AOC calls out Robinhood for blocking GameStop, suggests holding a hearing

There exist listed and over-the-counter derivatives for the purpose of institutional levering, but if you can double-borrow shares, you're essentially adding instability to the asset market in a way that is not immediately discoverable. That makes prices unstable and (as evidenced) makes it harder for the price to equilibrate. In a normal market, you have damping -- as the price impact goes further, there's more resistance to further impact. This is not so in an unstable market (either due to shorts covering or to short option gamma) because you end up with inverse price elasticity of demand. In other words, as the price goes up you get more demand rather than less.

If you're hedging delta by hand on a short-gamma position, you can feel the stock run away from you. In these situations, sometimes the best way to reduce your delta is to trade the other way and let the gamma offset the shares that you trade. I have traded options positions of this sort, and it is unsafe because it incentivizes shorts to double down in order to send the price back lower.

In my opinion, the existing requirement for a locate (presently, you have to know where the shares can be borrowed from before you're allowed to sell short) should be interpreted to preclude recursive rehypothecation, on a first-come-first-served basis. Furthermore, a firm should not be able to buy back or otherwise retire its stock when short interest equals 100% of the float.

Institutional traders already have several different restrictions that don't make much sense. Much of this is because regulators don't always understand the mechanics of how a trading business operates. This rule on the other hand would IMO make markets run better by forcing leveraged bearish bets into the options market where risk monitoring is more thorough and product sophistication is a barrier to entry.

Well let's assume that's true (it's not).

The logical implication would be that Plotkin is shorting video game developers and retailers with pensioners' money.

The only practical way for market forces to disincentivize that kind of irresponsible and unsuitable risk-taking would be for him to publicly suffer losses.

If that happens, the pension funds withdraw their money.

If they withdraw their money, Plotkin's take-home pay and social status diminish.

So as they say, all roads lead to Rome. No matter where his trading assets came from, he suffers personal financial consequences from the loss and the resulting fallout.