In honor of the Occupation of Wall Street.
All sorts of people have different reasons for hating Wall Street. The reasons for protest and anger at Wall Street and what it represents are a broad spectrum (as are reasons for support).
Personally, I think that Markets as a concept are truly valuable, and represent the best way to set prices. However, what I see today suggests that Wall Street has distorted and twisted Global Markets so badly, that I wonder if they'll survive for another year.
To keep focus, I'm just going to refer to one particular part of today's market operations that I think is at least a highly significant distorting factor in Global Markets as Wall Street has defined them over many years.
Naked Short Selling.
Moments ago, I read the best and clearest description of the process of Naked Short Selling that I've ever seen.
http://www.deepcapture.com/category/4-the-crime-naked-shorts-other-insincere-ious/
In brief, when you buy a share of Stock, Naked Short Selling is when the seller of that Share DOES NOT DELIVER the share to you. Instead, the system logs a "fail-to-deliver" and essentially, you receive an IOU for that share. I'm not making this up.
To you, an IOU in your account looks exactly like you were the owner of a share. You can sell it to someone else or keep it, just like you could a normal share. Theoretically, the seller has 3 days to deliver a share prior to it becoming a "Fail."
Now, imagine that a Public Company issued 100,000 shares of stock and sold these on the market. Theoretically, the price of those shares should reflect the supply and demand for those shares. However, if IOU's can be added to the system, then the "supply" of shares is essentially increased. For instance, if you bought 10,000 shares of the above company's shares, and you only received IOU's, then there are actually 110,000 company shares equivalent floating around on the market for trade (until the seller "covers" and buys back 10,000 shares for actual delivery). This has the potential to break the Market's ability to correctly price shares of stock, particularly when it is specifically used by Brokers, Bankers, and Hedgies to destroy companies and steal money from their investors.
It is actually illegal to do this, but it is done anyway, particularly since, though Naked Short Selling for Manipulation of Prices is actually illegal, it's almost impossible to prove in court.
http://www1.law.nyu.edu/journals/lawbusiness/issues/uploads/5-1/NYB103.pdf
Even if I have every reason to believe that shares aren't being delivered to me, there's no way for me to ever know who is selling me junk. Proving to a Court that an investor has "Standing" to sue some company over NSS is an almost impossible hurdle, and beyond that there are other major difficulties, not the least of which is that the actual records of who is selling to who is stored at the DTCC (Depository Trust Clearing Corporation (recently downgraded by S&P)), which is a Private Company, owned mostly by the big banks, and they won't provide that information to anyone. Not even courts have been able to break that shell (long story, ready the nyu article).
For my part, I've been putting together data on Fails, and Short Volume (as well as traditional pricing data) at http://www.dailyshortvolume.com (Fails are in purple). It's a work in progress, and there's much work to do in making things clear and well defined.
Personally, I think that Markets as a concept are truly valuable, and represent the best way to set prices. However, what I see today suggests that Wall Street has distorted and twisted Global Markets so badly, that I wonder if they'll survive for another year.
To keep focus, I'm just going to refer to one particular part of today's market operations that I think is at least a highly significant distorting factor in Global Markets as Wall Street has defined them over many years.
Naked Short Selling.
Moments ago, I read the best and clearest description of the process of Naked Short Selling that I've ever seen.
http://www.deepcapture.com/category/4-the-crime-naked-shorts-other-insincere-ious/
In brief, when you buy a share of Stock, Naked Short Selling is when the seller of that Share DOES NOT DELIVER the share to you. Instead, the system logs a "fail-to-deliver" and essentially, you receive an IOU for that share. I'm not making this up.
To you, an IOU in your account looks exactly like you were the owner of a share. You can sell it to someone else or keep it, just like you could a normal share. Theoretically, the seller has 3 days to deliver a share prior to it becoming a "Fail."
Now, imagine that a Public Company issued 100,000 shares of stock and sold these on the market. Theoretically, the price of those shares should reflect the supply and demand for those shares. However, if IOU's can be added to the system, then the "supply" of shares is essentially increased. For instance, if you bought 10,000 shares of the above company's shares, and you only received IOU's, then there are actually 110,000 company shares equivalent floating around on the market for trade (until the seller "covers" and buys back 10,000 shares for actual delivery). This has the potential to break the Market's ability to correctly price shares of stock, particularly when it is specifically used by Brokers, Bankers, and Hedgies to destroy companies and steal money from their investors.
It is actually illegal to do this, but it is done anyway, particularly since, though Naked Short Selling for Manipulation of Prices is actually illegal, it's almost impossible to prove in court.
http://www1.law.nyu.edu/journals/lawbusiness/issues/uploads/5-1/NYB103.pdf
Even if I have every reason to believe that shares aren't being delivered to me, there's no way for me to ever know who is selling me junk. Proving to a Court that an investor has "Standing" to sue some company over NSS is an almost impossible hurdle, and beyond that there are other major difficulties, not the least of which is that the actual records of who is selling to who is stored at the DTCC (Depository Trust Clearing Corporation (recently downgraded by S&P)), which is a Private Company, owned mostly by the big banks, and they won't provide that information to anyone. Not even courts have been able to break that shell (long story, ready the nyu article).
For my part, I've been putting together data on Fails, and Short Volume (as well as traditional pricing data) at http://www.dailyshortvolume.com (Fails are in purple). It's a work in progress, and there's much work to do in making things clear and well defined.