Hacker News Reader

Comment by ClumsyPilot | Hacker News Reader

If anything is market manipulation, its shorting over 100% of a company to push down it's share price even lower and destroy the company

View on HN

That's just building a large position. I don't think they expected to run the company into the ground by merely shorting it, that's not how market impact works. These firms generally try to minimise market impact as opposed to r/wsb who try to maximise it

Intent is very important and this keeps being lost on the layman crowd. If I go to a widely publicized open forum and say: "Let's go and squeeze the shorts so that they go bankrupt, oh and here's a picture of me doing just that." that's market manipulation and in many corners of the world, that's illegal. As in, you go to jail illegal. If I short a stock because I genuinely believe it's overpriced, that's perfectly legal.

Beyond this, I'm sure there are many funds who try and successfully manipulate the markets, but they try to do it quietly. To do in blatantly in the open is basically rubbing it in the regulators face and giving them no choice but to crack down.

Nobody would notice a bunch of idiots doing this quietly. A 1 million strong mob hivemind will get noticed and will leave no choice for regulators but to come down hard on them.

This is not rocket science. It's the same sort of crowd who planned to storm the capitol, meticulously documented the evidence, posted it online (including confirmation of identity through driving licenses) and then went ahead and did the deed. They basically handed all the evidence to the feds on a silver platter.

What is the difference between your argument and a saying "the big boys know how to benefit from the corruption inherent in the system and the regulators would rather persecute a bunch of powerless people than confront the corruption in their own industry"?

This is not about knowing how to benefit from corruption. This is like basic common sense. I'm not engaging in whataboutism or trying to excuse bad behavior. Market abuse, including market manipulation should be punished irrespective of who is doing it.

I was pointing out the fact that if you go and do it and then brag about it in a public forum, don't be surprised that you get dinged.

It's literally like robbing a bank and then going to the police to hand in the video evidence, only to be surprised when the policemen are not impressed. Yes the big guys should be prosecuted. But perhaps if you didn't explicitly stand on the corner shouting "I'm going to rob a bank and all you guys should also rob banks", the authorities wouldn't be on to you.

I really don't see how taking advantage of an excessively-shorted stock is market manipulation.

I've been on the right side of two short squeezes last year purely by accident, and I'd certainly like to repeat the experience if I could. What exactly would be illegal if I was on the right side of a short squeeze on purpose? Predicting it? holding stocks until it happened? Explaining to people less experienced than myself how a short squeeze works?

You say 'intent' but what intent is discussed on these message boards that is so nefarious people with better Lawyers don't discuss it openly?

It is obvious from your comment you are the laymen, it is very tiring hearing accusations of criminality from you when you get lost in the basics. You seem to be the kind of folks that the headlines 'Nazis and white supremasists are buying gamestop' are designed for.

Stock can be bough for reasons that have nothing to do with it's market value.

I can buy a stock because i want to own it, maybe i want the voting rights, maybe i want to have standing so that i can file a lawsuit for securities fraud. Maybe i am planning hostile takeover. Maybe I want to proudly hang it at my door.

What the hell are you on about? For once, you know nothing about me and second, you are attacking a strawman. I said nothing about there being only one legitimate reason to trade a stock.

I am fully aware that you can buy or sell stocks for a myriad reasons, including meming. What is against the rules is trading stocks with the express intent of manipulating the market and deliberately squeezing other participants. This is exactly what was being pushed by WSB.

If you want to engage in adult debate, please refrain from personal accusations and strawmen.

Perhaps I was a bit unfair, but I do believe that your accusations of criminality are unfunded. Noone credible has yet called it fraud, and if indeed it was, authorities would have stepped in long time ago.

https://www.bloomberg.com/news/videos/2021-01-28/gamestop-fr...

No single fund deliberately pushed short interest over 100%. Short interest increasing over 100% is something that happens organically when many firms want to short the same thing. No collusion required. Someone buys a stock from a short seller and sells it short themselves.

I will add that short interest > 100% is a very common risk measure that firms with a short position actively track.

I don't know how to verify this, but I've heard one source claim that firms continued to short once it was already over 100%. Even if that's not strictly collusion, it sounds — to my admittedly untrained ear — like a position that the system should want to avoid.

I think it's reasonable for people to want to limit that. The trouble is that you would need to require brokers to prevent short selling stocks that have been already been borrowed and short sold. Aside from tracking a tree of stock ownership changes at the brokerage level, this would de facto create two similar but different assets for every equity: those which are "clean" (have never been sold short, or the short position is closed) wnd those which are "dirty" (have been sold short at some point and the position is not closed).

This is trickier than it might sound, because you are in some sense restricting the rights and capabilities of some subset of the shares. That has valuation implications.

I am not saying it can't be done or even that it's undesirable; just that the mechanics of this are nontrivial to enforce.

There's nothing mechanically wrong with short interest being over 100%. It just means that some shares will have to change hands more than once to close the shorts. This is a very widespread misunderstanding.

How does a low share price "destroy the company"?

by limiting financial opportunity for the devaluing company to the point that it inhibits normal every day business, creating a feedback loop that the company may be unable to recover from.

This occurred to Lehman Brothers. Different industry, but they got shorted to the point that their clients withdrew their funds and they were left in a position that was ineligible/undesired for most loans.

https://slate.com/news-and-politics/2011/08/does-it-matter-t...

> by limiting financial opportunity

Financial opportunity to what? Be specific.

None of the examples there really makes a lot of sense in this case. You think this pump (and coming dump) happening with GameStop would convince lenders to lend to GameStop at better rates? Maybe if they had no clue what was happening and did no due diligence, but that is not the case. And I doubt share price is the only consideration made by lenders, if their share P/E ratio was very low (which shorting would cause) then this would also affect their lending opportunities positively.

You think they were planning to issue new shares? It would have been an amazingly stupid idea which likely would not have been approved by existing shareholders anyway and would have had much the same effect as shorting.

Considerations for an investment bank is quite different from the considerations for a game retailer.

EDIT: The claim that short selling contributed significantly to the demise of Lehman Brothers is also disputed: https://en.wikipedia.org/wiki/Lehman_Brothers#Short-selling_...

No, that is absolutely not market manipulation. That is the market working exactly as designed.

Reply on news.ycombinator.com