Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

[Knightshade]

But yesterday you were certain it was much more than that.

You are once again incorrect.

In the post you quote I mention there's a difference legally and accounting-wise.

Same thing I said yesterday.

And that there's impact on the shorts if it's really a dividend- same thing I said yesterday.

You seem to be working really hard to find something to argue about here by making up things nobody said or misrepresenting what they said previously. It's disruptive to the forum.

 

[Zero CO2]

A stock dividend/split won't be taxed differently regardless of what you call it or it's underlying structure.

I've never been a naked short (that's reserved for market makers) so I can't tell you if this temporarily impacts their activities but I can say that naked shorts are a relatively minor portion of total shorted shares and any effect it may have would be transitory in nature. Likely a non-event in the bigger picture.

By far, the largest impact to markets is the psychological lowering of the price. Many investors who can't seem to wrap their heads arounds Tesla's outstanding opportunities that still lie ahead of them will no longer view the price of Tesla shares as being at "nosebleed" levels.

This is actually a huge advantage and is related to the same reason why Musk originally was somewhat reluctant to split shares. Namely, he wanted his TSLA successes on full public display with a huge share price relative to the low IPO price. The high share price was a feather in his cap. This split dilutes the that impression in a psychological manner that is impossible to understand from a rational perspective but Musk is a rational person and, when shown how a stock split would help TSLA achieve it's goals he understood it was the right thing to do. This is the same psychological effect that help power TSLA shares higher. It removes the perception that Tesla is priced at "nosebleed" levels and very bad things will happen to anyone willing to pay that much. Silly, I know. Thankfully, Musk is a pragmatic realist.

many of us bought the shares after owning the Tesla vehicles ... a lower entry point for retail investors who may have just been introduced to Tesla/TSLA is a great move IMO.... we still have a multi-bagger going forward .... we really needed this news as this thread was getting very boring the last few weeks ...all the Lucid talk yesterday was making me ill

 

[mongo]

Shorts are required by SEC regulations to provide an equal dividend to the lender that the lender would have gotten had they not lent their shares.

Isn't the broker ultimately on the hook to make the original owners whole?

If this is a dividend action, and not a split, the shorts must provide 4 real, voting, non-artificial shares per 1 borrowed share in lieu of the dividend the lender would've gotten on August 28th.

The shares are owed to the broker, not a specific individual. As such, the broker has control over the payment.
If an investor is short a dividend-paying stock on record date are they entitled to the dividend?

So the broker controls the lender's transition from 1 share lent to 5. Along with the recipient's 1 to 5.

 

[Knightshade]

From Barron’s, for what it’s worth, they see no unusual impact on options traders.

Tesla Stock Is Splitting 5 for 1. This Is What Happens to Options. — Barron's

I don't believe anyone has suggested otherwise.

The only point of debate was impact on shorts

 

[Pezpunk]

Should I hold off buying more shares until after the split? When is the cut off date?

1. it doesn't matter. the pie is still the same size. they're just carving it into smaller slices so people who aren't hungry enough to buy a $1500 slice can still have a smaller bite.
2. The split goes into effect after trading ends on August 31st.

 

[Krugerrand]

I never said otherwise, you don't appear to have understood the post to which I was replying or, in context, the reply.

You’ve said multiple times over the last three exhausting discussions you’ve involved yourself in that people don’t understand what you posted.

Hate to break it to you (no, actually I don’t) but that’s a reflection of your ability to write clearly, concisely and succinctly. I’d love for you to embrace just the last trait.

 

[CLK350]

I appreciate the detailed breakdown follow up of ArtfulDodger by Mongo Tesla, TSLA & the Investment World: the 2019-2020 Investors' Roundtable
So trying to make sense of the mechanics and implications - corrections/ clarifications gladly accepted


TLDR (executive summary): This is a brilliant forced reset of all short positions for 8/31. Shorts are welcome to short again after 8/31, but as of 8/31 when the market opens there should be zero short positions. Bravo Hiro and the team!

From the thread mentioned above w/my modifications underlined:

" ..
A has a share
C shorted it and sold to B

At this point (pre Aug 21st)
A -> one share (on record at brokerage) rather than (really a placeholder)
B -> one share (on record at brokerage) rather than (and they don't care where it is from)

Expectations on Aug 31:
A -> 5 shares
B -> 5 shares

Behind the scenes:
A : nothing changed rather than Was not the holder of record
B : nothing changed rather than was a holder of record
Brokerage got 4 new shares"

In other words, here's my question: isn't it *the brokerage* who is the owner on record of the original 1 (to become 5) shares, and it represents to A and B that they own 5 shares each?

At any time *until Tesla Corp's distribution of 4 shares to 1 for owner of record" there is only 1 real share, the other 1 is "notional", of a transitional/ artificial nature because it ceases to exist when/ if C buys "it" back (meaning buys back 1 "paper one representing either a real or notional one, the exchange /broker doesn't make a difference").

So if the brokerage is the owner on record, it then gets 4 new shares on 8/29; and it is up to it to allocate them to BOTH A and B. Which is clearly impossible. THEREFORE *all* "notional" shares wherever they live MUST be zeroed out before the end of trading day Aug 28.

Which means C has to buy back its borrowed notional share on the existing market BEFORE Aug 28. Else it is a "failure to deliver situation" for the brokerage to A and B however they want to allocate the 5 missing shares. What would come next (pandemonium?) I have no idea. Changing the rules on an exception basis? The SEC et al are pretty corrupt, but would they dare be so blatantly out of sync with their own charters?

PRACTICAL IMPLICATION: I am NOT selling any shares, for sure till 8/31; the MM will probably try and shake the SP even lower, but I can't see the SP going down unless due to macros. Pondering stretching more and buying more shares LOL

OT: the Tesla / SpaceX / Boring / Neuralink / Elon show has to be the greatest show ever (real or concocted) barring wars which aren't all that entertaining except for Martians. It's hard to concentrate on the daily "normal" duties with all the developments going on, now the race between Giga Shanghai/ Berlin/ Texas, and the advances in battery tech, car tech, AI tech, space tech, now financial maneuverings, ..

PS. Corrections added - please note this post isn't correct! - as JRD1 rightfully posted I forgot to take into account that C has a -1 (to become -5) position. So the brokerage doesn't have anything to do...
I am leaving this post up for entertainment/ educational purposes.
See also the very insightful follow up by Mongo

 

[Highway2Heel]

Announce a split to push the share price higher and THEN do a secondary for S&P inclusion that requires buying at higher prices...followed by ExxonMobil being punted from the DJIA and TSLA being added in its place right after S&P inclusion.

 

[willow_hiller]

So if I own a share on August 21st, I'm supposed to get a dividend of 4 shares after the 28th. What happens to people that buy a share between the 21st and 28th?

This was answered last night by @bhtooefr when I asked the same question : Tesla, TSLA & the Investment World: the 2019-2020 Investors' Roundtable

 

[Unpilot]

Group hug...while we watch the SP rise?

 

[ggr]

It's not a dumb question. The question is due to the wording from Tesla: "Each stockholder of record on August 21, 2020 will receive a dividend of four additional shares of common stock for each then-held share, to be distributed after close of trading on August 28, 2020."

Hence, the question is regarding what happens to shares traded from Aug 24-28. Thus far, I haven't seen a very good answer to this other than insisting that nothing happens. If that is the case, why is Aug 21 even mentioned? Why not just have Aug 28 be both the "stockholder of record" date as well as the distribution date?

That's a fair question. Behind the scenes, in the brokerage houses and exchanges, things will change. What we individuals think of as a simple stock buy/sell isn't, really; it's a contract being entered into between the buyer and seller for the seller to deliver shares within three days, with the broker(s) being party to the delivery. During that intermediate period, the contract actually says "by the way, you also have to deliver the dividend shares you are eligible for." It makes no difference to you and me. But it does to the accountants and bookkeepers at the brokers.

 

[Nocturnal]

The whole market is green. Gonna be a good day.

 

[S3XY]

Let's simplify this. Is it your postion that TESLA will issue new shares to cover the approx. 48 million shares (5:1 basis) that short sellers will have to provide to their lenders on Aug 28th?

Because it's my position that Tesla will NOT, and it is the legal contractual obligation of the short selller to provide those shares to the owner of the borrowed shares.

Which is exactly what would happen with a cash dividend. The short needs to pay the dividend to the registered owner. This reality has been stated and agreed to many times on this board.

 

[M|S|M MYP]

Apologies if I've missed it but no one seems to have covered this. I have a Model 3 on order, due for delivery in September. Will I receive 5 small cars or one normal size car in 5 pieces?

Assembly not included....5 pieces split into 5 more....then, you put it back to 1 whole.

 

[Driver Dave]

Been thinking about splits...

The pie stays the same.
The cost of piece goes down.
This changes buyers' perception.

Now some buyers may say, hey, that piece used to be 5 times as big.

But most just say "I like pie. I want pie. I can afford that piece. Yay pie!"

And if you have more buyers who want that pie, those pieces are going to tick up in value.

So splits may not be everything, but they aren't nothing, because price lowering is something when you are dealing with markets.

TSLA up 6%

Yay pie!

 

[Boomer19]

Isn't the broker ultimately on the hook to make the original owners whole?



The shares are owed to the broker, not a specific individual. As such, the broker has control over the payment.
If an investor is short a dividend-paying stock on record date are they entitled to the dividend?

So the broker controls the lender's transition from 1 share lent to 5. Along with the recipient's 1 to 5.

brokers are intermediary between long and shorts

im short 100 at broker a
youre long 100 at broker b

broker a has a 'borrow' contract open with broker b for 100 shares at marked to market

now we're:
short 500
long 500
a borrowing from b at market price

thats the simplest form of the transaction.

but in reality,
everything from T to T+1 is tracked via CNS (Continuous Net Settlement) at NSCC (National Securities Clearnig Corp) and then all broker's NET settled position is held at depository DTCC (Depository Trust and Clearing Corp)

the split itself doesnt force me to cover my short, as seen by the resulting transactions above . the borrow contract is adjusted between broker a and b to track my short, and its obligation, and your long and loan amount.

if the bullish action caused me to cover and get out of the way (which may or may not happen to some) then i buy to cover/close
the buy transaction clears through NSCC and settles at DTCC on T+2. at which point broker a 'returns' 500 shares to broker b, and broker b returns the collateral.


IF, it was a cash dividend, then id be debited the cash div amount and youd be credited on pay date
broker b would charge broker a the cash div

for stock dividend, the amount would be added to the contract as well, but it would remain open as long as i was short. if you sold, then my broker wold need to find a new 500 shares to borrow for me, or they would force me to close if tesla became hard to borrow

 

[Krugerrand]

On the flip side, there's also a psychological component to a stock with a comma in the price. It makes the company seem more legit. I know when I see a stock with a large price, it demands respect. I'm not against the split, but I do like image of the stock having a high price.

Don’t worry. TSLA will have the comma again in the not too distant future.

 

[Knightshade]

You’ve said multiple times over the last three exhausting discussions you’ve involved yourself in that people don’t understand what you posted.

No- the same small handful don't. Seemingly intentionally in a couple specific cases

Many others- including Artful Dodger, Papafox, ggr, etc all seem to understand just fine and agree with what I was presenting.

Even most of the folks who participated doubting the short impact was a thing seemed to understand what was said just fine, they simply disagree about the practical impact of it because they believe the brokers will just handle everything behind the scenes.

Seems more like a reading problem with a select few than a writing problem on my part.


And obviously the entire topic is of pretty significant relevance to investors- if the analysis from AD and others is accurate then there'll be at least some amount of increased buying/covering in the next few days that wouldn't have necessarily happened otherwise, which can impact the SP. If the opposing view that it'll all just be handled on the back end with the brokers just summoning up 4 real shares for every share borrowed and the shorts just go on the books as having borrowed them to cover their dividend obligations then less so... though some might still decide they want to close their position rather than be short 5x as many shares even if the price on the 31st is the same.

 

[JRD1]

I appreciate the detailed breakdown follow up of ArtfulDodger by Mongo Tesla, TSLA & the Investment World: the 2019-2020 Investors' Roundtable
So trying to make sense of the mechanics and implications - corrections/ clarifications gladly accepted

TLDR (executive summary): This is a brilliant forced reset of all short positions for 8/31. Shorts are welcome to short again after 8/31, but as of 8/31 when the market opens there should be zero short positions. Bravo Hiro and the team!

From the thread mentioned above w/my modifications underlined:

" ..
A has a share
C shorted it and sold to B

At this point (pre Aug 21st)
A -> one share (on record at brokerage) rather than (really a placeholder)
B -> one share (on record at brokerage) rather than (and they don't care where it is from)

Expectations on Aug 31:
A -> 5 shares
B -> 5 shares

Behind the scenes:
A : nothing changed rather than Was not the holder of record
B : nothing changed rather than was a holder of record
Brokerage got 4 new shares"

In other words, here's my question: isn't it *the brokerage* who is the owner on record of the original 1 (to become 5) shares, and it represents to A and B that they own 5 shares each?

At any time *until Tesla Corp's distribution of 4 shares to 1 for owner of record" there is only 1 real share, the other 1 is "notional", of a transitional/ artificial nature because it ceases to exist when/ if C buys "it" back (meaning buys back 1 "paper one representing either a real or notional one, the exchange /broker doesn't make a difference").

So if the brokerage is the owner on record, it then gets 4 new shares on 8/29; and it is up to it to allocate them to BOTH A and B. Which is clearly impossible. THEREFORE *all* "notional" shares wherever they live MUST be zeroed out before the end of trading day Aug 28.

Which means C has to buy back its borrowed notional share on the existing market BEFORE Aug 28. Else it is a "failure to deliver situation" for the brokerage to A and B however they want to allocate the 5 missing shares. What would come next (pandemonium?) I have no idea. Changing the rules on an exception basis? The SEC et al are pretty corrupt, but would they dare be so blatantly out of sync with their own charters?

PRACTICAL IMPLICATION: I am NOT selling any shares, for sure till 8/31; the MM will probably try and shake the SP even lower, but I can't see the SP going down unless due to macros. Pondering stretching more and buying more shares LOL

OT: the Tesla / SpaceX / Boring / Neuralink / Elon show has to be the greatest show ever (real or concocted) barring wars which aren't all that entertaining except for Martians. It's hard to concentrate on the daily "normal" duties with all the developments going on, now the race between Giga Shanghai/ Berlin/ Texas, and the advances in battery tech, car tech, AI tech, space tech, now financial maneuverings, ..

What is missing is that C has a balance of -5 shares

So A has +5 B has +5 and C has -5 which totals 5 ‘real’ shares

 

[Artful Dodger]

Should I hold off buying more shares until after the split? When is the cut off date?

Lol, prolly not if you think the SP will go up after the split...

Not Avarice.

Cheers!