However, SELLING is fine.
I get that the firm SOMETIMES finances the trade during the two day clearing period of the stock.
What I DON'T get is the following:
1. If the money is actually in your account, this doesn't make any sense. If you are buying on the margin, this explanation makes sense. Ergo, it should be OK to buy or sell any stock if you have the money in the account.
2. If buying creates excess counterparty risk, but selling doesn't, WHO'S ON THE OTHER SIDE OF THE TRANSATCTION? ONe hand can't clap. Somebody has to buy the trade.
I'm posting this because today you're going to get pummeled by the term SYSTEMIC RISK.
I called this yesterday. Government bailout incoming.
Citadel, ironically, IS a clearing firm.
Oh, and Webull CEO agrees that the triggering event was that some clearing house allowed Citadel to short 140% of GME.
NOBODY IS TALKING ABOUT WHO ALLOWED THAT TO HAPPEN.
Clearing Houses are clutching their pearls at having to back counterparty risk on trades from people with ACTUAL MONEY IN THEIR ACCOUNTS, but they had no problem at all allowing a single company to borrow 100 percent of the shares of a company, plus 40 percent more that doesn't exist.
What that means, and what Clearing Firms are supposed to have, is an inventory of the stocks they lend in order to be able to legally lend the stock.
Whichever firm lent the shares to Citadel, what they originally represented is that:
1. They owned 100 percent of GME (which is clearly not true, even if you are talking about the 'float' or the shares that are publically available) and then loaned 40 percent more that cannot exist.
2. They had no problem loaning a total of 60M shares of GME to a single company and sustaining that risk for an entire month, waiting for the 140 percent to be paid back, which cannot happen.
However, today, buying GME is just too much risk because they have to temporarily finance the trade for two days. They claim this EVEN THOUGH the money has left your cash account.
But SELLING IT, where in the clearing firm PAYS YOU IMMEDIATELY for the buy trade (somebody is buying) - that incurs no risk at all since they are not financing the buy side of the trade (even though they are counting on the buy side of the trade to pay for the trade).
As you can see, there is going to be a wall of bullsh!t the likes of which we haven't seen since 2008 (or November 2020 if you count the election, which wasn't financial so I didn't want to count it, even though it was clearly bullsh!t) is going to inundate every orifice of the media, internet, social media, and planes flying banners behind them.
I recommend setting condition DOG ZEBRA throughout the ship today.
It's going to get very, very thick.
I post this because I admit I don't understand the clearing end of all of this fully yet, but that's where it is going.
I invite the erudite insights of those knowledgeable in this today.
Gordon Gekko : Someone reminded me I once said “Greed is good”. Now it seems it’s legal. Because everyone is drinking the same Kool Aid. Gordon Gekko : You know what they say, “Parents are the bone on which children sharpen their teeth.”
Does this mean that I now can legally sell that bridge in Brooklyn? Wheeeeee!
Yup x1000%
Citadel allowed firms to play loose because it cracked on a bunch of nobodies. Like a mob goomba going around and doing shakedowns. Except this time he got fresh with someone who wasn’t as much a nobody as he thought. Now Citadel has to sweat a bit.
The thug killed John Wick’s dog. Big mistake.
This is old-fashioned “kiting”, “paper-hanging”, NSFing. I hate it but you’re right: bailout incoming.
Massive transaction volume can overwhelm the back office operations of stock traders and clearinghouses. If that happens, the entire financial system can seize up and then collapse as the public loses faith. Whether that risk is present now is hard for even high level insiders to determine.
So the the Easter bunny magically puts the money into the account IMMEDIATELY. Gee, I thought it had to come from the buyer.
Silly wabbit. Trix are for kids!
You can’t sell a stock without someone buying it, it is called a trade for a reason
If nobody can buy it, how can one sell it?
“He who sells what isn’t his’n, must buy it back, or go to prison.”
The SEC would do us all a favor if it would outlaw short sells.
This is an interesting idea. I remember from “The Big Short” they’d sell mortgages, but then a market was made that merely bet on the mortgages, without involving the mortgage itself.
Those were called “synthetic CDOs”.
Here is the scene from the Big Short that explains it:
https://www.youtube.com/watch?v=AUM59Eh6vTw
I posted this earlier this morning:
Let say a RobinHood client has an account with $500 in it and they buy and sell one share of GME at $350. The next day they want to do the same. The problem is the funds from the first sale are not settled. It takes 3 days for the clearing house to settle the trade (do the paper work, transfer the sellers funds, do the book keeeping, etc.) That is known as T+3, trade date + 3 days.
Most brokerages will allow another trade if the client has a margin account. The funds needed ($350) for the second share buy comes from $150 of settled funds in the account and $200 from margin. So, yes, margin is involved, the firm is at risk for those borrowed funds.
Now multiple the above by millions of clients with frenzied trading activity in a highly volatile stock. The firm’s total margin debit outstanding skyrockets. Capital ratio requirements get pegged. Selling client stock is one way to un-peg that needle, start reducing the total.
So they're only selling to short sellers.
My guess is that there is so much “phantom shares” out there, that the clearing houses can’t reliably settle trades.
It’s a hot potato they don’t want to find themselves left holding.
I confess, even though I’ve been investing is stocks for quite a while, I have no idea of the inner workings of a trade especially the role of the clearing house. It was one of those esotoric things that always seem to work - sort of like a carburetor in a car.
I thought it was illegal to sell or lend stocks you don’t own. Why isn’t Citadel being charged with fraud?
So lets see how TD Ameritrade likes what I do Monday. I’ll seek out a stock with a price around $5.00 (Not considered a penny stock)
I have a cash balance over $1,000.00 in my account.
I’ll place a market order for 1 share. Once it’s filled I’ll repeat that 199 times.
There are no fees for trading at Ameritrade. Wonder how they’ll like that. Be a lot of overhead and accounting on their part.
Bkmrk