Skip to main content

How the GameStop hustle worked

How hedge funds and brokers have manipulated the market
 
by Lucy Komisar
 
Part 2 - Naked Short Selling and Fails to Deliver
 
The SEC allows traders to short a stock, which means to sell it even if they don’t own it, hoping to buy it back later at a lower price and bank the difference. Short sellers borrow the stock, usually from a broker, who either has it in their inventory, borrows it from another broker, or vows to “locate” the stock when the time comes and cover the short.

That promise is often fake. A broker handling several sellers will borrow synthetic or manufactured shares, or “locate” the same stocks for multiple shorts. Traders and brokers have been mildly sanctioned for this scam.

Sellers are supposed to send shares to buyers within two days. If they don’t convey the stock, there is a failure to deliver (FTD). This is also known as naked short selling. Traders that have outstanding FTDs are required to transfer the shares within a given time and are restricted from selling short until then. This rule is massively ignored or finessed, and the penalties are minor.

The major GME short sellers had to cover their shorts at a time when the funds had shorted much more stock than existed and when owners with real shares weren’t selling, even at higher prices. They were threatened with a short squeeze, with the price going so high that they cannot cover it with existing assets, and they get a margin call, a demand that additional money gets dropped into their brokerage account.

The short squeeze ended under peculiar circumstances. A January 28 spike in GME led Robinhood, the online broker that handled orders for many retail traders, to cut the buy option for the stock from its app. Robinhood CEO Vlad Tenev told the House Financial Services Committee in February that he had discussed the trade restrictions with the Depository Trust and Clearing Corporation (DTCC), which clears public trades, after it made a $3 billion margin call.

However, DTCC CEO Michael Bodson told the committee in May that “the decision to restrict trading really was internal to Robinhood, we did not have discussions about that.” He noted that with Robinhood, “the system worked.” It stopped the buys while the big traders continued to sell. GME that day hit $483, but then the price plummeted, and the short squeeze was over.

Why would Robinhood shut down GME trading? It did not lose money on trades, because it did not have its own investments. The answer may be hidden in the murky relationships involving market makers and hedge funds.

Citadel Securities, a market maker, handled Robinhood’s orders on a “pay for order flow” basis (it paid for orders routed to it), which equaled 40 percent of Robinhood’s revenue. Citadel Securities is a division of a company founded by billionaire Ken Griffin. Another division, the Citadel hedge fund, helped provide short seller Melvin Capital with nearly $3 billion in funds during the GME short squeeze. Citadel Securities would have the clout to persuade Robinhood to shut down trading, and the motive, given its other division’s investment in Melvin. (UPDATE: Robinhood COO James Swartwout stated in sworn court testimony in February for a case in California that “no third party, including either Citadel or Citadel Securities, requested that Robinhood apply restrictions on stock or options trading or played any role” in the decision to limit trading.)

Citadel Securities also has a knack for running afoul of the trading laws. It has been fined 58 times in the last few years for violating trading regulations, many about naked short selling. In February 2021, the same time frame as the GME trades, Citadel Securities was fined $10,000 for failing to close out a failure to deliver of shares it had sold short.

Comments

Popular posts from this blog

Τραγωδία στο Μάτι και δεξιό παρακράτος: νέα στοιχεία για πιθανή επιχείρηση προβοκάτσιας

globinfo freexchange     Όπως είχαμε επισημάνει ήδη από τον Σεπτέμβριο του 19, η εγχώρια μιντιακή χούντα και οι καθεστωτικές μαριονέτες της Μητσοτακικής δεξιάς είχαν επιλέξει τελικά να ρίξουν το μεγαλύτερο βάρος της αντι-ΣΥΡΙΖΑ προπαγάνδας σε δύο βασικούς πυλώνες: στη συμφωνία των Πρεσπών και στην τραγωδία στο Μάτι.    Όσο περνούσε ο καιρός και αφού κατακάθισε η σκόνη της μιντιακής προπαγάνδας, όλα έδειχναν ότι το σενάριο μιας πιθανής προβοκάτσιας στην υπόθεση "Μάτι" ενορχηστρωμένης από το δεξιό παρακράτος (όσο και αν αυτό φάνταζε εξωφρενικό), δεν θα μπορούσε να αποκλειστεί.   Τα πρώτα ισχυρά σημάδια για την πιθανότητα ενός τέτοιου σεναρίου τα έδωσε το ίδιο το καθεστώς Μητσοτάκη με την επιβράβευση των υπεύθυνων αξιωματικών για τη διαχείριση της φωτιάς στο Μάτι, οι οποίοι πήραν προαγωγή! Κάτι φυσικά που απέκρυψαν επιμελώς όλα τα συστημικά κανάλια της μιντιακής χούντας (στην οποία ανήκει ασφαλώς και η Μητσοτακική ΥΕΝΕΔ) που στηρίζει σύσσωμη το καθεστώς. Πρόσφατα, ήρθαν και νέα

Day 821: Julian Assange still in prison

failed evolution   World's number one political prisoner, Julian Assange, still in high security prison for exposing horrendous war crimes carried out by the US imperialists and their allies.      

The notorious London spy school churning out many of the world’s top journalists

The fact that the very department that trains high state officials and agents of secretive three letter agencies is also the place that produces many of the journalists we rely on to stand up to those officials and keep them in check is seriously problematic.   by Alan Macleod   Part 5 - The Bellingcat Boys While the journalists cataloged above are not spooks, some other Department of War Studies figures working in journalism could possibly be described as such, particularly those around the influential and increasingly notorious investigative website Bellingcat . Cameron Colquhoun, for instance, spent almost a decade at GCHQ, Britain’s version of the NSA, where he was a senior analyst running cyber and counter-terrorism operations. He holds qualifications from both King’s College London and the State Department. This background is not disclosed in his Bellingcat profile, which merely describes him as the managing director of a private intelligence company that “ conduct[s] ethical in

US govt, celebrities, bots fuel astroturfed Cuba protests to push regime change

Moderate Rebels   Max Blumenthal and Ben Norton briefly discuss how the US government and corporate media are heavily amplifying small protests in Cuba to destabilize the country. While Washington suffocates the Cuban people with an illegal, 60-year blockade that the entire world just voted against at the UN, C-list celebrities are promoting #SOSCuba propaganda, and thousands of bots are spreading fake news on social media.  

The death of neoliberalism

New Economic Thinking     Market fetishists may not know it yet, but it's over. Suresh Naidu breaks down neoliberalism, and why it can no longer support itself.  

The bourgeoisie did not respect its heavy heritage

232 years later, regression towards the new Feudalism  by system failure It was 14th July of 1789 when the representatives of the bourgeoisie in France promised a different world. Indeed, authoritarianism and depression by Monarchy and Feudalism brought naturally a desire for a more equitable society. The triplet "Liberty, Equality, Fraternity" was not a simple slogan reproduced to become a cliche, but represented the pure willing of the majority for a big change. 128 years later, another revolution, in Russia this time, promised to impose the implementation of those things declared in 1789, as the proletariat was building a class consciousness and the bourgeoisie had already abandoned its initial declarations. Several decades since then, two ostensibly different worlds were fighting against each other. On the one hand, the Soviet Communism that imposed a direct state authoritarianism and a monstrous bureaucracy, on the other, the indirect authoritarianism by the Western stat

Reddit captured by national security state

Redacted Tonight   Lee Camp looks into the fall of Reddit. The website was originally a bastion of free speech where antiestablishment viewpoints and news could be amplified over the corporate propaganda that people in the modern west are used to. The ruling class wouldn't allow that to stand. It's a sad story that has brought us to this point where the front page of Reddit acts as a repository for corporate and State Department propaganda. 

THE ANGRY ARAB: How the US Controls Lebanon

The “war on terror” is even more convenient for Washington’s dreams of hegemony and domination than the previous war on communism, writes As`ad AbuKhalil.    by As`ad AbuKhalil   Part 2 - A War Without Limits   The American “war on terrorism” is even more convenient for U.S. dreams of hegemony and domination than the previous war on communism.  Unlike the latter, the “war on terrorism” knows no end and has no limits.  It is a war with no timetable or specific achievable goals, and that is how the U.S. likes it. The U.S. can’t declare a completion of its war on terrorism, just as states can’t declare an end to wars on crime or poverty. Those are virtual and theoretical wars, but with the U.S. this has become a war industry: essential for world domination.  U.S. troops are now present in most Arab countries. Morocco, Libya, Tunisia, Sudan Egypt, Iraq, Syria, Lebanon, and all Gulf countries host a large presence of U.S. troops. In Lebanon, while the Western media regurgitate Israeli and S

OPCW chief misleads UN with new lies, excuses on Syria cover-up

The Grayzone Facing growing outcry, OPCW Director General Fernando Arias went before the United Nations Security Council and told new falsehoods about his organization’s Syria cover-up scandal — along with more disingenuous excuses to avoid addressing it. Scholar and researcher Piers Robinson joins Aaron Maté to debunk Arias' latest evasions and distortions.  

The notorious London spy school churning out many of the world’s top journalists

The fact that the very department that trains high state officials and agents of secretive three letter agencies is also the place that produces many of the journalists we rely on to stand up to those officials and keep them in check is seriously problematic.   by Alan Macleod   Part 3 - The British invasion Unsurprisingly for a university based in London, the primary journalistic destination for Department of War Studies graduates is the United Kingdom. Indeed, the BBC, the country’s powerful state broadcaster, is full of War Studies alumni. Arif Ansari, head of news at the BBC Asian Network, completed a masters analyzing the Syrian Civil War in 2017 and was soon selected for a leadership development scheme, placing him in charge of a team of 25 journalists who curate news primarily geared toward the substantial Middle Eastern and South Asian communities in Great Britain. Many BBC employees begin studying at King’s years after their careers have already taken off, and balance their pr