Naked Shorts Haunting and Rigging Markets. This Ain't NO Halloween Prank. It's a FRICKIN' Nightmare Sucking the life out of our economy. Finally Eliminated.
Explaining Dirty Tricks Like "Naked Short Selling" "Ghost Shares" "Algo Trading" and Removal of the Tick Test
Ida Tarbell was a quiet observer from the unassuming town of Titusville, Pennsylvania. Her world was steeped in oil. Unlike the romanticized image of gushing black gold from Oklahoma or Texas, the Pennsylvania oil fields were where the industry was born, a crucible of innovation and exploitation. Her father, a tank builder, was caught in the undertow of the oil rush, a firsthand witness to the rise of a colossal force that would shape the nation.
It was in this gritty landscape that Ida honed her intellect. With a mind as sharp as a drill bit, she absorbed the complexities of the oil industry. Her quiet demeanor masked a fierce determination. Unassuming and observant, she was a sponge, soaking up the stories of the little guy, the independent oilmen squeezed out by the relentless march of industrial titans. Little did anyone know that this unassuming woman from Titusville would become the catalyst for one of the greatest corporate takedowns in American history.
The 19th century was a period marked by rapid industrialization and the rise of powerful monopolies. While this era brought unprecedented wealth to a select few, it also led to widespread economic hardship for the masses. Amidst this gilded age of inequality emerged figures like Ida Tarbell, a journalist whose work exposed the monopolistic practices of Standard Oil. Her investigative journalism unveiled the ruthless tactics employed by John D. Rockefeller to amass his fortune, revealing how these actions harmed consumers and small businesses alike.
Tarbell’s relentless pursuit of truth ignited public outrage and spurred calls for reform. Her work became a rallying cry for those who sought to dismantle the trusts and restore economic competition. Through her fearless reporting, she demonstrated the power of the pen to hold the powerful accountable and to champion the cause of the ordinary citizen.
CRIMEX COMEX vs. Shanghai Exchange: A Comparative Analysis
COMEX: Paper-Based Futures Market
COMEX, operated by CME Group, is primarily a paper-based futures market for silver:
Trading Mechanism: Traders can buy and sell silver futures contracts without owning or handling physical silver.
Physical Delivery: Only a small percentage of contracts result in physical delivery.
Leverage and Short Selling: Extensive use of leverage and short selling is allowed.
Trading Volume: High trading volume, but low physical delivery rate.
Shanghai Silver Exchange: Physical-First Market
The Shanghai Silver Exchange (part of the Shanghai Gold Exchange) operates on a physical-first principle:
Physical Requirement: Requires physical silver to be deposited before trading can occur.
Contract Backing: All contracts are backed by physical silver in SGE vaults.
Delivery Rate: High rate of physical delivery compared to trading volume.
Short Selling: Limited short selling due to the physical-first requirement.
Key Differences
Delivery Rates
COMEX: Low physical delivery rate, often less than 1% of traded contracts.
SGE: High physical delivery rate, with most trades resulting in actual silver changing hands.
Short Selling
COMEX: Allows extensive short selling, potentially influencing prices through paper trades.
SGE: Limited short selling due to the physical-first requirement.
Market Transparency
COMEX: Less transparent due to the prevalence of paper trades.
SGE: More transparent as all trades are backed by physical silver.
Price Discovery
COMEX: Prices can be influenced by speculative paper trading.
SGE: Prices more closely reflect physical supply and demand.
The structural differences between COMEX and the Shanghai Silver Exchange have led many to view the Shanghai Silver Exchange as a more authentic representation of the physical silver market. The SGE's physical-first approach limits the potential for price manipulation through short selling and paper trades, which are common on COMEX. This has led to growing interest in the SGE as a benchmark for global silver prices, particularly in Asia, and has raised questions about the accuracy of price discovery on COMEX.
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The End of Naked Short Selling: A Landmark Court Ruling
A recent federal court ruling may signal the beginning of the end for naked short selling, a controversial and largely illegal practice that has plagued the financial markets for years.
What is Naked Short Selling?
Naked short selling occurs when traders sell shares they don't own or haven't borrowed, potentially manipulating stock prices and creating "ghost" shares.
This practice differs from legal short selling, where traders borrow shares before selling them.
The Landmark Ruling
On September 29, Federal District Court Judge Lorna Schofield issued a ruling that could significantly impact Wall Street compliance:
Broker-dealers may be held primarily liable for manipulative trading by their customers
They are considered "gatekeepers" of trading on securities exchanges
Broker-dealers have a responsibility to ensure customer order flow complies with all rules and regulations
Implications for Broker-Dealers
This ruling places new responsibilities on broker-dealers:
They must detect and prevent manipulative or fraudulent trading
Broker-dealers can be held liable for their customers' actions
They are expected to know if trades executed at their customers' direction are manipulative
The Impact on Naked Short Selling
The court decision could make it much harder for naked short selling to occur:
Broker-dealers may face legal consequences for enabling illegal practices
It addresses a significant loophole in the financial regulatory system
The ruling may lead to increased scrutiny and transparency in short selling activities
Protecting Retail Investors
This ruling is seen as a major step towards protecting retail investors from fraud:
It aims to prevent the creation of "ghost" shares
The decision could help maintain shareholder rights and prevent disenfranchisement
It may reduce the risk of manipulated stock prices affecting individual investors
The Broader Context
Naked short selling has been a contentious issue in the financial markets:
It's been described as a "financial weapon of mass destruction"
Previous regulations, such as the SEC's Regulation SHO, have attempted to address the issue
The practice has persisted due to regulatory gaps and complex financial systems
This landmark ruling represents a significant shift in how the financial industry approaches naked short selling, potentially leading to a more transparent and fair market for all investors.
New Evidence Facilitating Naked Short Selling in Canada
Recent developments have uncovered mechanisms and practices that facilitate naked short selling in Canada, particularly affecting junior mining companies.
Algorithmic Trading and the Removal of the Tick Test
One significant factor is the removal of the "tick test" or uptick rule in 2012, which previously only allowed short sales at a price higher than the last sale price of a security. This change has enabled algorithmic trading programs to exploit the market:
Algorithmic trading can depress stock prices by leaning into bids, causing despair among long investors and prompting them to sell.
This activity often occurs in the shadows, accessible mainly to institutions like banks and their clients.
Predatory Trading Practices
Veteran analysts and industry insiders have pointed out that banks and professional traders are engaging in predatory trading practices:
These traders sell stocks they don't own or have no means to borrow, taking advantage of the lack of a downtick rule.
Such practices are particularly harmful to junior mining stocks, which are not easy to borrow and are often thinly traded.
Lack of Transparency and Regulatory Gaps
The current regulatory framework has gaps that allow for potentially deceptive activities:
Short-selling information in the U.S. is reported only twice a month, leaving a long gap for manipulative activities to occur.
There is a need for better disclosure and more frequent reporting to enhance market transparency.
Advocacy and Legal Actions
Industry leaders and advocacy groups are taking steps to combat these practices:
Save Canadian Mining, co-founded by Power Nickel CEO Terry Lynch, is advocating for regulatory changes and has been conducting research and meeting with officials to address the issue.
.
A potential billion-dollar class action lawsuit is being organized to hold broker-dealers accountable for failing to fulfill their gatekeeping responsibilities.
Regulatory Responses
Regulatory bodies are beginning to take notice and consider changes:
The Canadian Investment Regulatory Organization (CIRO) and the Canadian Securities Administrators are forming a working group to study short selling, including the possibility of reintroducing the tick test and imposing pre-borrow requirements.
CIRO has clarified that naked short selling is illegal and is working on new proposals to support the enforcement of this rule.
These developments highlight the ongoing efforts to address the challenges posed by naked short selling and to protect the integrity of the Canadian financial markets.
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