine to sell stock to people who want to buy it at deranged levels, but it kind of looks like securities fraud. This is the SEC saying, well, be careful about selling stock, you don't want it to look like securities fraud.

This is way too long. Guy repeats himself over and over again, with zero conclusions. Fucking faggot nigger go write a fucking book on how much of a faggot you are.

Bump if you've read all this: I'll try to post more of these as he creates them, all of his stuff is incredibly entertaining and informative.
His articles on WeWork's debacle had me laughing out loud.

>>27118894
thanks bro, i read the whole thing. where does he post, is this from a weekly?

>>27118866
There's no conclusions because the SEC lawyering on this is vague as fuck. They convicted Falcone of something that basically wasn't a crime?
Financial law is vague but can hit you like a ton of bricks.

>>27118944
Yeah, he has a newsletter on Bloomberg, I got the second article for free at
content-redirect.blogspot.com/2021/01/money-stuff-gamestop-stock-game-got.html

>>27119038
See, you managed to summarize this 30+ post drivel in two sentences. I concur.

I skimmed all of it. Though in retrospect I'm not sure if there was an actionable takeaway I got from it.

>>27119096
Is this what happens when a Zoomer is tricked into reading something longer than a tweet?
Levine tries to provide context and commentary.

>>27119183
He always caveats that he's not a provider of legal advice.
Legally, this is an entirely new area for the SEC. The Big Players would normally shun the very idea of the SEC getting touchy-feely with their merchant-gamery, but now that they are losing...

i think you can sign up for free through email. link is on his twitter.

I mean what I also got out of it is that retail trades were balanced and robinhood removing the buy option was probably due to the dtcc

>>27119186
I like reading long, informative posts, but this is just too much. I mean really, not in an ADHD way, it's seriously too fucking much, for the amount of actual information contained. Should be at least cut in half.

>>27119376
Yeah. And apparently some groups are getting the fuck out of Dodge on short-selling or even providing guidance on it.
Now if only Reddit can kill the rest of the Vulture Capitalists.
That's why I'd never vote Romney, no matter how "moderate" he pretends to be.

>>27119480
It's actually two complete articles. That's why it's twice as long and a bit repetitive.
Sorry

>>27115573
The answers to this post kind of suck, so I'm going to chip in some more perspective; you're selling stock that you've borrowed and promising to buy it at a (hopefully) lower price. The former is completely impossible without the latter, because that means the ball keeps rolling within a reasonable frame of time.
An individual buying a short would be required to post collateral of at least 50% the market price of the asset so that the exchange isn't taking on any risk. If the asset pumps above 50%, you get a margin call, which is basically game over; your collateral was liquidated and you lose the bet.
Melvin lost his shirt because he didn't hedge his bet. He was hoping no one would be paying attention so he eats an infinite potential loss because there's no limit to the amount that a stock can pump before a call is covered.

>>27119617
>It's actually two complete articles.
Well that explains it, lol.

>>27119092
thanks, this was good.

Great article, thanks OP. The dude seems to know his stuff.

I think he’s alluding to what several other observers have, which is that fundamentally in terms of the rules of the market, nothing too special happened here with GME. In fact, nothing illegal has happened as far as we can tell.

All that’s changing here is that short sellers might have a harder time making easy money in the future, but that’s about it.

What I *am* super curious about is to see which tactics the short sellers will use to further try and get out of this jam next week. This is such a high profile event that I would be shocked if they tried anything truly illegal next week.

>>27119650
Yeah, and Falcone had bought all they had borrowed and sold; then he bought more that they borrowed (from him, lol) and caught those guys in an infinite bid loop.

>>27119928
and the bureaucrats punished falcone

>>27119916
>This is such a high profile event that I would be shocked if they tried anything truly illegal next week.
They are certainly looking to see what politicians they own at this point.

>>27120035
Right now there's no head of the SEC, it should be mentioned.

>>27120035
>>27119928
Falcone will stand before God a blameless man. He did nothing wrong. The only lesson to learn from him is that sometimes people get really fucking pissed off when they lose, but that's just how the game is played.

>>27120241
I don't know what eventual penalty they laid on him, but at the moment of that call he had acquired "Infinite Keks". And who could put a price on that?

>>27114505
>if you buy stock with the purpose of pushing the price up so that other people will buy it, that’s market manipulation. If you buy stock hoping that the price will go up because other people buy it, that’s not market manipulation
Neither of those are the case here
People are buying the stock knowing they can name their price when hedgies who shorted it are compelled to buy that stock back
According to you, it is only a pump and dump if that is a false story (it is not) and the people who know it is a false story are cashing out early (they're not)
There is absolutely nothing illegal about buying stocks and holding them

How is this guy so oblivious on why people hate short sellers? He's acting like it's gibberish to him. No shit people working blue collar jobs hate people that make money off of businesses failing, every time it happens hundreds or thousands of people like them are out of work

>>27113861
/thread

>>27121192
>Matt Levine is a Bloomberg Opinion columnist covering finance. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz, and a clerk for the U.S. Court of Appeals for the 3rd Circuit

He sees the necessity of short-sellers to establish realistic prices for stocks, the fact that it's being abused (badly) doesn't negate its fundamental purpose.

>>27113469
>Coordinated price manipulation on a security
>"I do not understand why sec thought a short squeeze was illegal"

>>27121345
I'm not even talking about that. I'm talking about how he's acting so fucking clueless about it. Is he also confused as to why there are people that hate cops?

>>27121128
Also, Levine isn't claiming that it's illegal at all; even people like Cramer are engaging in "market manipulation" by recommending stonks on television. He talks about this in many of his newsletters, addressing this and Securities Fraud and all sorts of grey area.

>>27113469
This post is one of the greatest things I have ever read on biz and deserves to be archived

>>27121469
It was literally his field of work for years, one would suppose he has some sympathy for bankers and their work. His newsletter regularly covers their shenanigans and abuses, he doesn't let them off the hook. In fact he does a lot of good EXPLAINING the nature of their shenanigans in a way that's comprehensible to non-wonks.

>>27119650
Melvin is FUCKED

>>27121402
>coordinated
that's where you're wrong. They just like the stock

>>27121532
Would be pretty cool if it were perma pinned

>>27121532
>>27121865
Fuck off you dumb newfags, this isn't reddit

>>27113469
how shorted is GME still in reality? All news (yea I know) report that Melvin is out of GME completely.

>>27121923
But he not, other fin expert are calling bullshit on that, it a plain lie lmao.

https://www.sec.gov/news/press-release/2013-159#:~:text=The%20SEC%20filed%20enforcement%20actions,issued%20by%20a%20Canadian%20manufacturing

Here's how the Falcone Complaint was eventually settled.

>>27122002
Melvin doesn't own all the shorts. They likely took a loss that's what drove the price >400.

>>27122002
Can you name some? Not shittesting you. Really just want to read them.

>>27122097
Source was posted here somewhere, but it was a trader that was involved in Volkswagen short squeeze, they pretty much called them out saying it mathematically impossible for them to be out.

>>27122217
Someone is spreading news that shorts on GME are PUT options, which means they will not lead to a squeeze. Is he muddying the water or is everyone retarded in a bad way and only this one dude figured it out?

>>27122356
Puts and shorts are completely different things. The analytic firms would not make that mistake.

>>27122418
This.

>>27120241
The sec plays favorites. goldman sachs gets a slap on the wrist and crypto ico's get liquidated at gunpoint. This verbose kike is covering for his corrupt tribe openly rigging a fucking rigged game. I did enjoy the alliterations however.

>>27122418
that's what he posted, linking to this https://www.sec.gov/Archives/edgar/data/1628110/000090571820001111/xslForm13F_X01/infotable.xml

>>27122551
They literally announced they were out of their short positions and prior declared their short positions in their filings.
They also needed refinancing and likely liquidated some of their assets (Alibaba dip).
Does that sound like their shorts were actually puts?

>>27116517
>You could tell a (((different version))) of the story

>>27122356
>>27122551
A fucking noodle with half of a functioning neuron is capable of the research and quant of publicly available data to see that there is a huge fucking nuke about to go off because of the the short float itself, not fucking options.

>>27113469
Perfect late-night reading material
For once, OP was not a faggot

>>27117322
>we live in a society
Fucking lol

>>27117559
Can you imagine your name actually being "Mr. Denier". You go into life with an inherent disadvantage.

>>27117989
I can't agree with him on this part. I think its fantastic that these short sellers who try and drive prices down are getting their asses spanked. They have so much more money to swing around and they're purposefully trying to kill people's businesses when they might not be dying. I don't think Gamestop is gonna die any time soon, but these guys are trying to force it to. And I'm sure they have successfully done so to many others. Fuck them.

>>27117247
>These days it is not hard to find people who want to talk to you about moving to instantaneous settlement on the blockchain.

THIS is their greatest fear. The sec is running a protection racket for the modern equivalent of blockbuster. (((Clearinghouses))) have been made obsolete by trustless technologies like blockchain. Their only purpose now is to kvetch about volatility and risk while clipping every coin(stock) that passes through their hands while refusing to enable transactions which threaten their tribe, They serve no useful purpose and are an impediment to true price discovery. We have to vote with our dollars and only put our money into investments devoid of gatekeepers.

>>27123526
Dean Irebodd

>>27124011
It's most likely because physical games with problematic themes for globohomo, like masculinity or white male hero characters should not be easily obtainable at your local strip mall.

>>27124606
Even on that angle, Gamestop mostly peddles dogshit western made games which are the opposite of what you talk about. Shit like last of us, cyberpunk, etc are probably all major sellers for them.

>>27125057
I think they're more concerned with the used games from less pozzed eras. they can limit exposure to these titles or just cancel them completely online.

>>27121192

Hi new redditor. Check out his second name and all will be revealed.

Thanks op this was the most informative anything on /biz/ has been in a long time

>>27126003
No shit he's a jew, and it's not like I was looking for a real answer, I asked mostly because I wanted to bump the thread and that's what I came up with to talk about. It was mainly rhetorical so I could perhaps point out his complete disassociation from reality

>>27113743
they are stubborn but we will break them. they can keep shorting but its a losing proposition. they just think they can delay until they break us apart with enough manipulation of price that people panic sell. most GME holders are noob investors

>>27122772
>Does that sound like their shorts were actually puts?
Well, with 500 morons here talking about how what Melvin has is going to "expire", how are you going to blame people for assuming options?

>>27115573
>What is stopping them from holding onto their shares until it does?
The fact that they don't have any shares to hold. The borrow a share and then sell it. Before they buy the share back and sell it back to whoever they borrowed it from, they have to pay them interest. You can't just borrow a share for free. You also can't borrow a share indefinitely, because you don't have infinite money. They have to start buying back the shares so they can stop paying the interest. Sometimes paying the interest is cheaper and they keep shorting. Sometimes buying it back at a loss is cheaper and they end the short. We're trying to force them to buy.

>>27113469
Read all of his GameStop newsletters yesterday. Only guy worth reading on this whole saga. Literally the only one. We have a 1000000:1 ratio of written articles vs articles worth-reading these days. Journalism is fucking joke.

>>27121192
Because he can not fucking fathom why you would hate a valid market mechanic because it's being abused rather than hate the people who re supposed to, but fail to, prevent the abuse.

It's like the shorts hating frenzied buyers, while the SEC does not give a single shit about pump and dump scams. But reversed. Because the people doing dump-and-pump (what the fuck is a good catchy name for manipulative shorting besides "jewing"?) are rich and get their way.

>>27127000
Most people unironically get their news from tweets

Oh shit I just connected the dots. He's a guy I occasionally hear on radio. No wonder his name was so familiar...
anyways thanks OP for posting

>>27116120
More pain? PUMP IT!

>>27114505
>that does not reflect legitimate forces of supply and demand
But a short squeeze is pure supply and demand. If you know someone will have to buy the stock then you know there is a demand for it that will come at some point, and it's entirely normal in that case to secure a supply

>>27127000
I've been reading him for a few years now, he's rarely less than amusing and educational as hell.

>>27129157
Good read OP

>>27129232
Yeah, since it got a good response, I'll try to post his newsletter here somewhat regularly.

>>27127839
>why you would hate a valid market mechanic because it's being abused
Even if you explain to people about who has an incentive to be bullish on a stock, thus hiding/denying any problems:

Stockholders: Want stocks to go up (they make money)
Brokerages: Want stocks to go up (they make money the more stockholders make)
Company Management: Want stocks to go up (It's their shares - and money)
Analysts: Want stocks to go up (They're paid by the companies)
Money Managers, Financial Planners, Brokers: Want stocks to go up (people put more money in during rising markets)
Mutual Funds: Want stocks to go up (Most are long only)
Financial Press: Want stocks to go up (they sell ad time to all of the guys above)
Ratings Agencies: Want stocks to go up (they work for the banks that underwrite the companies)


The only people with ANY incentive to see the emperor has no clothes on are short sellers, and people literally want to ban them.

You can hate people for manipulating things by illegal methods but yeah, to hate them for utilizing a vital mechanic is just dumb.

>>27119092
Bypass Paywalls works for Bloombergstein I think

>>27129352
This. The short-sellers tend to go after zombie companies and Obvious Fraudsters.
As Levine points out, it's harder to make money on legitimate short-selling than practically any other trade, you are swimming against the "current" of the market doing so.
It was risky even before Reddit went on a rampage; it's almost untenable now.
There were bad actors doing harm with short-selling, and the SEC wasn't doing their job against Short Sellers. Since Boss Negro's second term finished, a certain party has been working mightily to de-regulate and relax pressure on the banks and investment funds.

bump

Among the set of facts that Falcone and Harbinger admitted to in settlement papers filed with the court:

Falcone improperly borrowed $113.2 million from the Harbinger Capital Partners Special Situations Fund (SSF) at an interest rate less than SSF was paying to borrow money, to pay his personal tax obligation, at a time when Falcone had barred other SSF investors from making redemptions, and did not disclose the loan to investors for approximately five months.
Falcone and Harbinger granted favorable redemption and liquidity terms to certain large investors in HCP Fund I, and did not disclose certain of these arrangements to the fund’s board of directors and the other fund investors.
During the summer of 2006, Falcone heard rumors that a Financial Services Firm was shorting the bonds of the Canadian manufacturer, and encouraging its customers to do the same.
In September and October 2006, Falcone retaliated against the Financial Services Firm for shorting the bonds by causing the Harbinger funds to purchase all of the remaining outstanding bonds in the open market.
Falcone and the other Defendants then demanded that the Financial Services Firm settle its outstanding transactions in the bonds and deliver the bonds that it owed. Defendants did not disclose at the time that it would be virtually impossible for the Financial Services Firm to acquire any bonds to deliver, as nearly the entire supply was locked up in the Harbinger funds’ custodial account and the Harbinger funds were not offering them for sale.
Due to Falcone’s and the other Defendants’ improper interference with the normal interplay of supply and demand in the bonds, the bonds more than doubled in price during this period.

>>27129812
There could be a reasonable compromise, "regular" short-selling is fine, but naked short-selling should be banned. You can't expect that shorting 140% of the float can make sense to anyone in Main Street. The fatal flaw in naked short selling is the force behind the "infinite losses" meme. I remember when Max Keiser tried to meme"buy Silver to bankrupt JPM", way back in 2009. This is just another iteration of that. Naked short selling must be banned, and it's illegal in many countries.

>>27131871
Absolutely true.

>>27131871
Naked shorting is already illegal, SEC is just useless.

>>27132405
Yuro here, wasn't aware of that. But after all, the regulators got captured a long time ago. Like the FAA cleared the 737 MAX .

>>27132577
Only 1 person went to jail after 2008, and it was some random innocent middle manager. Law was always nothing but fugazi for goys, welcome to the jungle, nigger, forgo all hope and enjoy yourself.

>>27113861
Prove it, retard.

>>27114636
>I put out rumors—in my subscription newsletter, on Reddit, in fake press releases, whatever—about some catalyst for the stock to go up. “Hey I hear from an inside source that GameStop just got an exclusive contract to supply downloadable video games in Tesla cars,” etc.
...
>This is very straightforwardly illegal and the SEC goes after this stuff all the time

kek imagine if they went after crypto pumps.. 2017 sure was a crazy year

>>27131871
Here's my reasonable compromise for hedgies: I'll lower my original demand of $10K per share to $9900 per share.

>>27132956
FOUND THE KIKE

Now that I think about it, short selling is the only reason hyper inflation hasn't kicked in yet

So a large part of the ongoing problem now is the totally artificial need to wait 2 days to settle any trades. You've got huge firms and billions of dollars sitting around 'covering' both outcome sides at the volatility level as it ebbs and flows for 2 days around all trades. This is obviously just bullshit legacy busymaking and good god is this bullish for chainlink

>>27117809
and they try to say that this is not gambling...

>>27113861
/thread they should get the rope

>>27133656
Provide proof, you don’t have any.

>>27121923
at least 120%

>>27117870
>Some of them are typing emails to me right now saying "but surely it's illegal that people are short 140% of GameStop's stock," even though I keep explaining that it isn't.[8]

I understand little. Mathematically, if the shorted GameStock shares exceed the number of shares in existence, doesn't it mean that there must be "naked shorts" out there --- is that correct? Shorts based on real, lent shares can be "closed out" by buying shares and returning them (directly or through agents) to the original share lender. But that would leave a vast number of "naked shorts" which have no actual borrowed stock (or they have "mulitiply lent" stock) associated. How do the excess naked shorts of GameStock ever get "closed out"?

I heard that naked shorting is legal in the Cayman Islands, and that brokers and hedge funds have offices or associates there. If it is (strictly speaking) legal in the USA, are there exchange or clearing-house rules against it or limiting it?

[Long GME]

>>27120241
>Falcone will stand before God a blameless man. He did nothing wrong.

Maybe not wrong, but boasting of his prowess may have been unwise.

>>27116933
Except the only reason retail investors were "selling more than they were buying" is because they were literally halted from buying for a whole day on multiple exchanges. Then were faced by a buy limit the next day and forced to buy whole shares with a cap.

>>27132647
>Only 1 person went to jail after 2008

They diverted publlic attention away from the credit /mortgage cheating, by focusing on the trader from Sri Lanka getting insider info telephone calls.
I believe that the prosecutor said that prosecuting Wall Street would unsettle the markets, and was later lucratively rewarded with a Wall Street job.

>>27134626
>So a large part of the ongoing problem now is the totally artificial need to wait 2 days to settle any trades. You've got huge firms and billions of dollars sitting around 'covering' both outcome sides at the volatility level as it ebbs and flows for 2 days around all trades. This is obviously just bullshit legacy busymaking and good god is this bullish for chainlink

Depository Trust is like the Federal Reserve, in that A. it is powerful, B. few people know or understand what it actually does or who owns and actually controls it. It avoids publicity.

>>27136133
>they were literally halted from buying for a whole day on multiple exchanges.

The downward spike on Thursday (due to Robinhood et al. not allowing either buying or partial selling, only total selling) cost a lot of people a lot of money. It may have served to clear out those with "weak hands" (paper hands) who had placed stop-loss orders in GameStop earlier above $115/share. It wiped out the weak holders, and what was left by the close on Thursday were the stronger hands not easily driven away by big fluctuations.

>>27114916
>I’m not even convinced it’s that though. The stock closed Friday at its all-time high. Roaring Kitty was up $11 million. Everyone came back on Monday and did it again. My model here—and I should emphasize this is purely a guess—is that the people most identified with the GameStop trade on Reddit, at this point, are much more interested in securing their legendary status on Reddit than they are in taking profits at the expense of whoever came in later.
This is not right, but perhaps out of date. No one is doing it for reddit karma. They're doing it to fuck over hedgies.

>>27137267
>It may have served to clear out those with "weak hands" (paper hands) who had placed stop-loss orders

This applies also to all brokers and clients who had stop or limit orders to sell GME. Weak hands clear away.

>>27137267
Good riddance. This isn't over and I've opened accounts on multiple exchanges in case of more buy limits anywhere.

>>27135489
As far as I understand it's just an artefact of how you account for things people have borrowed. Imagine a world where there's only one apple. One guy has it and borrows it to someone else who borrows it to someone else who borrows it to someone else, etc. If you have one million people borrowing that one apple to someone else in one huge ass chain, you'd have about one million "outstanding" apples. If you simplistically account for them by just doing a sum over everyone involved. But as long everyone just returns the apple again, there's no problem here, even if there's only one in total.

Short selling is the same thing, except somewhere in that chain people sell the apple and plan to rebuy it before returning it. But if you can't buy it back because the price has gotten too high, you're busted. But that really hasn't anything to do with how long the chain is.