This is a very long article, I apologize, I don’t like long articles either. Hell, I wrote the damn thing. – And it’s sadly really really long based on many moons of research. This is of course an opinion backed by what little evidence that I can scour to paint an opinion editorial piece to help to convince you my thoughts and feelings on the subject matter.
Warning, Crude language, jokes, Deadly Sarcasm, and dank memes ahead.
The Clown media and Co. all want to gaslight you with suggestions that naked short selling does not exist. They don’t want you to know the truth, because that would mean that someone has a really nice money printer, at the expense of all investors who aren’t in on it.
In 2021, during January’s GME Craze, the Media and many puppets parroted that Naked Short Selling does not exist. The media was literally gaslighting people on National Television. You’ll have to take my word for it if you didn’t experience it yourself. I know, I was there.
I’m going to give evidence and point to the absurdity of claiming that ‘naked shorting is a myth or a unicorn’. The implications of my findings are pretty straightforward, the impact therein is, well, up to the market to decide.
In this article, I’m going to offer the suggestive evidence and then the harder facts.
Anyhoot, Naked Shorting goes by many names, Phantom shares, counterfeit shares, synthetic shares, etc. There is a lost of nuances and differences between them. I’ll try and elaborate and clarify on these differences in the preamble.
If you want the evidence for Naked Shorting, then just skip all this preamble. This preamble is only for painting a picture at how poor and shoddily ran the system is, while giving some background as to how things came to be. So if you know some stuff, just scroll past the Preamble until you get to the ‘Amble’.
What is Naked Shorting or Naked Short Selling?
“In a normal short sale, an investor borrows shares and sells them. If the price falls, he profits by replacing those borrowed shares with cheaper ones. But in a naked short sale, an investor fails to deliver the shares because he doesn’t borrow them. In extreme cases, he even sells phantom shares, shares that don’t even exist. While naked short selling is legal, manipulating markets is not, and regardless of intent, the effect of naked short selling can be the same – driving share prices lower.”
–Mike Schneider, Bloomberg reporter 2008,
Shortly after 2008, Naked Shorting was temporarily banned and then banned and made illegal by the SEC. Before it was banned, Naked Shorting was a sort of elusive topic in which the SEC tried to regulate out with Regulation SHO (17 CFR § 242 implemented in 2005). What happened leading up to 2008 that made this ban possible? (Hint, the Naked Shorters shorted the Government. Look up GSEs or keep reading)
To explain that, we’d have to understand what regular shorting or short selling is;
Regular short selling is finding shares and borrowing them to sell them and then buy them back to return those shares. You could affect price action, make a profit, or even effect corporate governance with short selling. To find out which shares you can borrow, you’d have to ‘locate shares’ which means; to find shares that are available to borrow.
Naked just means ‘not covered’, in the case of short selling; Naked Short Selling means selling shares without ever borrowing them or short selling without locating them to borrow. In this case, there is no locating of shares, so there’s no guarantee that a Naked Short Seller can close their position. Which means they’re naked.
“Naked short selling involves selling stocks short without borrowing the shares first, meaning sellers theoretically can place unlimited orders to drive down a company’s stock.”
Naked Short Selling could also implement corporate governance sabotage and affect the underlying price of a security, combined with other factors, could result in a Short and Distort, Bear raid, or market manipulation.
Naked Short selling proliferated around 1983;
“Naked short-selling is relatively new. It started only around five years ago. Prior to that, there was relatively little traditional short-selling in Nasdaq stocks. Why not? Because it was too difficult to borrow these relatively thin stocks—and unless they can be borrowed, they cannot be shorted in the normal way.”
– Forbes 1988 article “Naked Came the Short Sellers” by Phyllis Berman with Ronit Addis.
Because of the rise of the Continuous Net Settlement system in the 1970s, Brokers could now loan out shares based on inventory rather than requiring the physical stock certificate. This streamlined a lot of trading, because now brokers could just loan shares if they know they got the inventory for it. It only took a few years later to realize the invention of lying, and loan out shares even without the inventory for it. You know, Naked style.
This means that it is a lot easier to naked short with the new technology, which sounds counter intuitive, because more technology should add for more speed, truth, and transparency. . . But Don’t question logic here, we have infallible and incorrigible leaders at the helm. Totally. . . I guess “incorrigible” in more ways than one. Hahaha.
To understand a bit more, the system of naked short selling has only became more robust with the advent of ‘bonafide market makers’. There were market reforms aimed to curtail such abusive practices, but in actuality, these reforms only aided and abided the abuser and abuse.
Just because you don’t hear about the instances happening, doesn’t mean they aren’t happening more and more. The SEC is a lame duck and they only care about people’s faith in the markets, not that the rules and regulations are being adhered to.
Failure to Deliver (FTD)
So, when shares are bought and sold, money has to be delivered from the buyer to the seller, and shares have to be delivered from the seller to the buyer. The share, per the rules set in 2008, have about three days or T+3 days to deliver. If the shares don’t clear and settle in the buyer’s account, then there was a failure to deliver.
Specifically If a participant is unable to deliver on their net short position (stock owed to the National Securities Clearing Corporation, also knowns as the NSCC)), the position is called a “fail to deliver”. On the NSCC’s side, the NSCC issues a ‘failure to receive’ (an FTR) to the receiving party, this becomes an IOU for a share. A counterfeit share in all but (official) name. The NSCC is in charge of clearing and settlement for equities and shares under the Depository Trust Company (DTC) and Depository Trust and Clearing Corporation (DTCC).
Think of the NSCC as the peddler, the DTC as the bookie, and the DTCC as the mob/family.
Intentionally or inadvertently failing to deliver that stock within the standard three-day settlement period can be market manipulation that is clearly violative of the Federal Securities’ laws.
The level of unsettled trades is a big problem in the security of the market. If trades don’t settle, how do you know if what you have is ‘good’ or ‘real’ or ‘certified’ or ‘backed by authority’? The Security of the transactions and the legitimacy of the market becomes in question.
FTDs allow a lot of wiggle room for settlement period. Just labeling shares as FTDs are essentially a glorified extension until the FTDs become a Regulation SHO Violation.
Do FTDs happen because of naked short selling? Not always. With modern technology nowadays, we could greatly reduce settlement periods and reporting practice timelines on a whim. One could argue the majority of FTDs are not from negligence, there’s a plausibility that the settlement periods have not been reduced to establish conditions for nefarious actors. I’ll give you that hint to figure it out.
As a side note, the Netting system of the CNS actually nets before any FTD occurs. That’s because the system operates under the “a priori” that everyone would deliver and actually settle trades. Which is fucking wrong as fuck. So the CNS settling and netting system is broken when factoring FTDs. Just a fun side fact for you to know.
Also, while we’re at funny side notes. Multi-lateral Pre-netting of security entitlements allow people to pass FTDs between parties in the CNS. So essentially multiple parties can play hot potato with FTDs between eachother based on the Net Settlement system. That means CNS allows for the obscuring and hiding of FTDs and Counterfeits, all in the name of ‘securities entitlements’. I mean, are they really security ‘entitlements’ when they aren’t honored by the people who deal with them??? lmayo. And couple that with obscurity with Omni-Bus accounts, you got yourself a lot of smoke in the ‘poker room’.
What is a Threshold Security?
-Investor.gov per Regulation SHO
-FINRA per rule 3210
(NASD is a body of NASDAQ markets)
So after a certain point of having FTDs linger, or having too many FTDs, or value there of, a specific equity or stock becomes a threshold security under Regulation SHO (2005). Putting the security on the Threshold list.
Per FINRA rule 3210(2006), a security on the Threshold Securities List for thirteen consecutive days requires that;
“Rule 3210, among other things, requires participants of registered clearing agencies to take action on failures to deliver that exist for 13 consecutive settlement days in certain non-reporting securities. In addition, if the fail to deliver position is not closed out in the requisite time period, a participant of a registered clearing agency or any broker-dealer for which it clears transactions is prohibited from effecting further short sales in the particular specified security without borrowing, or entering into a bona-fide arrangement to borrow, the security until the fail to deliver position is closed out.”
Applicable to FINRA members
Meaning Market participants would be required to borrow, make a bona-fide arrangement to borrow, or close out their position.
Sadly, as you’re going to learn (or somehow already know), there are several bona-fide arrangements that market participants abuse to perpetuate their short positions at fractions of their cost.
Here is more info on Regulation SHO with Close out requirements, which allows options to not close out;
At a certain point, it would be imperative for the governing bodies to actually do it’s job and ensure that FTDs are properly reduced instead of being covered by some roundabout manner. It’s as if settlement and clearing were some sort of elaborate Ponzi Hat Trick to fool literally every other investor. Are FTDs and fakes the type of ‘liquidity’ that investors seek? Something akin to debasing and devaluing the underlying security by inflating it’s supply.
Yet alas, these entities do not really enforce ‘buy ins’ or the FTD party to be responsible. . . Except for that one time;
I do however, want to make mention of a particular time that the SEC mandated buy ins. . .
This resulted in Threshold securities declining. . . But also resulted in the game of musical chairs stopping. As expected, there was indeed STRONG indication of potential manipulative naked short selling. So much so, that the gambling degeneracy allowed for the collapse of the US Financial markets;
So, back to the rambling about Threshold Securities and closing out;
You see, “Buy in’s” don’t really occur,
So the NSCC is one of the parties that are supposed to ensure that FTDs don’t happen too much, and if they do, the NSCC (and friends) are supposed to remedy the FTD by having people ‘buy in’.
A ‘Buy in’ with regards to the NSCC, is when the NSCC buys the underlying equity and delivers it to the FTR holder, and then the NSCC bills the Party that Failed to Deliver.
Supposed to anyway. . .
This doesn’t happen because, in my opinion, the NSCC is a lame duck and is complicit. Exactly how it’s probably designed to be. You know, working as intended.
Here’s a quote to share other people’s opinions;
Of the 16 sources of “empowerment” to buy-in failed delivery obligations the NSCC has 15 of them and the buying broker has the 16th. Every DTCC participating market intermediary on Wall Street is heavily financially incentivised NOT to ever buy-in the failed delivery obligations of a brother DTCC or NSCC “participant”. The research of Evans, Geczy, Musto and Reed (2004) revealed that only one-eighth of 1% of even “mandated” buyins are ever executed on Wall Street. Now you know why. That’s why the SEC’s telling this judge that there is a remedy referred to as a buy-in is an option of the buying brokerage firm and thus FTDs are no big deal.
Procedure X(A)(1) cited below is a total self-serving red herring. Note that after an FTD occurs the NSCC can be counted on to pretend to be “powerless” to buy-in the delivery failure. But this is the only known “cure” available when an NSCC participant absolutely refuses to deliver that which it sold. Thus the NSCC cannot merely allow one of its participants to sit on his hands and wait for the “eventual” delivery of that which it purchased for its client.
-The Golden Comment letter to the SEC
And brokers themselves are incentivized not to ‘buy in’. Because why would you close when you can keep the game of juggling fake share -I mean- musical chairs going for profit?
“Kiting” crimes are associated with the abuse of “float” periods. In securities law the “float period” is the time period in between the previously agreed to “settlement date” and the date when “delivery” finally occurs. Recall that money has a time value. What the SEC cleverly forgot to tell this appellate court judge was that in this “float period” between “settlement date” and the date of delivery the purchasing broker gets to earn the interest off of his own client’s funds and thus he is heavily financially incentivised NOT to order the buy-in of this failed delivery obligation. He has been essentially “bribed” not to. Not only this but he has been financially incentivised to aim his client’s buy orders to market intermediaries that he can count on to fail to deliver that which they sell.
-Same Golden Comment Letter to the SEC
Besides what was previously mentioned of Reg SHO, of course . The SEC wanted to crack down on some short selling issues and to better track Failure To Deliver, so they have Regulation SHO which is quite long and shockingly not-comprehensive.
“Compliance with Regulation SHO began on January 3, 2005. Regulation SHO was adopted to update short sale regulation in light of numerous market developments since short sale regulation was first adopted in 1938 and to address concerns regarding persistent failures to deliver and potentially abusive “naked” short selling.“
So, per the SEC, Naked Short selling dates back to 1930s during the ‘old’ robber barons. (You know, because we have current Robber Barons)
“Reg SHO also requires that broker-dealers borrow securities sold short or have reasonable grounds to believe that such securities can be borrowed prior to effecting a short sale for their own account or accepting a short sale order from another person (the “locate requirement”).”
So you can lend out a share, that’s located, to sell short -OR- 🌈believe 🌈 on reasonable ground that you can locate the shares to be sold short.
See how naked shorting happens? You just got to 🌈believe 🌈– on reasonable grounds that you meet the ‘locate requirement’ of Regulation SHO and you can naked short -sure as illegal shit- you can! I mean, with such ‘wishful’ writing as believing you can, even Thomas the Train could Short the Fuck out of these markets. *Believe in the me that believes in you, -and your ability to short the market. Just who in the hell do you think I am!?*
This is great, because we’re going to segue into-
Disclaimer, this information below is correct however it may be outdated. Some of the new lending programs work off of collateral and SFTs. So shit is constantly changing and being revamped. But the information below is true and DID happen and it is quite recent, so we get a good glimpse at how corrupt and contaminated the markets really are. Just know that this is a look through history, and isn’t indicative of today. If anything, today is probably worse. lmao.
There are stock lending programs, Collateral lending programs, and all sorts of lending programs.
For instance, Margin Accounts can have shares that are owned in street name by small time investors, yet due to the margin agreement, those shares can be lent out. Yes, your broker could lend out your shares because of a failure to read the terms and agreement that you blindly and willingly agreed to. This means Brokers are able to lend out shares that other people own. . . Without requiring the broker to pay you jack shit.
It’s a beautiful thing.
To curtail the idea of Naked Shorting and stream-line lending, the Stock Borrow Program (SBP) came to be. However, when a failure to deliver the share occurs under this program, it’s just documented with a credited I.O.U.
Here’s another jab from the comment letter, this time paraphrased;
“The NSCC is the countra party for all FTDs and is held as a responsible party to ensure the delivery of shares, in the event of a Failure to Deliver, the NSCC is supposed to issue a ‘buy in’ and bill the party that fails to deliver. Yet the NSCC basically doesn’t do that and strawman themselves to say that they are ‘powerless’ and have no real authority allowing FTDs to persist as if NO ONE can do anything to reign them in.”
I Swear, whoever wrote this letter is my Spirit Animal
See, what the SBP allowed lenders to do is, borrow shares to settle borrowed shares. . . To borrow things to juggle the borrowing of things. . . That’s kind of fucked. So instead of finding the actual certificate to issue out and deliver and settle, instead, you can borrow from someone else and reset your FTD. . . let that implication sink in. . .
The faulty design of the SBP facilitates the conversion of “X” amount of paper-certificated shares of a
corporation into perhaps 2, 3 or 12 “X” amount of electronic book entry “shares” . . .
-Comment Letter to the SEC
When you borrow shares that don’t exist, that you never located, and sell that short. That is an egregious version of what is called Naked Short Selling. When you keep borrowing from shares that don’t exist, that you never located, to reset the delivery and settlement of that short that you sold. That is called a Phantom or counterfeit share.
A share in which it’s existence is fake but maintained in perpetuity through contracts and agreements, identical to an original share, but not it’s an original issued share.
Essentially borrowing in perpetuity to keep juggling and resetting a non-existent share to be openly traded on the markets and (theoretically) never to be settled. When the options strategy expires, just pay some premium to renew the options contract for a few months. This effectively kicks down the can.
Then you await your glorious price target to exit, and profit. (or in some cases, never exit and never close, such as Cellar Boxed securities)
So, this is really a glorified I.O.U. program, and ‘real’ settlement doesn’t occur.
And if the NSCC doesn’t like or is unsatisfied with the delivery obligations, then the NSCC can just borrow securities available according to a formula that allocates the borrowing among members who are willing to lend. . . So Existing members with shares can ‘donate’ their shares to meet the Delivery obligations of other members FTDs.
You know, so the NSCC doesn’t have to resort to forcing participants to ‘buy in’. The NSCC has options here. lmao. Can’t have another 2008 on our hands. That would make Wall Street look unsophisticated like there’s a bunch of gambling monkeys at a circus casino or sumtin’.
The obvious financial incentive to “donate” the shares of your own clients into this “lending pool” is that the brokerage firm making the “donation” gets to utilize the cash equivalent of his clients donated” shares for its own uses during the life of the loan i.e. earn interest off of and count towards its net capital reserves.
Further to that, the NSCC refuses to monitor for the obvious abuses that might involve the “donating” of client shares from accounts that are illegal to donate from i.e. from type 1 cash accounts and qualified retirement plan accounts. Instead this “tool to provide investor protection” puts its individual “participants/bosses” on the honor system in this regard despite the monstrous financial incentive to cheat. Only shares in margin accounts are legally allowed to be donated.
Here’s how the NSCC’s SBP is allowed to operate. The NSCC sees an FTD occur and it reaches its hand into the SBP’s lending pool to borrow shares in order to “cure” this FTD. It then electronically transmits these borrowed shares to the brokerage firm of the purchaser of the originally failed to be delivered shares. This firm is then unconscionably allowed to take these recently borrowed shares and place them right back into the same lending pool from which they just came out of as if they never left in the first place.
-From the Golden Comment letter to the SEC, honestly, whomever wrote this is a fucking Legendary Hero
So you can borrow shares from real shares from other members, and through fraudulent means to take advantage of even retirement accounts. Surely they wouldn’t be ignoble enough to violate the sanctity of shares that are sitting there waiting for years for someone to retire? Surely. . . Lmao, jokes.
I’m saying these Wall Street Gambling Clown-Monkeys are going after margin accounts, retirement accounts, pension funds, the teachers, the police, the everybodies of the world. All to fuel some gambling hucksters in high-rises.
“How did you do your underwriting for your picks and analysis?”
“Oh, I used a monkey throwing darts”
Point is, shares are borrowed and just thrown in a pool with the real shares. You can’t distinguish an FTD supplemental share with real shares or FTRs or anything. It’s all just in an anonymous ‘just trust me bro’ pool of shares for the ease of net settlement. Oh, joy.
So you can borrow shares from real shares to supplement the failure to deliver real shares. . . OR you might ask;
What’s the best way to borrow shares that don’t exist?
Well, it’s through Reset Transactions;
One can use a combination of options strategies and swaps to create synthetic long positions to kick the can down the road and reset the FTD. Basically degens on Wall Street think they’re smart, and use a bunch of paper and agreements to invent a new temporary fake share that doesn’t exist. But for gambling purposes, everyone else at the casino thinks it’s a real share. Bona-fide even.
For instance, you could use a Short Straddle;
Or a combination of Married options, married puts, and other strategies to mimic owning a share. Heck, you could probably even buy a Call deep ITM and have that as collateral for a 100 share basis to settle a FTD. I mean, you could execute the call at any time and have shares on hand to settle the FTD and your short position. I’m sure someone is willing to look the other way and accept that sort of reasoning to keep your shorts ‘covered’ and prevent you from having to ‘close’ your position.
For all intents and purposes, you’ve found a way to locate shares to use. We might as well consider it a bona-fide Arrangement. Har. Har. Har.
-Or any one of these strategies can also result in a Reset Transaction;
So these options strategies are ways to create ‘synthetic shares’ or ‘synthetic longs’. I call em Mimics or Mimic shares (I don’t actually but it sounds nice).
It’s a synthetic long in the sense that it mimics the action of the underlying equity. And perhaps some market makers and banks may even improperly mark other equities as being long instead of being short. This is illegal, yet it still happens practically every year. Like seriously, Every. Year. Look at the fines and penalties imposed. I’m not joking.
In theory, this is allowed because of the Stock Borrowing Program allowing for the delivery of an equivalent equity share. If this was non-fungible on an immutable block chain ledger, or if the settlement was T+0 or instant. . . Or if Clearing houses –maybe I don’t know– actually did their job🤡, then none of these problems would exist.
Well, I mean, cheers to a better world.
But of course, these problems are only problems to market participants who don’t abuse naked shorting or phantom shares.
To those that abuse this system, it’s not a bug, it’s a feature.
FINRA even talks about creating synthetic shorts;
Through a combination of Call option and Put options with the same strike price, or other strategies, you can create a synthetic share or synthetic short position. And FINRA says they are ‘considering’ firms to report these. How thoughtful of FINRA, someone’s got a counterfeit share, maybe we ought to have them Report that stuff? Naah.
“In addition, FINRA is CONSIDERING requiring firms to reflect synthetic short positions in short interest reports.”
So, let that sink in a bit.
There is also evidence to suggest Credit Default Swaps can conceal short interest. (using the recent Archegos incident and their position in FUTU with SI of 13.1% with a short position of >500%.)
Look, there’s plenty of ways to Skin a cat. Plenty of ways to Reset Transactions too.
The SEC and sham-close-outs,
Even talks about ‘Sham close outs’ where market participants arrange for the appearance of having closed out.
-From 17 CFR 242.203(b)(3)(iii)
It’s literally in the picture my guy
So you know, it’s not a secret to the regulators that this stuff is going on. That there are fake ‘close outs’ and that reset transactions exist.
It’s not a secret. It’s not a Bug, here’s-
Another ‘Feature’ 👁️👄👁️ of SBP;
So much, wow.
So, with the Stock Borrow Program, Person A can borrow a share to sell it short.
Person B could buy and settle that share to put it in their margin account at their Broker F.
The Broker F of Person B, could then lend out that same share to let Person A, or another person like Person C, borrow it.
Person A or Person C could sell short that same share.
So with one share, you could buy and sell it short over and over. For one real share, everyone records in their books that there is an equivalent of, say, three shares. So one share turns into three. All three owners believe they have 100% ownership of their share (terms and conditions apply).
So how can Three owners with a combined ownership own 300% of one share?
Turns out, that’s how fucked the system is.
Yet this can happen virtually an infinite number of times, so one share can multiply into tens or hundreds.
Multiply like Rabbits . . .
in a Hat Trick
This type of activity Definitely plays into a roll when it comes to shorting more shares than the free float, let alone the outstanding float. As we’ll see some ridiculous numbers of shares being borrowed as compared to the amount of shares in existence. I am not kidding. Like what.
This process of Lending and selling and re-lending; is called Share Rehypothecating or Share Rehypothecation. Essentially re-using the same collateral over and over. (Kind of like how Archegos Rehypothecated their collateral to 8 major banks)
This is all outside of Naked Shorting, however it does play an issue into Corporate governance during Proxy Voting and this is also a problem for Settlement accountability. What I’m saying is, it’s still a problem, but again, for these Market ‘Savants’, it’s a ‘Feature and not a bug’.
“Hard to Borrow”;
Lending (out) Securities is very profitable, it’s even more profitable when the borrow interest rates go up. “Hard to Borrow Securities” have very high interest rates. Which means cash money.
Thus, it’s in the benefit of some Bankies, like Goldman Sachs who gets 75% of their revenue from securities lending (according to Patrick Bryne), to lend out hard to borrow securities with shitty locates.
Did the banks actually locate a share to short? Probably, not. But did the bank certify and guarantee the short seller that they have located a share to short? You bet they do.
I mean, 75% of revenue for a major big bank is a fuckton. Let that sink in.
Patrick Byrnes also talks about how pension funds gambled and loaned out their shares for kickbacks by institutions and banks. An elaborate circus through overnight repo markets to push some numbers and fudge some book entries. All of this resulting in more shares being loaned out than they had in their books. You know, lending fake shares. Synthetics. Counterfeit shares. Or as we know, Naked Shorts.
But I digress. . .
Short selling is borrowing a share to sell after locating it.
Naked Short Selling is borrowing a share to sell without making arrangements or locating the share before you sell. Essentially selling a share that doesn’t exist and putting that bad boy on the glorified excel spread shit called the open market, you know, like a liar.
Synthetic shares are created via options strategies and are meant to mimic a share of the underlying equity. For both synthetic long and synthetic short positions. It’s like a fake share, and these are used to reset the timer on FTDs to prevent it from violating Regulation SHO and ending up on the Threshold List. But of course, to do that, you technically violated Regulation SHO, crack a few eggs to make an omelet type deal.
FTDs that are perpetually fed by Synthetic shares are called Counterfeit or Phantom Shares. They are covered and ‘resetted’ into existence by the synthetic shares. Think of it like a sacrificial alter where you use lesser-fake-synthetics as a blood-libel-offering to invigorate and power the vampiric parasitic machine god we call Counterfeit or Phantom Shares. Yea. Blood for the Blood god. Shares for the Share god.
The Problem with Naked Shorting,
Naked Shorting allows for the development of Counterfeit/Phantom shares. Essentially Naked Shorters can create a free money printer paid out in dollar valuation by the worth of the underlying equity that they’re printing out.
Ideally, the only entity that should have the ability to generate more shares is the company itself. The outstanding float should never be able to be counterfeited and printed out by a third party. There’s a reason why the Federal Reserve and Federal Government tracks heavily on Counterfeiting money operations and Minting issues. The increase of shares is equivalent to inflationary mechanics and results in negative valuation pressures.
So, with Naked Shorting, you could drive a companies’ valuation to the ground and bankrupt them or bully them into unfavorable loans and other Mergers and Acquisition practices. Controlling the price of the company, meaning that price manipulation is possible and is happening. Meaning that the markets are a fraudulent system and share price is detached from fundamentals.
With Naked Shorting, you could also Cellar box and delist companies. This ultimately leads to a desolate wasteland of attacking real businesses and having the US Government be ‘bona-fide’ sanctioning the predatory vulture capitalistic practices of cannibalizing viable business prospects for short term quarterly gains. I mean, I’m not against vulture capitalism, but you should definitely wait until the business is dead first, for fuck’s sake. Maybe be less amoral about the whole thing? It’s fucking Asinine.
With each counterfeit share created, you essentially get theft. The Thieves get an economically equivalent low-fee zero-rebate loan every time the sell a fake share for real money. This is a threat to the Federal Reserve and the valuation and interest rates and intrinsic interest to the US Dollar. Because they’re printing shares and getting monetary value assessed in US dollars meaning that they’re essentially printing money like that of Fractional Reserve Banking. . .
I’m surprised the Fed Bois aren’t stepping up to step in? I guess they either don’t know (unlikely), don’t care (possibly), or are complicit (pretty likely).
Because these Counterfeit shares are redeemable for US Dollars, so they’re artificially inflating and attacking the Strength of the US Dollar.
FBI, Federal Reserve, CIA, The rest of the world, definitely should solve this problem because it directly threatens the strength and value of the US Dollar. As a Tertiary effect, it also devalues and loses faith in the Capital Markets, and what is America’s Value if it doesn’t have either the Dollar or it’s Capital Markets? What, oil? Democracy? Don’t make me laugh harder than I am already.
On top of the fake shares that exist in the markets, for all intents and purposes, each fake-share is viewed as authentic as the rest essentially granting all of those fake shares additional votes. So during Voting Season and Proxy voting sessions, the entire elections and democracies in corporate governance is an entire sham, a scam, a bamboozle.
So Corporate Proxy Voting is a scam and is made worse by Naked Shorting and rehypothecated shares.
Well, welcome to the US markets of today and this is (de?)evolving for the last, idk, 50 years.
Don’t worry, this practice is happening in other markets, not just the US. For instance, in Japan they call this “Sky Selling”. How can you sell the sky? It’s infinite, boundless, and there’s plenty of it. That’s the type of witty name that Japan gave it, because it’s literally selling ‘nothing’, hence ‘Naked’ Shorting.
I mean, doesn’t Religion and sell “Heaven”? Sounds like the sky to me. I kid, I kid.
Now for the Evidence,
There are Suggestive comment letters to implicate Naked Shorting as real, salt and peppered throughout this article for your reader’s digest. Scroll up or down and read them.
I say suggestive, because the words are direct and pointed without the clear cut evidence of it being true. Yet what is mentioned is pretty damning, so ‘suggestive’ is taking things lightly.
Testimony from Companies that were Naked Shorted
Global Links (GLKC),
A man with a plan bought out a cool 5 grand worth of stonks, inadvertently buying about 111% of the outstanding float. Yes, he bought 100% of the float, and also bought about 11% ontop of that. . .
As the trades were settling, people were trading from the unsettled shares. This is what I mean by ‘wiggle room’ that is provided with the settlement period. This particular instance wouldn’t happen in an instant settlement world.
This whole situation was unbelievable, the sad part is, it’s real;
Another investor also bought shares during this time. Two weeks after Simpson bought the float and then some, a Paul Floto bought a stake of 180,000 shares;
And he wasn’t the only one, as others called and said they owned shares too;
Another issue was, Mr. Simpson bought the entire shares outstanding for a small company for about $5,000. That’s a problem, especially when the revenue of a company was around $113,000 for 2004. Even if the company were in debt, there’s no reason for it to be valued at $5,000. Assets are liquidatable even if failing, hence the existence of Vulture Capitalism gutting failed businesses for profit.
Also, owning greater than the outstanding float implies the settlement of phantom shares. Because, how can you own more than 100% of something? That’s a big smoking gun.
So, there was an Ex-FBI agent who did some bad things and fraud and stuff with another accomplice active (at the time) FBI Agent. During the case, there came to light a lot of evidence for Naked Short Selling;
If my sleuthing is correct, the Elgindy case spurred up two other lawsuits, one Sporn vs. Elgindy and another Capece v. Elgindy. There were a lot of claims against the DTCC using a lot of evidence. To my knowledge, the cases were dismissed.
You know, a lot of Naked Short Selling speculation has happened since Enron kicked the bucket, yet for some reason, they all get dismissed.
This lawyer made testimony of 40 stocks that were manipulative short-selling, and nearly all of those cases had Naked Short Selling. A Lawyer saying such a testimony in court is kind of a big deal. What, you think he’s gonna lie and commit perjury?
I mean, you don’t just start lawsuits for fun. Unless you’re rich, don’t care for the rules, and are an asshole. Turns out, people start law suits based on having ‘damages’ and having ‘enough evidence’ that you believe you got a case. Like the evidence has to be substantial enough or there has to be a big clue to allude to hints of finding damning evidence during the a discovery where both parties tug eachother’s band wagon.
So it’s not like people were pursuing litigation against the conglomerate (DTCC and Co.) that is the Financial Market just for fun.
No, what I’m pointing out is that these lawsuits actually meant something.
Even if most of them get dismissed.
Just for the record; I’m not saying the DTCC and everyone is in on it, because proving culpability from incompetence and gross negligence is a semantic argument. I’m not assigning blame, I’m just saying naked shorting exists. I’m not calling someone specifically a thief, I’m saying stealing is real. Catch my drift?
S3 Analytics math proves Naked Shorting,
I’ve wrote a small blurb on how S3 sucks at math in this post here;
Long Story short, they once calculated short interest to be 140%, but decided to change how they did math to get a new value of about 58%. The change that they did? Well they included shares shorted as part of the new shares outstanding. Meaning that any shares shorted add to the actual Shares Outstanding. . .
Yes, it’s that retarded.
So if there is any S3 report with greater than 50% short interest, it means that the whole shares outstanding was shorted. Meaning that there are at least twice the amount of shares authorized to actually be in existence.
Let that sink in. . .
Fintel says Naked Shorts count;
For naked shorts to be counted in the official exchange-report short interest, would require naked shorts to exist. Therefore, Fintel is eluding to Naked Shorts being both real and counted in short interest.
Which, if you look at how S3 does math to calculate Short interest, yea, no shit.
TD Ameritrade specifically mentions Naked;
I mean, why make this tweet at all. Why say specifically ‘Naked Shorting’. Why say ‘not allow’ and ‘at this time’?
What the fuck? Typo? Error? seems a bit much.
Knight Capital charged with Naked Shorting;
Yea, read the article. Naked Shorts. Yea.
Naked Shorting can also happen to ETFs;
I wrote a bit about XRT and it’s short interest being astronomical,
Here and here are the articles.
It’s just virtually impossible to reign in on the naked short positions on ETFs due to the way the ownership is structured (also ETF reporting regulations are pretty shit and not robust or all inclusive);
“The XRT is one of several major ETFs (along with their underlying equity securities)that have had ongoing excessive short selling, a high number of shares owned by reporting institutions (up to 7 owners per share at times, considering just institutional 13-F reporting owners), inadequate share creation to support legitimate settlements, significantly under borrowed shares for short sale transactions, improper reporting of short interest and NSCC fails for several years “
-The SEC report
Yea, cool, seven people can own one share, and that can happen to all shares. Totally not a fraudulent market. Aeyyy O-Kay.
So, even ETFs are fucked. Meaning Pension funds, mutual funds, auto-investards, and the whole stock market is also, -well- fucked.
Not even mentioning the insane Single Stock ETF or ETF arbitrage and Operational Shorting.
Here’s a relatively recent case of possible naked shorting,
Yea, so Naked Shorting is illegal, that doesn’t mean it can’t happen. Just like speeding is illegal, that doesn’t mean no-one speeds.
So these guys settled for a lawsuit alleging Naked Shorting.
Either Naked Shorting was happening, they settled for -insert vague reason about litigation and maybe public image-. Perhaps they were doing something more illegal than Naked Shorting that they didn’t want to get caught with, or perhaps they just don’t like the courts and wanted to avoid dealing with a Legal Battle. There’s a lot of speculation as to why one would settle.
I mean, if this is during the time when the SEC had their own judges and Administrative Court, then it would’ve been a nightmare of a battle for these two small time professors against the entirety of the SEC in their own kangaroo court. So, again, there’s a lot of reasons why one would settle.
So the SEC imposed sanctions/fines against these two professors, and the SEC allegation/report basically states that these two professors were naked short selling and keeping their phantom shares alive through reset transactions or reset trades;
Here’s another court case;
SEC cracking down on some other random people for Naked Shorting;
The DTCC is Complicit in this scheme.
The DTCC is a Self Regulatory Organization that is a consortium of market participants, and the DTCC encompasses many other smaller regulatory arms that control aspects of market regulation such as DTC and NSCC.
The DTCC’s purpose is to act as a clearing house, but due to the nature of the FTDs, the DTCC Simply refuses to do it’s job of ensuring and clearing trades. Because a real clearinghouse would reduce FTDs and hold parties accountable for failing to deliver, while providing money and funds to off-set and reset bunk trades. Because a clearing house’ purpose is to ensure both parties have the goods and that those goods are good to go.
It’s like the Bar Tender’s job to cut people off drinking if they’re acting a fool. And I’d argue and wager that there are multiple market participants acting a fool.
So the DTCC is complicit for it’s inability to do it’s job and there is evidence that they hide their complicity;
Does that mean the DTCC is the thief? Not quite, they are like shitty lifeguards. Just not doing their jobs.
Regulators turned a blind eye in 2008,
You know the whole market meltdown of housing crises in 2008? Yea, Regulators helped to perpetuate that by allowing a shit ton of short selling to occur, all of which could not be physically possible unless naked shorting existed;
How could ten times the shares issued be traded when the shares issued were owned by institutions? Sure, you might be able to trade the shares through stock lending, but not double the existing shares. Double the existing shares implies the ability to borrow either the entire shares issued (unlikely) or rehypothecate shares being borrowed over and over and over again to equal the shares issued (also unlikely).
Even if you were to borrow and sell short the shares issued, you definitely would not be able to sell short or trade more than double the issued shares. That would require an astronomical amount of lending and rehypothecation which, I’d be willing to bet a bag of chips, that that isn’t realistically possible.
Of course, the above information is based on trade volume. It’s just not realistic to think you can trade something being held more than ten times and not have something fishy going on. Trade it 16 Billion times, no less. . .
So of course, there is supposed to be a lot of failures to deliver, right? I mean, how can you trade ten times the float when the float is locked?
Because most of the frequent offenders wrongly label their positions or improperly ‘locate’ their shares before a borrow, they get slapped a fine by FINRA which is basically settling things behind the scenes. No real justice happens, the companies that got shorted received the real damages but not the compensation. Yes, these finely Self Regulated Organizations get to slap some wrists, get their performance fee via ‘fine’, and carry on with the crime show.
Even the late Senator (at the time) John McCain calls people out;
During the 2008 thing, the SEC is complicit. A US Senator says so, and that should mean something.
So yea, even members of Congress are pointing out some of the ridiculousness of the regulatory captured SEC. The SEC allowed a short window to undo investor protection, resulting in market collapse. That’s like someone driving and take out their brake lines. Rough.
Here’s an excerpt;
Someone taking an excerpt out of the book ‘Lessons Not Learned’ by Dr. Trimbath
So, uh, the Regulators are most definitely not doing their job. After more than 5,000 complaints in the last two decades, not shit has happened. Since, you know, people are still naked shorting to this day.
The SEC at one point had to order people to stop Naked Short Selling, lmao, can you even believe this?
Naked Shorting was so out of whack and illegal that the SEC had to formally tell major firms to stop doing it in order to protect market integrity in 2008. (this was most definitely related to the Threshold Securities and FTDs mentioned earlier in the preamble).
Patrick Byrnes lead the charge at Overstock to litigate against the Naked Short Sellers.
And Overstock sorta won. I mean, it was settled out of court, resulting in a payment of 5 million;
So yea, sort of won. Sorta.
Here’s a really recent case of Naked Shorting,
This one kind of sounds like a confession, but I’m going to say that this is all a figure of speech in order to protect anyone’s culpability. And that the words and messages contained are not an admission of anything whatsoever, and this video was definitely edited so it can’t be used for legal purposes.
Anyways, So I caught a nice tidbit of our Pharma Bro, that got out of Jail, talking about Naked Shorting.
He basically talks about having short more stonk than the float;
So Naked Shorting hurts even the ones, that by accident, end up Naked Shorting.
This results in, basically, Naked Shorting
What’s worse is that there was someone who took the other side of the trade and owned more than 5% without having to follow any of those disclosure requirements. So the buy side was equally rigged. So much for Market Maker Privileges.
I mean, why should anyone own more shares than there are in existence? So we now have clandestine Quantitative Hedge Funds that seek Small Time Naked Shorters to squeeze them?
Meaning that these Quantitative Hedge Funds could also be reigned in on a tight leash by a larger organization or ‘club/consortium’, allowing Naked Shorting to exist in specific instances. You know, the problem with Vigilantism is that the Vigilante’s can sanction the crimes. Much like Cops, but you can hold cops more accountable than a vigilante who doesn’t report their moves. Well, in theory. Lmao.
What I’m saying is, it’s lawless as fuck when it comes to naked shorting and enforcing it. The SEC sucks, and there’s a lot of back room deals to what can or cannot happen in these markets.
The Fact that there are Naked Short Selling Hunters using quantitative algos, proves that Naked Short selling exists. I mean, besides all the other evidence above. And even the possible direct admission of naked shorting via Pharma bro.
Wall Street Veteran talks about Naked Shorting;
Charles Gradante, a Hedge Fund Manager, at CorpGovEvent calls out a couple people and also talks about naked shorting, the lack of penalties, and options used to drive price action of stocks.
This whole thing is great, but I got a tldr below
(Summary of CorpGoveEvent with Charles Gradante) Basically;
Retail buy pressure and excessive options requires market makers to take the other side of the trade. Market Makers do this to remain Delta Neutral, so they are sorta forced to take the opposite side of the trade, especially if they keep supplying liquidity and ‘making the market’. Because they make money from doing this, typically.
What ended up happening was, the market maker took the other side of the trade and was losing a fuck ton. And the Market Maker started making synthetic shorts and naked shorting.
That and they mentioned the fact that NYSE trading desks felt sick to their stomach on the order to only execute sell orders.
So, ya know, it’s fucked.
I mean, the SEC report even stated that the January GME 2021 event was due to Retail buy orders. . . You know, the trade volume was over 1 billion. . . And it was due to buy orders. . .
In a company that doesn’t have a billion shares outstanding. . . . . . .
They (GME) had at the time, about 75 million shares. . . So, a billion shares of buy orders mixed in with naked short selling. . . Over the span of a month.
Yea, Naked shorting is real.
Really important sources;
SEC Comment letter on S7-08-08
SEC Report on S7-08-09 Where are our regulators and who are they protecting?
SEC discussion on Reset Transactions and Circumventing Regulation SHO
SEC comment letter Trash Talking the SEC, DTCC, DTC, NSCC, and it’s fucking Gold.
A guide to Naked Shorting via underwriting and ‘stabilization’
This video detailing how profitable securities lending is. Resulting in making up to 75% of Goldman Sachs’ revenue.
Other equally important Sources;
A research paper on the Overview of the Settlement Process
Wikipedia article on Naked Short Selling
The Uniform Commercial Code, article 8 because, idk, maybe you read law or something. You look like a lawyer with your mug-ass.
Some person talking smack about the Collateral Lending program.
This shitty letter to the SEC from the DTCC that defends the Stock Borrowing Program by selling lies. They are lies because it states that shares for lending have to be ‘otherwise unencumbered’ which is a fucking lie since the rehypothecating shares already lent out defeats that. Like, what the fuck. You can’t lend out a share that is bought on loan and expect it to be ‘unencumbered’ for loan obligations or lending purposes.
This dive into Naked Shorting a Company with a very viable cure for testicular cancer. Point is, Naked Shorting can kill viable companies, resulting in a net negative for all of society. You can do the math, turns out, naked shorting is bad for civilization.
A 2006 article detailing the problems of naked shorting titled; Naked Short Seller hurt companies with stock they don’t have by Bob Drummond (here’s a mirror link)
Honestly, there is so much evidence for Naked Shorting, that you’d have to look it up yourself to even get the tip of the iceberg. All of the above is at minimum, suggestive, and realistically damning.
Naked shorting is so real, they had to ban it. Yet people still Naked Short.
Naked shorting is so real, that there are quantitative hedge funds with algorithms looking for Naked Shorts to profit from by creating a squeeze scenario and bleeding the short side in a war of attrition utilizing their LTV interest and borrow rates.
There is a slew of evidence pointing to Naked Shorting and Phantom Shares being real. All of this undermines the integrity of the Markets and the ability of a company to be able to raise capital honestly.
There are also Included, comment letters and the SEC Chairmen talking about this issue.
Billions and Billions of dollars are perpetually being staked while not addressing this issue.
And it is, in fact, an issue.
Because of Naked Shorting, that means the Stock Market is fraudulent. I mean, who knows what’s a real share and a fake counterfeit? So the Stock Market is a scam, here’s another reason to add to the pile of reasons. Yea, Robber Barons are still Robbing.
So, anyone who says Naked Shorting is a myth or a unicorn or dismisses it, is either misinformed or full of shit. This all depends on their exposure to the markets, the more they know, the more full of shit they actually are to deny Naked Shorts.
Now you know, so don’t let the Media gaslight you into thinking Naked Short Selling isn’t real, or that it’s currently not happening. You can point to ETF data or new S3 Math and calculate that it’s happening today. Let’s not get this shit twisted. This shit is real.
Here’s some quotes to leave you with;
“You only find out who is swimming naked when the tide goes out.”
“He that sells what isn’t his’n, must buy it back or go to prison.”
-Daniel Drew, ‘Robber Baron’
*Not Valid Financial, Legal, Life, or Any Advice.
Some Side comments,
Here’s Investopedia with really biased and shit takes, (I included this to one, talk shit, and two, to show you what bad pussy looks and smells like. That means bad and false advice.)
Naked shorting increases liquidity,
Uh, yea, you’re not going to mention the impact of negative price action due to a dilution of liquidity and increased artificial sell pressure?
What about increasing liquidity as demand within the marketplace doesn’t increase? Ya dumb cunts.
If you add more fake shares, and buy pressure is the same. Then the price is going to trend downwards because you added MOAR sell pressure. Got some Daft Cows running Investopedia, I tells ya.
“Naked shorting could help,”
Uh, ya, you’re not going to mention the opposite side of shorting companies into oblivion? No?
Or the fact that the statement ‘Market Signals can theoretically be delayed inevitably’ implies market manipulation? I mean, it’s bad enough we Got the Flash Boys and HFTs trading on market signals, but now you’re saying they can be altered? Delayed Inevitably. Fuckin A.
All of these benefits for naked shorting could be accomplished by regular shorting. If you can’t borrow to short sell, then obviously the only way to short sell is to do it naked. Perhaps, hear me out, what if you didn’t naked short sell? Then you wouldn’t have to worry about short selling when there isn’t liquidity.
Holy fuck- it’s asinine and inane how retarded some words strung together can be,
So this is what bad pussy (advice) sounds like, this is ‘in defense’ of Naked Shorting. And let me tell you, the benefits of naked shorting do not outweigh the disadvantages, unless you’re making the money by naked shorting.