I think you're wrong. I think the 'short exempt' justifcation is used to imply that the Market Maker in question does not NEED to check to see if shares are available to borrow before selling short, and that they therefore just mark all their short sales as 'exempt' when the Uptrick Rule is in effect.
I guess you just want to be willfully ignorant because the Code of Federal Regulations has a very simple, easy to understand definition for the term "Short Exempt" and it never talks about borrowing or locating (skipping of the latter two being what Naked is all about).
The problem with that theory is that they don't mark all short sales as exempt, only 5.8% of them today. And that's volume is enough to knock down the last sale price in the order book enough so that they can then pour in with 20x the number of shorts which would not have been allowable milleseconds before under the uptick rule. Look what happened before 2 pm today. Unexplicable drops, macros steady throughout.
I think the percentage you see are because only a handful of FINRA members attempt to meet the legal requirement that they have their own (verified and surveillance audited) system for determining the current National Best Bid (NBB). In the absence of that it would be an obvious crime to mark a short sale as short-exempt so only that small fraction of FINRA members ever mark them that way. The ones who do probably mark all of their short sales as short-exempt which is why you see them tagged that way even at times when there is no up-tick rule and the marking makes no difference in how the order is treated.
The explanation for the "pourng 20x the number of shorts disallowed milliseconds before" actually makes my case that it is about the order being exempted from the uptick rule, rather than being naked. If a short-sale order is sent to the ISLAND ECN operated by NASDAQ for example and it is
NOT marked as short exempt, then the ECN will use what
it knows to be the NBB to enforce the uptick rule if it's in effect and reject it if the price is below the NBB.
But if you are a firm that has invested in your own system that determines the NBB yourself, then you can carefully construct that system to conveniently get the wrong answer for the NBB exactly when you want to (illegally) violate the uptick rule and, voila, the price/trade behavior you are describing happens. The large volumes probably requires that more of the non-FINRA entities have their own NBB determination system which I think is likely. Note that the trade behavior is completely independent of whether or not the short-seller did or did not perform their locate responsibility (i.e. whether or not they are (a) actually locating a borrow source, (b) using a market-maker no-locate EXCEPTION (not exemption) that is legally naked, or (c) failing to locate a borrow which is illegally naked.
Short sale orders can be both exempt and naked, or just naked or just exempt or neither. All are possible.
There is no rule that short-sale orders be marked as to whether they are naked or not - it would have no affect on the operation of the order processing systems receiving the orders if their were such a rule. But the uptick rule is actually enforced by order matching systems to prevent trade executions of orders in violation of the uptick rule which is why for that purpose orders can be marked as exempt from that rule - it alters the behavior of the order matching systems.
Regarding your 2,000 word essays attempting to lawyer the language of the short exempt reporting, explain in simple terms why FINRA says on their own website regsho.finra.org that if you have questions about short exempt reporting, that you are supposed to call them on the telephone?
Why not explain it on the website? Do they need to know who's asking before they pick an answer? Congress needs to act to fix this, and the millenials on Wall St. Bets aren't waiting until they're too old to fight. This SEC exemption rule has been broken since it was created in 2009 and invites hiding while collar crime. Lot's of lawyering work there.
I don't disagree that short-exempt orders are ripe for abuse, it's just a different kind of abuse than you are claiming (which is an independent problem also ripe for abuse). No lawyering required - I guess you're too lazy to read a few paragraphs in the CFR, or maybe English isn't your native language so it's hard for you to understand. But I strongly encourage anyone who thinks I'm wrong to go read it for themselves. It's honestly not that long or that hard to read and understand.
Next, explain how Tesla's 5:1 stock dividend caused a 100% gain in 14 days without naked short covering. Especially the part about how many brokers of members on this site did not deliver the shares owed to their beneficial owners for 2 days AFTER Tesla rescued those naked short selling brokers with a $5B share offering (as I predicted on Aug 16 that exactly that would happen).
I don't know the causes for sure (nobody does). It could well have to do with kiting naked short sales. I've never denied the existence of naked shorting nor the abuse thereof. In fact I uncovered (and reported here and to the SEC) a very suspicious pattern of failures to deliver on TSLA stock in the SEC's database that strongly suggests there was some serious effort to cover-up failures to deliver which very likely points to trying to hide naked shorting.
I'll wait. Take your time. But no need for more lawyering language. Straight talk, please.
That's as straight as it gets. I'm sorry it's not a shorter read but you raised a lot of specious questions trying to cling to your mistaken beliefs as to what the order marking is actually about.
tldr; What I am saying is that when an order is marked as "short exempt" it does not have any bearing on whether it is or is not naked. It only indicates that the person placing the order promises that they accurately determined themselves that the order doesn't cross the market [the jist of § 242.201(c)] or is subject to the very unlikely narrow exemptions in § 242.201(d) that are actually permitted by law to cross the market during the uptick rule so that when the order is sent to an actual order matching system that system
will not perform it's own checks whether it crosses the market and instead will just execute the trade if it does cross the market instead of rejecting it for violating the uptick rule. It says nothing about whether it is naked or not.
And quit blaming Tesla and Cathie Wood for doing their job when the things you are worried about are 100% due to other investor's actions. If there is blame, put it on the people responsible. And it's not even clear why you are concerned- investors have a long history of bidding some stocks far beyond any rational hope - it all gets taken care of in the end.
