I don't really think he'll lose access, but they are absolutely in contact with the SEC and there is a non zero chance he gets charged with market manipulation.
> If that is the case half of the superstonks subreddit would have to be charged.
You could make a compelling argument that they should be. Superstonks doesn't just post their positions. They, too, try to manipulate the market by hyping up GME.
I would highly recommend "This is Financial Advice" by Dan Olson to anyone not already familiar with the community. https://youtu.be/5pYeoZaoWrA
This is an anon account so I feel safe to admit this. I used to buy into all of that stuff. Basically the (conspiracy) theory is that market makers sold shares in GameStop that didn’t exist. There’s an element of truth to this, at least during 2021 it was confirmed that market makers had collectively sold more call options than they could possibly hedge with shares. But regardless, in order to prove this everyone in superstore started registering their shares with a transfer agent. The number of shares registered was reported by GameStop every quarter. Throughout 2022 I think the number of shares registered linearly before it plateaued at about 25% of the public number of total shares of GameStop. I might be conspiracy oriented but I’m also a believer in science and to me this cast a significant amount of doubt on the theory. Anyways, it’s definitely not a parody and I feel sorry for people who didn’t wake up like I did. I think something like 200,000 people registered their shares, that number also plateaued. I don’t think the GME craze was good for anyone but the company itself and roaring kitty.
There were more shares being claimed than were owned.
What more is there to prove? It's not even unusual to do.
Explainer: How were more than 100% of GameStop’s shares shorted?
NEW YORK, Feb 18 (Reuters) - One area of focus from a U.S. House of Representatives panel on Thursday will likely be on the role short selling played in the GameStop (GME.N), opens new tab market mayhem.
Executives from trading platform Robinhood and hedge funds Melvin Capital and Citadel will be grilled following the retail-driven trading frenzy that sparked wild gyrations in GameStop and other heavily shorted stocks.
Short selling, details of which are included in the memorandum, opens new tab about the hearing, can be a positive move, as it can be used in hedging positions, more accurately valuing prices of stocks and exposing frauds, like Enron and Theranos.
But Vlad Tenev, broker Robinhood's chief executive officer, recently pointed out that some of the stocks involved in the "meme stock" rally were more than 100% shorted, implying that more shares were shorted than were available to trade.
"I just think that's pathological," he said on the All-In Podcast, opens new tab late last Friday. "You end up with this situation that could destabilize the financial markets."
HOW DOES SHORT SELLING WORK?
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Typically, shorting a stock is a bet that the share price is going to fall.
Short sellers borrow shares from brokers and then sell them into the market, with the agreement that they will buy the shares back and return them to the lender at an agreed upon time. The shares can come from the brokers' own inventories, or from customers that have allowed the brokers to lend out their shares.
When it's time to return the shares, if the stock price has fallen, the short seller can buy the shares back at a lower price than they originally paid for them, locking in a profit.
If the price has risen, the short seller must buy back the shares at the higher price, incurring a loss.
In the meantime, the short seller pays the lender interest on the value of the stock, giving the lender extra income.
IS IT RISKY TO LEND OUT SHARES?
Not really. The borrower posts collateral, typically, opens new tab 102% of the prior day's settlement price. The borrower can also request the shares back at any time.
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HOW CAN MORE THAN 100% OF A COMPANY'S SHARES BE SHORTED?
Once the short seller borrows the shares from the lender and then sells them back into the market, the new owner of the shares is free to lend them out, just as the previous owner did, and have no idea they are on the other side of a short sale.
Settlement time is two days after the transaction. In that time, the same shares can be lent out again, and again. This makes it possible, on paper, for more than 100% of the float of a stock to be shorted.
According to financial analytics firm S3, GameStop's peak short interest was 141.8% of its float on Jan. 4.
S3 argued in a recent research note that the traditional method of calculating the percentage of float is flawed because it uses stale data. U.S. investors are required to mark their shares shorted and regulators report these figures twice a month, with a 10-day delay, S3 said.
There have been calls since the GameStop saga to improve transparency around short selling through more frequent reporting.
Maybe I missed something, but I think you agree with the other person more than you think. The second to last paragraph in particular explains why.
"HOW CAN MORE THAN 100% OF A COMPANY'S SHARES BE SHORTED? Once the short seller borrows the shares from the lender and then sells them back into the market, the new owner of the shares is free to lend them out, just as the previous owner did, and have no idea they are on the other side of a short sale. Settlement time is two days after the transaction."
IANAL but what he is doing is very close to a pump and dump scheme, which is absolutely market manipulation. And as often with market manipulations, there is a thin and blury line between acceptable behaviour and criminal behaviour (for instance front running vs pre-hedging).
An investor talking up their book isn't market manipulation, but those tacitly coordinated efforts to buy an illiquid stock to artificially raise the price seem to me fairly squarely on the wrong side of the line. The only problem being the "tacit" aspect of the strategy (kind of like mafia boss "take care of him"). This guy doesn't give a direct instruction, but clearly everyone understands his signal as an instruction.
It's also worth noting that if you own above a certain percentage of a company's stock, it's legally required to make your trades public.
Also interesting -- look at the trade volume during the big moves, like 3-June. There's no way retail investors are causing that much volume, especially when it's during pre-market and post-market trading hours.
You're right that there is a non-zero change because of the incredibly corrupt nature of the SEC and the markets. Hedge fund owners and billionaires go on social media, Bloomberg and CNBC hyping their positions all the time, how is this any different? It's different because he isn't part of the club, and worse yet, he is costing members of the club money.
To be honest, he's done worse than Keith Gill, but I consider both to be doing a public disservice. They wouldn't post their positions unless they are legally required to and/or it benefits them. Let's see Keith post his positions before he takes them if he wants to help people.
Probably because he has money stowed to fight the case in order to build case law AND make money from attorney fees and punitive damages in his prayer for relief if they try anything.
Where's the proof Roaring Kitty is a pump and dump scammer? He made the connections, concocted the thesis and is now taking it to its natural conclusion.
He wields enough power in his position that he doesn't need anyone to bring it about.
What's interesting to me is why this story leaked. I bet it's just Morgan Stanley (the owner of E-Trade) trying to control they narrative. If they just cut him off, he gets to tell his story, MS can't officially discuss the particulars, and the company ends up getting a lot of hate mail.
But if they leak the official justification beforehand, then Roaring Kitty will have a harder time spinning it.
I'm really enjoying Keith Gill's second coming. Of major note -- he first appeared with $53k in 2019, kicking off the original GME. His recent brokerage account shows (as of tonight assuming he didn't sell anything) something like $300mm+ of equity value. And a cost basis of like $170+mm. He has been BUSY the last four years. I'm looking forward to the second documentary.
To summarize the internet speculations -- with 12mm shares sold to him through his in-the-money calls, if he chooses to exercise them, and then directly register them, he will likely create some real havoc. Meanwhile 1mm or so redditors are buying retail, options and the underlying. It should be a fun 10 days.
The Gill play would be:
1. Exercise call options
2. Direct register the shares
3. Repeat.
Why would this create havoc? Well, it looks pretty clear that most of these calls have been written naked, that is, someone, somewhere just left the liability for the calls on the balance sheet, and didn't, you know, buy any shares to cover them.
Normally this wouldn't be a big deal -- an options trader would sell close to the bell on the 20th at prices that market makers quote as very close to the value, and there's a whole take-a-tiny-slice-for-the-service-thank-you-ma'am industry that deals with settlement and clearing. In this case, though, the stock is fairly heavily shorted. And GME retail owners speculate that a lot of phantom / fake shares are in play on the market / @ DTCC, the usual place share registries are kept for retail brokerage.
So, what will happen if Mr. Gill requires what is essentially delivery of his shares through direct registration? The idea would be that the naked call writer will need to go purchase shares. Gill purchased in roughly 500k-1mm share blocks, so imagine he starts out and is like, "Thank you good sir, here's your $20mm for my 1mm shares at $20. Please send them. Today."
The seller will then be like "fuck, okay, I need to go purchase 1mm shares ASAP." The proposal is that these naked call sellers will not then be able to call up DTCC and say "yo, my balance sheet is fine, please put 1mm phantom GME shares onto E-Trade's account, ref: Roaring Kitty." Instead they'll have to buy non-phantom, deliverable shares. This will push the price up.
The remaining 11mm shares that are due by the other call sellers will then cost more to buy, and this will trigger additional risk considerations. These sellers may choose to buy some percentage early to cover, or they may wait. But, if they wait, Gill could again be like "I'd like my next 1mm shares, thanks".
All this is business as usual, what's different here is the scale -- this is a pretty large holder, just under the SEC sizing rules where Gill would be considered an insider by virtue of his holdings alone -- and that Gill has a band of retail traders who want, more than anything, to beat the hedge funds selling these calls / doing the shorts.
I'd love to see this play out as described; if it cost some major market movers a few billion dollars and killed an aggressive short or two in the process, it would be a nice "natural consequence" for some of the ways the market works against these smaller players like Gamestop, plus it's amazing theatre, where we get to cheer for a guy named "DeepFuckingValue" on reddit.
Note that to the extent there's value in GME, it is in fact deep value; it comes from being a sort of whipping boy company with a failed model that was a little more resilient than expected; in 2019 it had (from memory) something like -$500mm in net income, and less than a year of cash. Now it has over $1bn in cash and is basically cashflow positive on its balance sheet yield. It still doesn't seem to have a viable retail business. But it has a weird modern form of capital - social capital. And the CEO has leveraged that into, you know, cash capital. I...
Thanks for that summary, this saga fascinates me as well. As someone with no real knowledge of the financial industry (which seems incomprehensibly vast and obfuscated by design) it's fun to wander down the rabbit hole of theories and wonder what's going on behind the curtain.
The details of the complicated financial instruments that supposedly create "phantom shares" are lost on me, but I would really love to see a layman's breakdown of how this supposedly works and how large players are said to use this to their advantage for price suppression.
It's awesome that Gill is testing this theory, very publicly, for the world to witness.
I'm also excited to see if the domino effects at work will shed light on other, deeper layers of the rabbit hole (shorts never closed?).
I mean, this has been an extremely good trade in the last seven days. Closing it out tomorrow would put Gills in unusually elite company anywhere in the world, working for any bank or fund. Rennaissance revenue per trader per year is on the order of like $30mm, and overall fund returns are not usually more than 30%, implying those traders run like $100mm. Gills has turned nearly a 2x in seven days on a $170mm or so base. Please tell me you find that unimpressive.
How do you not understand the difference between Gill making a good trade and a bunch of average joes deciding they’ve discovered a vast Wall Street conspiracy? Do you understand the context here or not? Gill is getting rich because people are buying the stock, many of whom are buying it for conspiratorial reasons.
I didn't push any conspiracy language at all. The market is a bustling place with quite a lot of collusion, conversation, planning and coordinating. It also has a number of macro dynamics that are ... not what retail investors think happens when they buy a stock. There's a lot of continuous process innovation, business model innovation, and new ideas people / companies / hedge funds try all the time. The system is immensely complex, and has some unintended consequences.
With all that, who needs weirdo conspiracy theories? I see this as one group of people found out they have more power than expected given some relatively novel market dynamics, and someone is very efficiently making a point about it in the capitalized market of ideas. No conspiracy needed. No need to be hostile about people marching behind RoaringKitty with pitchforks either though; this is fun and interesting stuff.
The original comment I was replying to explicitly asked about the “phantom shares” theories. When I said don’t go down that rabbit role, that is what I was referring to. Not the real market dynamics behind the price movement. And I’m not hostile towards anyone who believes in that, I myself used to believe it. I just think it’s a waste of time because there is zero proof that phantom shares of GameStop even exist. GameStop has also carried out two dilutions since this whole thing started, raising about $2B. If anyone is creating “phantom shares” and selling them to people, it’s the company itself. These theories are dangerous because they rope in people who don’t know enough to know better.
The idea of these phantom shares is pretty simple -- DTCC keeps the internal ledger of who has what in most cases. It usually takes a few days from when you buy a stock to when it's actually 'delivered' to your account. In the interim, your account shows you have the stock, but settlement and clearing are processes that were largely set up before we had telephones, and relied on paper.
So, for a minute (day or two, long weekend), any purchase of shares you make means you in fact don't have the shares yet, you have a promise of the shares from ... someone. Behind the scenes your broker works with settlement and clearing and exchanges to make sure you actually get them.
There are a bunch of good reasons we have this system now, and some bad ones, but it is the system we have.
So, the homework assignment is - what if everyone mostly used the same place to swap shares? That is DTCC; you save time and money every time you clear a trade against someone else who uses DTCC for clearing. Over time, DTCC has become a large multi-billion dollar company.
Next question - why can't DTCC 'print' shares for you against your balance sheet elsewhere, when it's hard to procure them in the market? They already do it all the time for a few days while waiting for shares to show up.
The speculation, and I emphasize that word, I do NOT have any knowledge of how true this is, is that DTCC + some large participants have turned this into a line of business, and that there are times (a short squeeze being the obvious one), when large numbers of shares are magicked up to ease the delivery / deal with buyside liquidity problems. By the way, it's not clear that this would be bad for the market as a whole. Stocks going to infinite because shorts got overexuberant isn't like the best thing for the market. And, obviously, neither is shorts having infinite credit to pick on companies whenever they want. You want some sort of fair playing field to play on. r/superstonk and r/wsb feel the current system is not fair.
What seems fairly incontrovertible is that more shares are passed around and traded on exchanges than are issued for many companies; that might be a fun rabbit hole to go down. When I read about this in 2019, there were some interesting detailed cases that were mentioned in the reporting. It's a real problem with the existing markets for issuers -- corporations -- that go public.
Why are you assuming those calls weren’t hedged by the MM that sold them to Gill? And besides, it would be very easy to acquire those shares if they needed to. I’m sure GameStop would be happy to print a few million fresh, crisp shares to sell to the unlucky market maker that got caught with their pants down. GameStop literally created $1B worth of shares out of nowhere and sold them on the open market last week.
As to the former, the L2 trades seem to show the first two trade blocks getting hedged, and the rest not and just getting put on the books naked. There were some large price spikes at his first two purchases, then nothing, or negative. Nothing / negative price changes don't look like someone was buying even a medium percentage of the underlying to hedge.
As to the latter, I've never managed a public company, so take this with an (extra) grain of salt. That said, I bet that those shares sold to the public last week (two weeks ago?) had an S1 attached, a cooling off period, and an SEC review period. If so, GME shot that shot already between now and Jun 20 date and wouldn't be able to do a new offering in that timeframe.
As a side note, the Gills shares were all purchased subsequent to the GME share issuance as far as I know, and don't seem to have moved the market up at all. We'll see what the next few days holds!
You still didn’t answer my main point which is what is stopping MMs from hedging those calls?? Average daily volume is 30M shares. You have no proof that it would be difficult for them to hedge if they had to.
They can hedge, (and probably are, now). When they hedge though,
1) They will drive up the price. Most of any given ADV is going to be algo-traded back and forth shares, so they will drive up the price more than you expect from the volumes
2) Those shares will get taken off the market, can't be lent out to shorts, can't be lent out to other market makers. This will constrain buy-side liquidity
3) The rising price will force a higher hedging requirement from shorts unrelated to Gills, and a higher hedging requirement to those who wrote the calls.
4) They will then go back to 1) and do it again.
It looks like someone tried to do the hedge you describe on 2mm shares on Monday Jun 3, that's when the price went from $22 to $40. Price went down to 26 over the the next couple of days, and Gills posted his holdings. We're up to low $30s today.
TLDR: Someone seems to have tried that, and found out there's a lot less liquidity than they wanted.
Thanks for explaining it, tbh I hadn’t been paying attention and also don’t know where to find or how to interpret the data you’re talking about. That being said, one key assumption you’re making is that there are no motivated sellers. I don’t have the numbers in front of me but institutions own a lot of GME shares, and likely lent their shares to short sellers. As soon as they sell that significantly improves the situation for the call sellers.
Oh for sure, price rises mean more selling. One sort of unique thing about GME is that a very unusual percentage of holdings seem to be held by ... r/wsb and r/superstonk retail holders, and they have talked themselves into never selling. There are literally videos of Frodo watching a giant green candlestick trade rising out of mordor over there today.
So, the social engineering part is a big deal, too. It's not like someone at Susquehanna is like "cool, made my bag, how do we unwind?" In fact, Susquehanna is short here.
That is a good point, but at the same time short % of float is much lower than it was in January 2021, so that’s a headwind that didn’t exist (even though it now has the superstonk tailwind)
Anyways I hope you made some money on the move today. How are you accessing L2 data and how did you know how to infer that the calls weren’t hedged and that the call seller was having a hard time hedging?
Correct. Because he's famous, and because he's profiting off of influencing people's behavior.
This is called a pump and dump scam, and is fraud. It hurts real people. It's why the regulatory framework exists, to protect naive investors from predatory ones, and ensure that misconduct doesn't overwhelm the valuable functions of the market.
An old adage used to describe the law in this context: "you can be a pig, but don't be a hog".
If one can't influence the price of stock due to "fame" or "influence" in and of itself, doesn't this put public.com in extraordinarily hot water [1] ? What about Unusual Whales, Quiver Quant?
For him to be involved in fraudulent pump-and-dump he'd have to be an insider or being paid by insiders to pump up the price. There's zero evidence of that.
That's... not at all true. There's no insider connection required for a pump-and-dump to be considered fraud. Maybe you're confusing it with "insider trading", which is a different thing.
In the past, he had call options that he could've sold for profit but instead he exercised them to get even more GME stock. It's literally the opposite of dumping.
The whales manipulate markets much more than anything Keith Gill has done.
It isn’t a pump and dump if he isn’t lying about it to pump it up (talking about your own actual position or the fundamentals isn’t “pumping”) and if he isn’t dumping it (“diamond hands” is sort of his thing)
Stripping away everything else, imagine you had a way to make a stock go up or down based on what you said. Do you think you should be able to trade? Do you think you should be able to talk?
These are kind of preposterous questions but really, with so many gullible people out there, and with the market the way it is (a nebulous machine where reaction wins out), I wonder what the point of any of it is if someone like Gill can just fuck around with it by posting on Reddit.
> imagine you had a way to make a stock go up or down based on what you said
Please add "and you are a normal citizen, not a hedge fund, not a bank", because the latter subjects are allowed to and routinely do trade and influence the market.
OK, so imagine a world where traders don't just trade based on news and words, but based on price signals. They have bots sitting there waiting for some criteria only in the price of the target asset, and they're going to trade on that. Let's say you know about this and you know how to give them the signals they need to make their trades, so you do things to give those signals so you can profit on their activity.
This world is real and you live in it. Does giving a price signal to the market count as making a stock go up or down based on what you said?
Taken to it's natural conclusion, every decision every market participant makes affects the market, and every speculative participant uses these impacts as criteria for their decisions. To some degree, every single market participant, whether they want to or not, is doing both 1) impacting the market in some way, and 2) trying to find actions other people are taking that will impact the market that they can enter and benefit from. It's a big positive feedback loop. What you're talking about, taken to it's natural conclusion, is just banning trading.
This is the real world, not Path of Exile where pseudo-random numbers rule the day. Trading is about interacting, and yes a stock can (and often should) move based on reputation, and someone talking about it can affect that reputation.
Insider trading is the line. You can't trade based on your knowledge from within the company.
As others point out, hedge funds can mess with it just by applying enough "capital" to make a stock do what they want. They're in the market to, and this time they got played.
Way to underplay the headline. "Roaring Kitty" is no one else but /u/DeepFuckingValue - not mere "influencer", but the face and the banner behind the ol' Robinhood/GameStock trading saga - which is why I'm not surprised the trading companies got worried.
As of this post there is only one account that even mentions the naked shorting which kick started all of this. For those who would like a quick video rundown on understanding what happened.
https://x.com/Cancelcloco/status/1790524969623175629
I'd be curious to know what evidence there is that a lot of the original shorts never covered their positions and are still waiting for the price to collapse. Or in other words, why is he confident that the squeeze has no yet squozen.
> "In 2021, Gill's social media activity on Reddit helped drive GameStop stock to historic highs. At that time, Gill encouraged others to invest in the stock—not based on the fundamentals of GameStop business but on his pure love for GameStop. The craze that he helped spark rapidly triggered temporary restrictions on GameStop trading, as well as a congressional hearing, but ultimately there were few consequences for Gill, who disappeared after making at least $30 million, the WSJ reported."
That seems like a willful mischaracterization of what really happened. The thing that made GameStop share value go way up wasn't that some guy started an internet fad, it that the stock was heavily shorted and an Internet community was able to successfully take advantage of that fact.
As the price went up, the shorts had to buy shares to cover their positions, and that caused the price to go up even more. It was a short squeeze. People blame Keith Gill and /r/wallstreetbets for causing the stock price to diverge from its rational value, but as I see it, it was the shorts that did that. The squeeze was just a means by which an inherently unstable and irrational market condition corrects itself.
(Though I suppose it's also worth adding that at least some of the enthusiasm for buying GME was the prospect of causing hedge fund managers to soil their trousers.)
> People blame Keith Gill and /r/wallstreetbets for causing the stock price to diverge from its rational value, but as I see it, it was the shorts that did that
So you think GME was rationally valued and the shorts were wrong?
The shorts were trying to deliberately drive GameStop into the ground so they could cash out. It was an indirect form of the private equity shred and dump move.
GME was overpriced for a bit, but I think that was just a natural consequence of the shorts getting too greedy and putting themselves into an untenable position.
Basically, the shorts told the market "please take all my money away" and the market said "okay, no problem".
Things are indeed heating up when a saga that's been unfolding for over four years begins to attract attention on HN.
A user or two have characterized Gill's activity as a pump-and-dump. From the article:
> A common form of this fraud is a pump-and-dump scheme, where fraudsters "make false and misleading statements to create a buying frenzy, and then sell shares at the pumped-up price."
Gill took a significant position in Gamestop beginning in June 2019 [1], and has been steadily increasing his position over the years (AFAICT without selling).
How is the belief in the long-term recovery and turn around of what was then, a dysfunctional (and unprofitable) American retailer, anything but rather prescient and patriotic?
Even if we were to concede that Gill is now in a position of influence, the suggestion that enforcement agencies should suddenly jump in and that litigation should /begin/ with him, rather than TV personalities and elected officials, strikes me as laughable.
Notwithstanding the ethical and security implications of a brokerage publicly broadcasting that a customer has an account on their platform (I would be livid if this happened to me), if E-Trade were to close Gill's account, would that not be a concrete admission that his position has them vulnerable, thereby strengthening and supporting the underlying thesis?
Is it E-Trades (or any brokers?) job to prevent a stock market manipulator from trading or is that the SEC's (or someone else's) job to do.
i.e. why can't E-Trade simply refer it to the govt and have them decide. i.e. "We suspect this person is doing something illegal, but its your job to make that determination and to create the legal structure that allows us to not provide them with a service to continue doing that"?
of course if it was "we know" vs "we suspect/worry" that might be different, but if they are debating if they should cut off or not, I can't believe it "we know".
93 comments
[ 4.6 ms ] story [ 167 ms ] threadYou could make a compelling argument that they should be. Superstonks doesn't just post their positions. They, too, try to manipulate the market by hyping up GME.
I would highly recommend "This is Financial Advice" by Dan Olson to anyone not already familiar with the community. https://youtu.be/5pYeoZaoWrA
I was surprised to hear how high the number stated was (25%).
I do not see the connection between that movement achieving <100%,
and there being no fraud committed in claimed assets in the finance world.
Especially in that case.
And I can’t, frankly, see how you drew that connection either.
But it sure ain’t proof of anything either. If you’re going to make an outrageous claim you need to prove it.
What more is there to prove? It's not even unusual to do.
Explainer: How were more than 100% of GameStop’s shares shorted?
NEW YORK, Feb 18 (Reuters) - One area of focus from a U.S. House of Representatives panel on Thursday will likely be on the role short selling played in the GameStop (GME.N), opens new tab market mayhem. Executives from trading platform Robinhood and hedge funds Melvin Capital and Citadel will be grilled following the retail-driven trading frenzy that sparked wild gyrations in GameStop and other heavily shorted stocks. Short selling, details of which are included in the memorandum, opens new tab about the hearing, can be a positive move, as it can be used in hedging positions, more accurately valuing prices of stocks and exposing frauds, like Enron and Theranos. But Vlad Tenev, broker Robinhood's chief executive officer, recently pointed out that some of the stocks involved in the "meme stock" rally were more than 100% shorted, implying that more shares were shorted than were available to trade. "I just think that's pathological," he said on the All-In Podcast, opens new tab late last Friday. "You end up with this situation that could destabilize the financial markets." HOW DOES SHORT SELLING WORK? Advertisement · Scroll to continue Typically, shorting a stock is a bet that the share price is going to fall. Short sellers borrow shares from brokers and then sell them into the market, with the agreement that they will buy the shares back and return them to the lender at an agreed upon time. The shares can come from the brokers' own inventories, or from customers that have allowed the brokers to lend out their shares. When it's time to return the shares, if the stock price has fallen, the short seller can buy the shares back at a lower price than they originally paid for them, locking in a profit.
If the price has risen, the short seller must buy back the shares at the higher price, incurring a loss. In the meantime, the short seller pays the lender interest on the value of the stock, giving the lender extra income. IS IT RISKY TO LEND OUT SHARES? Not really. The borrower posts collateral, typically, opens new tab 102% of the prior day's settlement price. The borrower can also request the shares back at any time. Advertisement · Scroll to continue HOW CAN MORE THAN 100% OF A COMPANY'S SHARES BE SHORTED? Once the short seller borrows the shares from the lender and then sells them back into the market, the new owner of the shares is free to lend them out, just as the previous owner did, and have no idea they are on the other side of a short sale. Settlement time is two days after the transaction. In that time, the same shares can be lent out again, and again. This makes it possible, on paper, for more than 100% of the float of a stock to be shorted. According to financial analytics firm S3, GameStop's peak short interest was 141.8% of its float on Jan. 4.
S3 argued in a recent research note that the traditional method of calculating the percentage of float is flawed because it uses stale data. U.S. investors are required to mark their shares shorted and regulators report these figures twice a month, with a 10-day delay, S3 said. There have been calls since the GameStop saga to improve transparency around short selling through more frequent reporting.
"HOW CAN MORE THAN 100% OF A COMPANY'S SHARES BE SHORTED? Once the short seller borrows the shares from the lender and then sells them back into the market, the new owner of the shares is free to lend them out, just as the previous owner did, and have no idea they are on the other side of a short sale. Settlement time is two days after the transaction."
An investor talking up their book isn't market manipulation, but those tacitly coordinated efforts to buy an illiquid stock to artificially raise the price seem to me fairly squarely on the wrong side of the line. The only problem being the "tacit" aspect of the strategy (kind of like mafia boss "take care of him"). This guy doesn't give a direct instruction, but clearly everyone understands his signal as an instruction.
Also interesting -- look at the trade volume during the big moves, like 3-June. There's no way retail investors are causing that much volume, especially when it's during pre-market and post-market trading hours.
He wields enough power in his position that he doesn't need anyone to bring it about.
But if they leak the official justification beforehand, then Roaring Kitty will have a harder time spinning it.
And secondly, do large investment firms regularly disclose their high earning clients and their positions?
To summarize the internet speculations -- with 12mm shares sold to him through his in-the-money calls, if he chooses to exercise them, and then directly register them, he will likely create some real havoc. Meanwhile 1mm or so redditors are buying retail, options and the underlying. It should be a fun 10 days.
The Gill play would be:
1. Exercise call options
2. Direct register the shares
3. Repeat.
Why would this create havoc? Well, it looks pretty clear that most of these calls have been written naked, that is, someone, somewhere just left the liability for the calls on the balance sheet, and didn't, you know, buy any shares to cover them.
Normally this wouldn't be a big deal -- an options trader would sell close to the bell on the 20th at prices that market makers quote as very close to the value, and there's a whole take-a-tiny-slice-for-the-service-thank-you-ma'am industry that deals with settlement and clearing. In this case, though, the stock is fairly heavily shorted. And GME retail owners speculate that a lot of phantom / fake shares are in play on the market / @ DTCC, the usual place share registries are kept for retail brokerage.
So, what will happen if Mr. Gill requires what is essentially delivery of his shares through direct registration? The idea would be that the naked call writer will need to go purchase shares. Gill purchased in roughly 500k-1mm share blocks, so imagine he starts out and is like, "Thank you good sir, here's your $20mm for my 1mm shares at $20. Please send them. Today."
The seller will then be like "fuck, okay, I need to go purchase 1mm shares ASAP." The proposal is that these naked call sellers will not then be able to call up DTCC and say "yo, my balance sheet is fine, please put 1mm phantom GME shares onto E-Trade's account, ref: Roaring Kitty." Instead they'll have to buy non-phantom, deliverable shares. This will push the price up.
The remaining 11mm shares that are due by the other call sellers will then cost more to buy, and this will trigger additional risk considerations. These sellers may choose to buy some percentage early to cover, or they may wait. But, if they wait, Gill could again be like "I'd like my next 1mm shares, thanks".
All this is business as usual, what's different here is the scale -- this is a pretty large holder, just under the SEC sizing rules where Gill would be considered an insider by virtue of his holdings alone -- and that Gill has a band of retail traders who want, more than anything, to beat the hedge funds selling these calls / doing the shorts.
I'd love to see this play out as described; if it cost some major market movers a few billion dollars and killed an aggressive short or two in the process, it would be a nice "natural consequence" for some of the ways the market works against these smaller players like Gamestop, plus it's amazing theatre, where we get to cheer for a guy named "DeepFuckingValue" on reddit.
Note that to the extent there's value in GME, it is in fact deep value; it comes from being a sort of whipping boy company with a failed model that was a little more resilient than expected; in 2019 it had (from memory) something like -$500mm in net income, and less than a year of cash. Now it has over $1bn in cash and is basically cashflow positive on its balance sheet yield. It still doesn't seem to have a viable retail business. But it has a weird modern form of capital - social capital. And the CEO has leveraged that into, you know, cash capital. I...
The details of the complicated financial instruments that supposedly create "phantom shares" are lost on me, but I would really love to see a layman's breakdown of how this supposedly works and how large players are said to use this to their advantage for price suppression.
It's awesome that Gill is testing this theory, very publicly, for the world to witness.
I'm also excited to see if the domino effects at work will shed light on other, deeper layers of the rabbit hole (shorts never closed?).
With all that, who needs weirdo conspiracy theories? I see this as one group of people found out they have more power than expected given some relatively novel market dynamics, and someone is very efficiently making a point about it in the capitalized market of ideas. No conspiracy needed. No need to be hostile about people marching behind RoaringKitty with pitchforks either though; this is fun and interesting stuff.
So, for a minute (day or two, long weekend), any purchase of shares you make means you in fact don't have the shares yet, you have a promise of the shares from ... someone. Behind the scenes your broker works with settlement and clearing and exchanges to make sure you actually get them.
There are a bunch of good reasons we have this system now, and some bad ones, but it is the system we have.
So, the homework assignment is - what if everyone mostly used the same place to swap shares? That is DTCC; you save time and money every time you clear a trade against someone else who uses DTCC for clearing. Over time, DTCC has become a large multi-billion dollar company.
Next question - why can't DTCC 'print' shares for you against your balance sheet elsewhere, when it's hard to procure them in the market? They already do it all the time for a few days while waiting for shares to show up.
The speculation, and I emphasize that word, I do NOT have any knowledge of how true this is, is that DTCC + some large participants have turned this into a line of business, and that there are times (a short squeeze being the obvious one), when large numbers of shares are magicked up to ease the delivery / deal with buyside liquidity problems. By the way, it's not clear that this would be bad for the market as a whole. Stocks going to infinite because shorts got overexuberant isn't like the best thing for the market. And, obviously, neither is shorts having infinite credit to pick on companies whenever they want. You want some sort of fair playing field to play on. r/superstonk and r/wsb feel the current system is not fair.
What seems fairly incontrovertible is that more shares are passed around and traded on exchanges than are issued for many companies; that might be a fun rabbit hole to go down. When I read about this in 2019, there were some interesting detailed cases that were mentioned in the reporting. It's a real problem with the existing markets for issuers -- corporations -- that go public.
As to the latter, I've never managed a public company, so take this with an (extra) grain of salt. That said, I bet that those shares sold to the public last week (two weeks ago?) had an S1 attached, a cooling off period, and an SEC review period. If so, GME shot that shot already between now and Jun 20 date and wouldn't be able to do a new offering in that timeframe.
As a side note, the Gills shares were all purchased subsequent to the GME share issuance as far as I know, and don't seem to have moved the market up at all. We'll see what the next few days holds!
1) They will drive up the price. Most of any given ADV is going to be algo-traded back and forth shares, so they will drive up the price more than you expect from the volumes
2) Those shares will get taken off the market, can't be lent out to shorts, can't be lent out to other market makers. This will constrain buy-side liquidity
3) The rising price will force a higher hedging requirement from shorts unrelated to Gills, and a higher hedging requirement to those who wrote the calls.
4) They will then go back to 1) and do it again.
It looks like someone tried to do the hedge you describe on 2mm shares on Monday Jun 3, that's when the price went from $22 to $40. Price went down to 26 over the the next couple of days, and Gills posted his holdings. We're up to low $30s today.
TLDR: Someone seems to have tried that, and found out there's a lot less liquidity than they wanted.
So, the social engineering part is a big deal, too. It's not like someone at Susquehanna is like "cool, made my bag, how do we unwind?" In fact, Susquehanna is short here.
Anyways I hope you made some money on the move today. How are you accessing L2 data and how did you know how to infer that the calls weren’t hedged and that the call seller was having a hard time hedging?
Most serious brokers offer level 2 data on subscription, eg interactive brokers.
I’m not a public markets guy so I’ll leave off on trading qs for now, enjoy the ride though.
What has he done / is he doing that's illegal? Can no one post on social media that they are interested in a stock?
This is called a pump and dump scam, and is fraud. It hurts real people. It's why the regulatory framework exists, to protect naive investors from predatory ones, and ensure that misconduct doesn't overwhelm the valuable functions of the market.
An old adage used to describe the law in this context: "you can be a pig, but don't be a hog".
1 - https://news.crunchbase.com/venture/meet-public-com-the-soci...
He has explained his thesis hundreds of times in public, he's following thru with that thesis, there's no surprise or rugpull.
He has the position and the funds to make the play himself.
The whales manipulate markets much more than anything Keith Gill has done.
It isn’t a pump and dump if he isn’t lying about it to pump it up (talking about your own actual position or the fundamentals isn’t “pumping”) and if he isn’t dumping it (“diamond hands” is sort of his thing)
We're all just getting front row seats to the show.
These are kind of preposterous questions but really, with so many gullible people out there, and with the market the way it is (a nebulous machine where reaction wins out), I wonder what the point of any of it is if someone like Gill can just fuck around with it by posting on Reddit.
Please add "and you are a normal citizen, not a hedge fund, not a bank", because the latter subjects are allowed to and routinely do trade and influence the market.
This world is real and you live in it. Does giving a price signal to the market count as making a stock go up or down based on what you said?
Taken to it's natural conclusion, every decision every market participant makes affects the market, and every speculative participant uses these impacts as criteria for their decisions. To some degree, every single market participant, whether they want to or not, is doing both 1) impacting the market in some way, and 2) trying to find actions other people are taking that will impact the market that they can enter and benefit from. It's a big positive feedback loop. What you're talking about, taken to it's natural conclusion, is just banning trading.
Insider trading is the line. You can't trade based on your knowledge from within the company.
As others point out, hedge funds can mess with it just by applying enough "capital" to make a stock do what they want. They're in the market to, and this time they got played.
https://x.com/Cancelcloco/status/1798795323458064561?t=V5Gn_...
That seems like a willful mischaracterization of what really happened. The thing that made GameStop share value go way up wasn't that some guy started an internet fad, it that the stock was heavily shorted and an Internet community was able to successfully take advantage of that fact.
As the price went up, the shorts had to buy shares to cover their positions, and that caused the price to go up even more. It was a short squeeze. People blame Keith Gill and /r/wallstreetbets for causing the stock price to diverge from its rational value, but as I see it, it was the shorts that did that. The squeeze was just a means by which an inherently unstable and irrational market condition corrects itself.
(Though I suppose it's also worth adding that at least some of the enthusiasm for buying GME was the prospect of causing hedge fund managers to soil their trousers.)
https://en.wikipedia.org/wiki/GameStop_short_squeeze
This is incorrect as well. He had a ton of videos about the fundamentals.
So you think GME was rationally valued and the shorts were wrong?
This says that there was a massive short interest in GME because the company was circling the drain.
No mention of private equity manipulation that I can find.
GME was overpriced for a bit, but I think that was just a natural consequence of the shorts getting too greedy and putting themselves into an untenable position.
Basically, the shorts told the market "please take all my money away" and the market said "okay, no problem".
A user or two have characterized Gill's activity as a pump-and-dump. From the article:
> A common form of this fraud is a pump-and-dump scheme, where fraudsters "make false and misleading statements to create a buying frenzy, and then sell shares at the pumped-up price."
Gill took a significant position in Gamestop beginning in June 2019 [1], and has been steadily increasing his position over the years (AFAICT without selling).
How is the belief in the long-term recovery and turn around of what was then, a dysfunctional (and unprofitable) American retailer, anything but rather prescient and patriotic?
Even if we were to concede that Gill is now in a position of influence, the suggestion that enforcement agencies should suddenly jump in and that litigation should /begin/ with him, rather than TV personalities and elected officials, strikes me as laughable.
Notwithstanding the ethical and security implications of a brokerage publicly broadcasting that a customer has an account on their platform (I would be livid if this happened to me), if E-Trade were to close Gill's account, would that not be a concrete admission that his position has them vulnerable, thereby strengthening and supporting the underlying thesis?
[1] https://en.wikipedia.org/wiki/Keith_Gill#Position_on_GameSto...
i.e. why can't E-Trade simply refer it to the govt and have them decide. i.e. "We suspect this person is doing something illegal, but its your job to make that determination and to create the legal structure that allows us to not provide them with a service to continue doing that"?
of course if it was "we know" vs "we suspect/worry" that might be different, but if they are debating if they should cut off or not, I can't believe it "we know".