Andreas Thiel
Silver Contributor
FASTLANE INSIDER
Read Rat-Race Escape!
Read Fastlane!
Read Unscripted!
Speedway Pass
Today I read many interesting things. Probably some of you have seen the information that the SEC will be investigating Memestock Gate and that Trump appointed people have been fired ... and maybe even that GameStop has been contacted by the SEC, because they want to look into market manipulation related to the meme stocks. But what really got my attention is the following quote:
If this is the beginning of a story that plays out, then it is completely insane how huge this could potentially get. The only way I could be more excited is if he hadn't limited this to stock-trades. All securities are messed with this way.
I wrote about it in the Reddit / GameStop Thread. HOT TOPIC - Reddit r/WSB bankrupts Hedge Fund using Robinhood
In "Naked, Short and Greedy", Dr. Susanne Trimbath writes about the issues regarding the settlement for security trades. Many other issues can be traced back to this particular issue and almost nobody really knows this.
She has fought this very issue since she brought it to the attention of her superiors in 1993 when the amount of failed trades was $3,000,000 dollars total.
Now each day almost $50,000,000,000 in US treasuries alone fail to deliver.
Some handy things that can be accomplished with bug exploits through collusion (companies, banks, brokers and market makers):
- Proxy Votes can be manipulated ... because the broker gets to decide how to deal with the problem of over voting. If they want to do it by sending the votes they like most ... so be it
- Attractive financial products like MBS and CDS can be sold several times ... to create leverage
- Brokers get your money and you get nothing. They should ideally locate what you want ... but the burden to do that is considered fairly high - so it is not a strict requirement
- Companies can a) be bankrupted, b) brought close to bankrupcy and then acquired for cheap or c) simply be shorted to profit from the price declines *
* this is done by creating phantom shares to increase supply, which lowers the price and decreases demand over time as well as access to fresh capital
There have been several companies that were on the receiving end of attacks before. Stories of Eagletech, CMKM Diamonds, Overstock etc. are summarized in the book. Now some market participants actually seem to be in a position that they can't easily get out of due to GameStop.
I was pretty sure that the SEC was interested in keeping the status quo and that we would see a Houdini act. The funny thing is, even with the Reddit exposure, there was no pressure to address the actual problem at the center. They could easily have gotten away with making this about naked shorting, introducing a few new regulations that they don't have to enforce ... give apes a consolation prize and let the Reddit crowd celebrate a hollow victory or shame them after a huge meltdown because the stonk never reaches their $20,000,000 floor. Ruining companies would still be possible with regular share trades that fail to deliver, even with naked shorting taken off the menu. But they don't seem to be going that route.
My suspicion now is that this indicates that there are indeed two powerful groups that fight each other and one has embraced a stock market without that mechanism.
This should lead to severe shifts ... IF the SEC actually follows through and pulls the trigger - and GG does not get fired in the very near future or walks this back.
Basically the mechanism is a parasite that hurts the real economy and funnels liquidity to some elite group. This might be a game changer for entrepreneurs.
One interesting aspect of this: random samples showed that the short interest in any company was between 50% and 150% higher than reported.
Unwinding the existing phantom shares over time alone should lead to higher stock prices throughout the market. That would probably have to happen organically over time.
Curious to see how this plays out and how the media will cover it.
EDIT:
Reached out and asked how she feels about that statement.
View: https://twitter.com/SusanneTrimbath/status/1402745518002868226
She seems to assume that there might be a cleanse (if at all), but then it will be back to business as usual.
As I wrote, there was no need to acknowledge the issue at all, so I feel like they might actually mean it. But then again, it is something to follow - how would such a rule be enforced. FINRA fines for ants would not be the way to do it.
Gary Gensler is the person who said that and it is taken from the following article: SEC Chairman Proposes Review of Rules Underpinning Stock Trading
If this is the beginning of a story that plays out, then it is completely insane how huge this could potentially get. The only way I could be more excited is if he hadn't limited this to stock-trades. All securities are messed with this way.
I wrote about it in the Reddit / GameStop Thread. HOT TOPIC - Reddit r/WSB bankrupts Hedge Fund using Robinhood
In "Naked, Short and Greedy", Dr. Susanne Trimbath writes about the issues regarding the settlement for security trades. Many other issues can be traced back to this particular issue and almost nobody really knows this.
She has fought this very issue since she brought it to the attention of her superiors in 1993 when the amount of failed trades was $3,000,000 dollars total.
Now each day almost $50,000,000,000 in US treasuries alone fail to deliver.
Some handy things that can be accomplished with bug exploits through collusion (companies, banks, brokers and market makers):
- Proxy Votes can be manipulated ... because the broker gets to decide how to deal with the problem of over voting. If they want to do it by sending the votes they like most ... so be it
- Attractive financial products like MBS and CDS can be sold several times ... to create leverage
- Brokers get your money and you get nothing. They should ideally locate what you want ... but the burden to do that is considered fairly high - so it is not a strict requirement
- Companies can a) be bankrupted, b) brought close to bankrupcy and then acquired for cheap or c) simply be shorted to profit from the price declines *
* this is done by creating phantom shares to increase supply, which lowers the price and decreases demand over time as well as access to fresh capital
There have been several companies that were on the receiving end of attacks before. Stories of Eagletech, CMKM Diamonds, Overstock etc. are summarized in the book. Now some market participants actually seem to be in a position that they can't easily get out of due to GameStop.
I was pretty sure that the SEC was interested in keeping the status quo and that we would see a Houdini act. The funny thing is, even with the Reddit exposure, there was no pressure to address the actual problem at the center. They could easily have gotten away with making this about naked shorting, introducing a few new regulations that they don't have to enforce ... give apes a consolation prize and let the Reddit crowd celebrate a hollow victory or shame them after a huge meltdown because the stonk never reaches their $20,000,000 floor. Ruining companies would still be possible with regular share trades that fail to deliver, even with naked shorting taken off the menu. But they don't seem to be going that route.
My suspicion now is that this indicates that there are indeed two powerful groups that fight each other and one has embraced a stock market without that mechanism.
This should lead to severe shifts ... IF the SEC actually follows through and pulls the trigger - and GG does not get fired in the very near future or walks this back.
Basically the mechanism is a parasite that hurts the real economy and funnels liquidity to some elite group. This might be a game changer for entrepreneurs.
One interesting aspect of this: random samples showed that the short interest in any company was between 50% and 150% higher than reported.
Unwinding the existing phantom shares over time alone should lead to higher stock prices throughout the market. That would probably have to happen organically over time.
Curious to see how this plays out and how the media will cover it.
EDIT:
Reached out and asked how she feels about that statement.
View: https://twitter.com/SusanneTrimbath/status/1402745518002868226
She seems to assume that there might be a cleanse (if at all), but then it will be back to business as usual.
As I wrote, there was no need to acknowledge the issue at all, so I feel like they might actually mean it. But then again, it is something to follow - how would such a rule be enforced. FINRA fines for ants would not be the way to do it.
Dislike ads? Remove them and support the forum:
Subscribe to Fastlane Insiders.
Last edited:
