The day Volkswagen briefly conquered the world (2018) | Hacker News Reader

The day Volkswagen briefly conquered the world (2018)

ftalphaville.ft.com

60 pointszt17 comments

I remember watching this live as it happened, it was fantastic. Reporting requirements of regulated exchanges should make scenarios like these impossible, but Porsche found a loop hole and squeezed the shorts.

Relevant section:

With 12 per cent of the shares outstanding sold short, it was mathematically impossible for every short-seller to buy a share, and therefore close their position.

In other words, half the room were going to be left in a burning building with no way out. A panicked dash for the exit began.

Edit: for context, I was working for a bank at the time, and implemented the procedure that monitored holdings for the limits above/which reporting requirements would be triggered. The rules are quite extensive, and it was an incredible feat to gain control over such a large share of VW stock without violating any of the actual rules.

Eh, there are ways around the lack of shares being publicly available to cover the short. Stock loan agreements and triparty agreements are two ways. Granted, this is OTC and you have to have willing participants, but it is possible.

I used to work in back office IT for a hedge fund and had to manually set these up in our systems all the time. Currently work for a Mutual Fund. Dont think current employer engages in this.

Stock loans from whom, in this particular case? Not Porsche, I would guess. If you can't find a counterparty, that's a red flag?

Why was Porsche in trouble after that because of a meager 15 billion debt? Couldn't they just sell VW stock for a fortune after it rallied high?

They had all the control and wanted to keep it. VW had a lot of cash but they couldn't just take it because 20% of it belonged to Lower Saxony and probably tax reasons. So they gave a loan with better conditions to Porsche from VW. It was not really a bailout, it was more of a restructuring.

http://archive.is/AZj5W

https://outline.com/E6XJsF

thanks a lot!

If you enjoyed this you may also enjoy reading about Piggly Wiggly: https://www.newyorker.com/magazine/1959/06/06/a-corner-in-pi...

That sounds awesome. Is there a version of the story that doesn't demand personal info to read it? This site wants me to enter info about my career and job title before I can view anything.

https://outline.com/E6XJsF

this is a fascinating read! - I do have a basic question: when do short sellers realize that the total outstanding shares are not enough to close position - or the assumption is that the same share can be used to settle multiple shorts at different times? thanks, HN!

Usually this handled via a stock loan or triparty agreement. A stock loan is an OTC (over the counter agreement, e.g. not on an exchange) when firm A "borrows" the shares from firm B and then after a term, either need to return the shares, or possibly offer cash compensation. This helps to cover the short. Versus a naked short, where you don't actual have possession of the shares you're selling. In my experience, naked shorts are rare, but I dont know how my experience plays out to the industry et large.

A triparty agreement is somewhat similar, but well, involves 3 parties instead of 2. Who gets what isn't always immediately clear to a casual observer. These can get quite nuanced and difficult to understand.

thanks!

For different short positions, each shorter could buy the shares from the person before to close their position, but if a lot are up around the same time that might become untenable, and would spike the price considerably

thanks!

> The thing to learn [from the short-squeeze] is that, it's such a rare experience and special case, we should not overreact.

One of my favorite points from “The Black Swan” is how Taleb points out that the few biggest market-moving days make up all the action in the market; the days in between are close to noise.

This is also a bit like saying after a car crash “this is such a rare event, all the other times I drove I didn’t crash. So let’s not get too hasty here”

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