Brokerage Industry Needs Some Regulation!

The abundant of responsible analysts were right on the driving up of stock prices on select stocks generated by social media spin that it was not going to end well for many small investors who got caught up in the social media hype and invested and took a huge financial loss in the process. One example is Gamestop stock that on January 29th was trading at $325 per share and today traded below $97.5 per share incurring an over 70% (seventy percent) loss in value. The state of the brokerage industry as it stands today really calls for some good regulation that will help protect small investors and will bring fairness into the system as with much good regulation many of the people being helped aren't going to like the result even though it is best for them; policy makers in Washington have to ignore this and do what is best for them and for the country. This problem stems from the situation that occurred around a year or two ago when the brokerage industry went commission free for stock trades meaning that when individual stock investors purchased or sold a stock they did not have to pay any fee or commission to the brokerage because it goes back to the old adage that nothing "of consequence" is free in this world you pay one way or the other. Because brokerages no longer get these commissions the way they make their money is they sell the order flow of their customers trades to financial institutions that are market makers (financial institutions that take the other side of the trade for investors so the trade will go through in a timely fashion) and what the brokerages get is rebates per trade (instead of commissions). The glitch for small investors is these market makers are high speed algorithmic traders and what these software controlled market makers do is clip the transaction price so the small investor loses a minute amount on the transaction price but for the market makers that buy and sell billions of shares of stock over a year the minute amount on each share transacted ends up amounting to large amounts of money during this period. For example, let us say small investor Joe wants to sell a 100 shares of X Corporation shares where the market price is around a $100.00 per share and the normal offer/bid unfolding on an exchange would culminate in a bid of $99.99 per share being accepted well what the high speed algorithmic traders do is they study millions and millions of transaction and realize that the normal offer/bid process will culminate in this exchange price so what they do is bid something a little lower like $99.94 and process the trade to an outside observer of the market that looks like a fair transaction price but to an expert it wasn't the optimal price! To these brokerages that act as their own market makers they do this same thing to small investors but instead of an outside entity clipping the investor it is an inhouse entity clipping that investor!

To address these outlined problems regulators should do the following. The brokerage industry should have a minimum commission fee they have to charge, the Security and Exchange Commission should get from brokerages their direct cost structure and the number of transactions they process and determine for the industry the cost per transaction and make that the minimum commission and update that every five years. For partial share transactions, brokerages can reduce the commission pro rata. The benefit of a minimum commission for small investors is that it would deter them from jumping in and out of individual stocks, the stock market is not for gambling which a significant number of these small investors are turning it into with their trading behavior based on what direction the wind is blowing on social media because over the long-term the social media alerts are not accurate enough to protect small investors from getting financially hurt. The second major area of regulation is on brokerages, regulators have to stop the clipping of small investors to do this there has to be a mandate on brokerages that at least half their order flow has to be directed to trading venues where the entity conducting the trading has no pecuniary interest both direct and indirect in the transaction price that ultimately takes place for that order and the brokerage has to have a formula for the selection of such diverted orders that is non-specific meaning there is no second class investor all investors are treated the same the selection process is completely random it is a fair system.

The best regulation is a real financial loss; there's nothing like it for increasing the due diligence and intelligence of an investor
 
Gamestop was shorted by 140%. That is illegal.

Why is that illegal?

it isn't. It might be "dirty pool" and "not playing cricket", but it isn't illegal.

And yet I posted the links showing it is.

You posted Mish, showing he didn't understand the issue.
You didn't post any links showing that shorting is illegal.
Or explaining why you can't legally short 140% of the float.

It sounded like you thought you couldn't even legally short 20% of the float.

Or did you mean something else here? " You can't issue 500 stocks and then sell 600."

I did post an explanation. All you said in rebuttal was no it isn't. I'll take the links over people posting randonly here. If I trusted them over the facts the Supreme Court would have overturned the election by now.

I did post an explanation.

Your "explanation" included Mish admitting he didn't understand.

If you'd like, I can try to explain it at a level even you should be able to understand.
 
Gamestop was shorted by 140%. That is illegal.

Why is that illegal?

it isn't. It might be "dirty pool" and "not playing cricket", but it isn't illegal.

And yet I posted the links showing it is.

You posted Mish, showing he didn't understand the issue.
You didn't post any links showing that shorting is illegal.
Or explaining why you can't legally short 140% of the float.

It sounded like you thought you couldn't even legally short 20% of the float.

Or did you mean something else here? " You can't issue 500 stocks and then sell 600."

I did post an explanation. All you said in rebuttal was no it isn't. I'll take the links over people posting randonly here. If I trusted them over the facts the Supreme Court would have overturned the election by now.

I did post an explanation.

Your "explanation" included Mish admitting he didn't understand.

If you'd like, I can try to explain it at a level even you should be able to understand.

I posted more than one link.
 
Gamestop was shorted by 140%. That is illegal.

Why is that illegal?

Um, because it is. Why is running a stop sign illegal?

Naked Shorting Definition.

I'll try to explain so that you can understand.

1612380308293.png


How an Investor Makes Money Short Selling Stocks (investopedia.com)

So, as an example. There are 10,000 shares of Knopp Corp. currently priced at $100
5,000 shares are owned by Fidelity and 5,000 shares owned by Vanguard. No shares are short.

I think the stock is going to drop in price. I can sell some March $100 calls short, I can buy some March $100 puts or I can borrow some shares for a short sale.

If the stock drops to $90 by March expiration, all 3 strategies should be profitable for me.
Let's just look at the short sale strategy.

I borrow 1000 shares from Fidelity and sell them to Blackrock at $100 a share.
Now 10% (1,000 shares) of the float (10,000 shares) is short.

Next week the stock has dropped to $90. I think it's going to go down further,
so I borrow 4,000 shares from Vanguard and sell them to Charles Schwab.
Now 50% (5,000 shares) of the float (10,000 shares) is short.

Next week the stock drops to $80. Now Melvin Capital takes a look.
They decide its sales are going to fall in Q2, so they borrow 3,000 shares from Fidelity
and 3,000 shares from Charles Schwab and sell them to Pimco.
Now 110% (11,000 shares) of the float (10,000 shares) is short.
All the shorts are legal, none are naked shorts.

Now Citron takes a look, because the shares have dropped to $60.
They borrow 1,000 share from Fidelity and 2,000 shares from Pimco
and sell them to Blackrock.
Now 140% (14,000 shares) of the float (10,000 shares) is short.

Nobody did anything illegal and more shares have been shorted
than were issued by the company.

Let me know if you understand or need further explanation.
 
Gamestop was shorted by 140%. That is illegal.

Why is that illegal?

Um, because it is. Why is running a stop sign illegal?

Naked Shorting Definition.

I'll try to explain so that you can understand.

View attachment 452538

How an Investor Makes Money Short Selling Stocks (investopedia.com)

So, as an example. There are 10,000 shares of Knopp Corp. currently priced at $100
5,000 shares are owned by Fidelity and 5,000 shares owned by Vanguard. No shares are short.

I think the stock is going to drop in price. I can sell some March $100 calls short, I can buy some March $100 puts or I can borrow some shares for a short sale.

If the stock drops to $90 by March expiration, all 3 strategies should be profitable for me.
Let's just look at the short sale strategy.

I borrow 1000 shares from Fidelity and sell them to Blackrock at $100 a share.
Now 10% (1,000 shares) of the float (10,000 shares) is short.

Next week the stock has dropped to $90. I think it's going to go down further,
so I borrow 4,000 shares from Vanguard and sell them to Charles Schwab.
Now 50% (5,000 shares) of the float (10,000 shares) is short.

Next week the stock drops to $80. Now Melvin Capital takes a look.
They decide its sales are going to fall in Q2, so they borrow 3,000 shares from Fidelity
and 3,000 shares from Charles Schwab and sell them to Pimco.
Now 110% (11,000 shares) of the float (10,000 shares) is short.
All the shorts are legal, none are naked shorts.

Now Citron takes a look, because the shares have dropped to $60.
They borrow 1,000 share from Fidelity and 2,000 shares from Pimco
and sell them to Blackrock.
Now 140% (14,000 shares) of the float (10,000 shares) is short.

Nobody did anything illegal and more shares have been shorted
than were issued by the company.

Let me know if you understand or need further explanation.

I never, nor did anyone argue that you can't short stocks. People are going to be a bit more leery going forward but you don't do nothing by proving something no one is arguing.
 
Gamestop was shorted by 140%. That is illegal.

Why is that illegal?

Um, because it is. Why is running a stop sign illegal?

Naked Shorting Definition.

I'll try to explain so that you can understand.

View attachment 452538

How an Investor Makes Money Short Selling Stocks (investopedia.com)

So, as an example. There are 10,000 shares of Knopp Corp. currently priced at $100
5,000 shares are owned by Fidelity and 5,000 shares owned by Vanguard. No shares are short.

I think the stock is going to drop in price. I can sell some March $100 calls short, I can buy some March $100 puts or I can borrow some shares for a short sale.

If the stock drops to $90 by March expiration, all 3 strategies should be profitable for me.
Let's just look at the short sale strategy.

I borrow 1000 shares from Fidelity and sell them to Blackrock at $100 a share.
Now 10% (1,000 shares) of the float (10,000 shares) is short.

Next week the stock has dropped to $90. I think it's going to go down further,
so I borrow 4,000 shares from Vanguard and sell them to Charles Schwab.
Now 50% (5,000 shares) of the float (10,000 shares) is short.

Next week the stock drops to $80. Now Melvin Capital takes a look.
They decide its sales are going to fall in Q2, so they borrow 3,000 shares from Fidelity
and 3,000 shares from Charles Schwab and sell them to Pimco.
Now 110% (11,000 shares) of the float (10,000 shares) is short.
All the shorts are legal, none are naked shorts.

Now Citron takes a look, because the shares have dropped to $60.
They borrow 1,000 share from Fidelity and 2,000 shares from Pimco
and sell them to Blackrock.
Now 140% (14,000 shares) of the float (10,000 shares) is short.

Nobody did anything illegal and more shares have been shorted
than were issued by the company.

Let me know if you understand or need further explanation.

I never, nor did anyone argue that you can't short stocks. People are going to be a bit more leery going forward but you don't do nothing by proving something no one is arguing.

I never, nor did anyone argue that you can't short stocks.

You argued that shorting 140% of the float was illegal.

1612388304908.png


I just showed you how it can be done legally.
 
Gamestop was shorted by 140%. That is illegal.

Why is that illegal?

Um, because it is. Why is running a stop sign illegal?

Naked Shorting Definition.

I'll try to explain so that you can understand.

View attachment 452538

How an Investor Makes Money Short Selling Stocks (investopedia.com)

So, as an example. There are 10,000 shares of Knopp Corp. currently priced at $100
5,000 shares are owned by Fidelity and 5,000 shares owned by Vanguard. No shares are short.

I think the stock is going to drop in price. I can sell some March $100 calls short, I can buy some March $100 puts or I can borrow some shares for a short sale.

If the stock drops to $90 by March expiration, all 3 strategies should be profitable for me.
Let's just look at the short sale strategy.

I borrow 1000 shares from Fidelity and sell them to Blackrock at $100 a share.
Now 10% (1,000 shares) of the float (10,000 shares) is short.

Next week the stock has dropped to $90. I think it's going to go down further,
so I borrow 4,000 shares from Vanguard and sell them to Charles Schwab.
Now 50% (5,000 shares) of the float (10,000 shares) is short.

Next week the stock drops to $80. Now Melvin Capital takes a look.
They decide its sales are going to fall in Q2, so they borrow 3,000 shares from Fidelity
and 3,000 shares from Charles Schwab and sell them to Pimco.
Now 110% (11,000 shares) of the float (10,000 shares) is short.
All the shorts are legal, none are naked shorts.

Now Citron takes a look, because the shares have dropped to $60.
They borrow 1,000 share from Fidelity and 2,000 shares from Pimco
and sell them to Blackrock.
Now 140% (14,000 shares) of the float (10,000 shares) is short.

Nobody did anything illegal and more shares have been shorted
than were issued by the company.

Let me know if you understand or need further explanation.

I never, nor did anyone argue that you can't short stocks. People are going to be a bit more leery going forward but you don't do nothing by proving something no one is arguing.

I never, nor did anyone argue that you can't short stocks.

You argued that shorting 140% of the float was illegal.

View attachment 452588

I just showed you how it can be done legally.

I posted what was done was illegal. I posted something outside of your or my opinion. The article notes how something "could" be legal but this was not that something.
 
Gamestop was shorted by 140%. That is illegal.

Why is that illegal?

Um, because it is. Why is running a stop sign illegal?

Naked Shorting Definition.

I'll try to explain so that you can understand.

View attachment 452538

How an Investor Makes Money Short Selling Stocks (investopedia.com)

So, as an example. There are 10,000 shares of Knopp Corp. currently priced at $100
5,000 shares are owned by Fidelity and 5,000 shares owned by Vanguard. No shares are short.

I think the stock is going to drop in price. I can sell some March $100 calls short, I can buy some March $100 puts or I can borrow some shares for a short sale.

If the stock drops to $90 by March expiration, all 3 strategies should be profitable for me.
Let's just look at the short sale strategy.

I borrow 1000 shares from Fidelity and sell them to Blackrock at $100 a share.
Now 10% (1,000 shares) of the float (10,000 shares) is short.

Next week the stock has dropped to $90. I think it's going to go down further,
so I borrow 4,000 shares from Vanguard and sell them to Charles Schwab.
Now 50% (5,000 shares) of the float (10,000 shares) is short.

Next week the stock drops to $80. Now Melvin Capital takes a look.
They decide its sales are going to fall in Q2, so they borrow 3,000 shares from Fidelity
and 3,000 shares from Charles Schwab and sell them to Pimco.
Now 110% (11,000 shares) of the float (10,000 shares) is short.
All the shorts are legal, none are naked shorts.

Now Citron takes a look, because the shares have dropped to $60.
They borrow 1,000 share from Fidelity and 2,000 shares from Pimco
and sell them to Blackrock.
Now 140% (14,000 shares) of the float (10,000 shares) is short.

Nobody did anything illegal and more shares have been shorted
than were issued by the company.

Let me know if you understand or need further explanation.

I never, nor did anyone argue that you can't short stocks. People are going to be a bit more leery going forward but you don't do nothing by proving something no one is arguing.

I never, nor did anyone argue that you can't short stocks.

You argued that shorting 140% of the float was illegal.

View attachment 452588

I just showed you how it can be done legally.

I posted what was done was illegal. I posted something outside of your or my opinion. The article notes how something "could" be legal but this was not that something.

I posted what was done was illegal.

If you posted some proof to back up your claim, that'd be great.

The article notes how something "could" be legal but this was not that something.


Nothing you posted had any proof that it was illegal.

FYI.....Um, because it is.......still not proof.
 
Gamestop was shorted by 140%. That is illegal.

Why is that illegal?

Um, because it is. Why is running a stop sign illegal?

Naked Shorting Definition.

I'll try to explain so that you can understand.

View attachment 452538

How an Investor Makes Money Short Selling Stocks (investopedia.com)

So, as an example. There are 10,000 shares of Knopp Corp. currently priced at $100
5,000 shares are owned by Fidelity and 5,000 shares owned by Vanguard. No shares are short.

I think the stock is going to drop in price. I can sell some March $100 calls short, I can buy some March $100 puts or I can borrow some shares for a short sale.

If the stock drops to $90 by March expiration, all 3 strategies should be profitable for me.
Let's just look at the short sale strategy.

I borrow 1000 shares from Fidelity and sell them to Blackrock at $100 a share.
Now 10% (1,000 shares) of the float (10,000 shares) is short.

Next week the stock has dropped to $90. I think it's going to go down further,
so I borrow 4,000 shares from Vanguard and sell them to Charles Schwab.
Now 50% (5,000 shares) of the float (10,000 shares) is short.

Next week the stock drops to $80. Now Melvin Capital takes a look.
They decide its sales are going to fall in Q2, so they borrow 3,000 shares from Fidelity
and 3,000 shares from Charles Schwab and sell them to Pimco.
Now 110% (11,000 shares) of the float (10,000 shares) is short.
All the shorts are legal, none are naked shorts.

Now Citron takes a look, because the shares have dropped to $60.
They borrow 1,000 share from Fidelity and 2,000 shares from Pimco
and sell them to Blackrock.
Now 140% (14,000 shares) of the float (10,000 shares) is short.

Nobody did anything illegal and more shares have been shorted
than were issued by the company.

Let me know if you understand or need further explanation.

I never, nor did anyone argue that you can't short stocks. People are going to be a bit more leery going forward but you don't do nothing by proving something no one is arguing.

I never, nor did anyone argue that you can't short stocks.

You argued that shorting 140% of the float was illegal.

View attachment 452588

I just showed you how it can be done legally.

I posted what was done was illegal. I posted something outside of your or my opinion. The article notes how something "could" be legal but this was not that something.

I posted what was done was illegal.

If you posted some proof to back up your claim, that'd be great.

Already did. Just because you don't accept it "because" is irrelevant.
 
Already did. Just because you don't accept it "because" is irrelevant.

If this was your idea of proof......

1612390497401.png


You need a much better source.
Because Mish is an idiot, as my example showed.
Of course the public can be 140% long. With GameStop, they were 240% long. DURR
 

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