Posted on 02/17/2021 7:13:57 PM PST by HereInTheHeartland
“ Interactive Brokers chairman Thomas Peterffy told CNBC Wednesday that the U.S. financial system faced greater stress during the GameStop trading frenzy than is generally recognized.”
(Excerpt) Read more at cnbc.com ...
The investors who are short the stock have to pay the dividend.
And the investors who own the stock receive the dividend.
Thus I1,I3, and I5 all receive dividence. But the company, I2 and I4 have to pay dividends.
I think the way it works is the brokerage collects from I2 to pay I1, and from I4 to pay I3, and the company actually pays I5.
“ If a bunch of retail traders buying a stock can jeopardize the entire financial system, something must be seriously wrong with that system.”
Bingo.
L
Then the silver squeeze will kill it dead.
Because I'm not a gullible idiot.
In 1987 the system almost blew apart in the crash in October .
I have my Wall Street Journal from about a week after the market crash then .
So a market event that didn't happen 33 years ago under completely different stress conditions is supposed to explain why a different event didn't happen three weeks ago. I'm supposed to justify my belief that this is an invalid line of reasoning to you.
You've got the burden of proof here. And your copy of the WSJ from 1987 isn't quite sufficient.
Yeah, they came DANGEROUSLY CLOSE to having to pay off their bet, so they changed the rules.
While going around telling everyone who will listen that if they had had to make good on their commitments, the entire financial system would collapse.
This article on 2019 is interesting. overstock-founder-tried-to-squeeze-short-sellers-then-sold-out-when-the-sec-cracked-down-2019-09-19
And prior to that, at one point the company bought back more shares than existed. If I recall correctly, naked short selling was allowed, and there were no penalties if the short seller couldn't make good.
did Marven Capital ever get a margin call?
“You’ve got the burden of proof here. And your copy of the WSJ from 1987 isn’t quite sufficient.“
The point of posting articles here is for people to discuss ,
And yes the system came very close to collapsing in 1987.
Read about it.
No GameStop 2021 was not an exact replica of 1987.
But the point is, there are potential risks to our financial system that are not immediately evident .
Be careful . Learn . Don’t think we know everything .
What he means to say is that he and his buddies who had decided to get rich quick by driving an American business into the ground almost lost everything.
Screw them, and the horse they rode in on.
I learned a long time ago not to fool around with short squeezes and other dangerous Wall Street games. I learned that from watching the implosion of Long Term Capital, and then that of Bear Stearns, Merrill Lynch, and Lehman Brothers ten years later. All caused by people who were ohh so much more clever than little me.
So how is that different than what is done today, i.e. a required margin deposit?
Anyone who claims that 1987 didn’t almost collapse the system is just showing spectacular ignorance. Most of the comments being made about GME, silver, etc. are from those who have never done any serious high level trading, and have not a clue about the mechanisms and internals involved.
I get your point but look at it this way:
An Indy 500 racing team/driver know they are playing a very, very risky game. They take all the prudent and customary measures to reduce the risks. But if 3 cars spin out of control in front of them at 200+ MPH, there is little that can be done to safeguard against that. Stuff can happen. They all know that and choose to play the game anyway. No guts, no glory.
You would not choose to drive an Indy car. The ones who chose to do so don’t think they are more “clever” than you, just a hell of a lot better drivers. You would surely die.
It is called a “stress test”.
If this is going to put the entire system at risk it might be time to put tighter limits on naked short selling.
Sheesh.
There is a difference between what an individual investor and a brokerage house has to hold in regards to options. Yes, the individual does have to have a deposit. Brokerage houses do not. Thus they can get away with selling naked shorts and that is how you end up with shorts that exceed the value of the company.
For your reading pleasure and enlightenment:
(5) Specialists' and Market Makers' Accounts
(A) A member may carry the account of an "approved specialist or market maker," which account is limited to specialist or market making transactions, upon a margin basis which is satisfactory to both parties. The amount of any deficiency between the equity in the account and the haircut requirements pursuant to SEC Rule 15c3-1 shall be charged against the member's net capital when computing net capital under SEC Rule 15c3-1. For the purpose of this subparagraph, the term "approved specialist or market maker" means either: i. a specialist or market maker, who is deemed a specialist for all purposes under the Act and who is registered pursuant to the rules of a national securities exchange; or ii. an OTC market maker or third market maker, who meets the requirements of Section 220.7(g)(5) of Regulation T.
(B) In the case of a joint account carried by a member in accordance with subparagraph (i) above in which the member participates, the equity maintained in the account by the other participants may be in any amount which is mutually satisfactory. The amount of any deficiency between the equity maintained in the account by the other participants and their proportionate share of the haircut requirements pursuant to SEC Rule 15c3-1 shall be charged against the member's net capital when computing net capital under SEC Rule 15c3-1.
(6) Broker/Dealer Accounts
(A) A member may carry the proprietary account of another broker/dealer, which is registered with the Commission, upon a margin basis which is satisfactory to both parties, provided the requirements of Regulation T and Rules 400 through 406 under the Act and Rules 41.42 through 41.48 under the CEA are adhered to and the account is not carried in a deficit equity condition. The amount of any deficiency between the equity maintained in the account and the haircut requirements pursuant to SEC Rule 15c3-1 shall be charged against the member's net capital when computing net capital under SEC Rule 15c3-1.
Cutting through all the eye glazing material... in short, all exchanges require all entities to post some form/amount of margin to mitigate counter party risk. NO ONE gets a free pass.
Sounds like I1 and I3 have chits in their accounts that may be defaulted on by I2 and I4 with the brokerages possibly on the hook for damages.
I sure hope I1 and I3 specifically approved of the loans.
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