This really tells the reality that TSLA is an ideal target for the unclothed vendors.
In times past I may have mentioned that in 1973 as a very freshly minted banker (Very fresh, I'd joined them direct from graduate school a few months earlier) I was, with other new colleagues, sent to look at DTC from an operational perspective. Why, I don't know, my bosses bosses boss seemed to want to say they'd looked a bit. Skipping every detail, DTC was better than the bizarre 19th century habits preceding it, but had very minimal controls. I was not competent to say anything critical, given the only experience I had was some amazing seminars with Wall Street types and two memorable one in the early stages of the Oil Shock, and one two years earlier is Nixon quite the gold standard. Perhaps that background was why they chose me.
The real shock was that no person I met at a senior level had even a vague clue about DTC rules nor even exactly how anything worked. Operations was beneath them. Thus, market makers ('whatever they are" from a renowned CEO on hearing our report) made the rules.
Everything that is important to us is not a secret at all, just excruciating. As much as people justifiably abhor the Madoff Rule, the reality is even stranger.
Honestly if anybody really wants to know exactly how the manipulators both generate volatility and profit from it. TSLA has every characteristic to encourage manipulation, beginning with a large, gullible, indecent thinking retail base that can be conned into accepting quantitative analysis foibles without examination, precisely because they do not know the details.
Here they are:
DTC brings efficiency to the securities industry by reducing costs, immobilizing securities and making 'book-entry' changes to ownership of the securities.
www.dtcc.com
Last comment. In my humble opinion this cannot be really understood without going into all the details.
Subsets that also show why short selling will not stop and why no real investor protections exist:
-securities lending-read the details, otherwise you'll miss it.
-Custody and Master Trust- lose Global Custody and Global Master trust and lose the giants.
- clearing and settlement are the secret sauce for all of this. That is why Depository Trust Company is at the heart fo the matter.
This is all crucial to understanding how retail investors should evaluate the manner of investing in any US listed security, but especially TSLA.
After understanding DTC in all it's arcane glory, the next is CBOE, which even promotes itself as "The Home of Volatility Trading". That is even more obscure than is DTC and equally fascinating. I will not comment further on that one.
There are quite a few of us in TMC who have been directly involved in these processes.
For every one of us there is a 'tell', we all fairly beg people to have nothing to do with any derivative, option or future, not even margin (explicitly margin account- opening one lets your own shares to be involved in this with or without your knowledge, even though you can usually make a modest gain by officially lending your shares. Why that is so is another long arcane set of rules ending with the word 'custody'.
Anybody thinking about anything other than HODL should realize that dealing in US securities speculations is NOT in any way analogous to Casino gambling. Why? Casinos have strong and specific regulations everywhere they operate and are subject to serious regulatory oversight. The US securities markets are 'self'regulated' by intent. History is littered with Teapot Dome, The Great Depression, the Gold Standard, Oil Shock, 2008... all of those were provided courtesy of securities and banking industry lack of effective regulation.
If anybody really wants to know the nauseating list of banking, brokerage, processor and investment banking failures I personally have worked on in my four decades of all that I can discuss the non-NDA cases via PM with appropriate validation, including an NDA from me.
I mention that only because I really detest for people I like and respect to be harmed by avoidable risks.
I am writing this today because several people close to em have lost their life savings in the bankruptcy of Lojas Americanas, one which was also perfectly predictable in which highly competent billionaires did not pay attention to their own data. FWIW, a relative who was involved got out without undue harm. I cannot help but beg people to take only risks they understand and to, even then, do it very safely, i.e. HODL and watch every detail. TMC helps do that for TSLA, for which I am very grateful.
I really like your bit saying that things like options trading gives casino gambling a bad name,
since casinos are better regulated! It's been a while since I studied Regulation SHO, the Madoff
"market-maker exception", T+2 clearing (so now they changed it from T+3 I see -- should it go to T+1 or better?)
I used to "invest" (read gamble) in biotech stocks, which were really gamed by the shorts, understandably
because they always needed $$ to fund the next clinical trial. This mostly via stock dilution (either
favorably straightforward when there was excellent news, but more often via sneaky "below-market discount"
offers, more nastily via "pipe" (Public Investment in Private Equity) tricks. I survived partly by not investing
much until phase 2 clinical trials were passed.
I'm sure you must have opinions about the defects these days of:
A 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs.
www.sec.gov
For me, seeing the recent testimony of options trader Littleton during the SF Tesla trial was eye-opening.
Here was a dude who was so sure of himself coming from a career in commodity futures trading where
you make delta-neutral hedges on often boring stuff like corn and soybeans. I heard somewhere that
rookies to the (now obsolete) open-outcry pits in Chicago were trained by trading nothing but soybeans
for awhile until they got sick of it.
Back to Littleton, he fell in lust with Tesla, and thought his mid-western commodity-trading skills
were transferable to trading TSLA. (He'd never own shares long or short due to TSLA volatility,
thinking he could always hedge his way out of it.) When he talked to the trial lawyers and
the jury a few feet way about "following the greeks" on his trading platform, it must have
been a big yawn to them. Now, because I don't do derivatives (anymore), I wonder if he was completely
flummoxed when the 420 tweet seemed to fix a price which worked against his longish bent.
Perhaps this is all in McMillan's options tome, but maybe he could've saved himself with some
synthetic iron condor/butterfly spread, beyond my pay grade. In commodities, there seems to be
some basic fluidity to roll with, but can anyone drive everyone out by "cornering the market" at a fixed
near-term price? I do remember the silver market cornering attempt by the Hunt brothers in
the 1980s, but that was like a short-squeeze which couldn't last.
Back to the Tesla trial, yesterday the plaintiffs brought forward a possibly more jury-sympathetic
erstwhile loser in the guise of a Mr. Fries, presenting him as a regular "family guy" helping to put
three kids thru college. He, after "waiting for a good entry point" waffling about owning
Tesla shares in 2017, leaped at the opportunity to buy the day after the 420-tweet,
plunking down for 50 TSLA shares, ~$18,500 at the time. He said he sold for about
a $5K loss (in September, not during the next week when TSLA just faded back to relative
pre-privatization "normal"). Asked why he was there on the stand, he sheepishly admitted
that the class-action law firm recruited him via a survey ad, heard his grievance that the loss
to avenge was entirely due to Musk, and he wanted to be made whole again. Apparently the
class-action sharks specifically select "lead plaintiffs" from the responses, paying plane fare
to/from the trial but no consulting fees as they do for expert witnesses (like the $19,500 per
hour professor who was next on the stand.)
Holy moly, will the jury really think that damages, if any, must be set as if no one had individual
responsibility at all for their trades? (What's that in legal parlance, "assumed risk",
or "contributory negligence", or just extra-legal old-fashioned gullibility?)
Is Mr. Musk a Svengali, whose every tweet is gospel? As a largely-socialist Tesla driver, I
hopefully differentiate Elon's Twitter-sphere persona from the Tesla-sphere...
At any rate, thanx for your perceptive commentary which inspired this post.
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