"Impact of Counterfeit Shares on Stock Price"
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Securities hocus pocus allows MMs and hedgies to create millions of counterfeit shares. All is explained in the "Citizens for Securities Reform" White Paper
Counterfeiting Stock 2.0
Also available as a 45 page
PDF with Appendices.
Best TSLA-related read of 2020 (even though it was written years ago). Explains much (if not all).
Lodger
#NakedShortSelling
yes, finally we have a write-up that goes into a little more detail about the methods used to finagle transactions, as far a single organization using multiple onshore/offshore companies/entities/LLCs/LPs to offload positions and/or transact with to “restart the clock”.
to me the key points are these, since we already know most of the rest of the story;
(note the first bullet point is old T+3, not new T+2 settlement cycle - this article is 5-6 years old)
- Settlement of stock transactions is supposed to occur within three days, at which time a naked short should become a fail–to–deliver, however the SEC routinely and automatically grants a number of extensions before the naked short gets reported as a fail–to–deliver. Most of the short hedge funds and broker dealers have multiple entities, many offshore, so they sell large naked short positions from entity to entity. Position rolls, as they are called, are frequently done broker to broker, or hedge fund to hedge fund, in block trades that never appear on an exchange. Each movement resets the time clock for the naked position becoming a fail–to–deliver and is a means of quickly getting a company off of the SHO threshold list.
- The prime brokers may do a buy–in of a naked short position. If they tell the short hedge fund that we are going to buy–in at 3:59 EST on Friday, the hedge fund naked shorts into their own buy–in (or has a co–conspirator do it) and rolls their position, hence circumventing Reg SHO.
- Most of the large broker dealers operate internationally, so when regulators come in (they almost always “call ahead”) or compliance people come in (ditto), large naked positions are moved out of the country and returned at a later date.
- The stock lend is enormously profitable for the broker dealers who charge the short sellers large fees for the “borrowed” shares, whether they are real or counterfeit. When shares are loaned to a short, they are supposed to remain with the short until he covers his position by purchasing real shares. The broker dealers do one–day lends, which enables the short to identify to the SEC the account that shares were borrowed from. As soon as the report is sent in, the shares are returned to the broker dealer to be loaned to the next short. This allows eight to ten shorts to borrow the same shares, resetting the SHO–fail–to–deliver clock each time, which makes all of the counterfeit shares look like legitimate shares. The broker dealers charge each short for the stock lend.
they mention the anatomy of an attack, but we also know plenty about how a short attack unfolds..what with everything we’ve seen and read in the past, the book ‘the divide‘, the livenomore posts, the cramer youtube video, the short and distort tactics we’ve witnessed.
while there may be some conflating of descriptions/definitions in that write up, and some facts may be incorrect, technically, the overall gist of it is as good as we have seen in one cohesive write up. note i mentioned the timeline is now shorter because of T+2. and also, i have to brush up on refco, because i was under the impression that was more about futures and forex, and not stock/equity. that said, none of that nitpicking discounts the likelihood that the author is overall correct though, about naked shorting.
although we still don’t have a live example (as far a what’s provable in court beyond a reasonable doubt), it’s becoming more clear that it’s a real possibility this goes on a lot...more and more likely the reason we don’t have a real life paper trail/audit/court exhibit of one of these is because they’ll never take down a medium dog, let alone a big dog, because it will expose them all!
again, there could be some nitpicking
here and there. for example, the part below “here is the hocus pocus that creates millions of counterfeit shares” i’m having a hard time understanding, due to the authors interpretation of how shares are organized between the depository participant (brokers banks etc) and depository (dtcc).
the whole ensuing 2 paragraph description seems off, as far as market practice (mechanics and reporting). but they are correct with info in the later paragraphs and admit as much with the sentence “the actual process is more complex and arcane than this, but the end result is accurately depicted”.
however, even if we assume the author is wrong, and assume that at least
this part of the system works fairly and accurately... it doesn’t impact the end result....meaning that if we assume at least that dtcc participants are within finra rules for reporting and categorizing long segregated customer shares versus non-segged (or free-excess) margin shares....it
still doesn’t nullify the amount of shares available/duplication effect
or negate the usurping of rules described in offshoring/onshoring position shuffle.
so even if we disagree with some of the authors description of the mechanics of settlement, it simply doesn’t matter.
you’ll still end up with an amount of margin shares that companies use to support the stock borrow/loan market,
and with the replication of position via the two-step entity shuffle, combined with the ability to ‘offload/hide’ positions for ‘n’ days, that provides the wiggle room to shake and bake the regulators.
which is interesting because the mechanics of settlement and market practice rules result in tangible activity that can be demonstrated and explained to any entry-level backoffice newbie or finra regulator.
what’s not scribed in that same stone are the loopholes.
this story showed us some of those potential loopholes, and how they are used to commingle with the written rule.
paging
@FrankSG since we spent some time messaging about this. still subject to interpretation, but a bit more data to shed light on the ‘operators‘
