Repost from beginning of November.

Edit 2023-11-22: I might have missed something. Interestingly, in the new Teddy vol 2 TOYS is shown... might it actually be a trap for shorts?

Thx to wtfeweguys:

End edit.

Original title: Shorts R US - The Geoffrey Files Part 3 - The reports of Geoffreys nearing death might be actually true - Doug Cifu trades “nice” in September, only (a) month(s) in run way, death trigger in place, management with risk free compensation?!

I just went quickly through the annual report of TOYS R US (see https://wcsecure.weblink.com.au/pdf/TOY/02734815.pdf where all further references without additional link are for) and wow... this doesn't look good from a financial perspective. Wow... I have to share what I found.

Please remember, do your own due diligence. I am no financial adviser and this is not financial advice.

TL;DR: This company is borderline (a trap?), Doug Cifu trades “nice” in September, equity lowered by 96% or $32m, 1.7 months in run way (time till out of money) at the time of the annual report, debt increased and shifted to very short term debt, whole management receives mainly risk free compensation.

Topics:

• There is no float, Neo.
• Doug Cifu trades “nice” in September
• More debt, less equity
• Only (a) month(s) in run way (as of annual report)
• So, wen profitable?
• Who owns the debt? A death trigger?
• What about their US comeback?
• Execs with risk free compensation

There is no float, Neo.

Please check back on Part 1 (ppsub) and Part 2 (ppsub) if you haven’t. This also mixed with the info from the annual report that the top 20 holders own 72% of the shares.

(p. 89)

Okay, if this is all a sign of high short interest, is this a bullish sign? We know of certain activist investors that they like leaders to put their money where their mouth is, that risk free compensation probably will not lead to the best outcome for the company. And we know that shorts like to put a company to bankruptcy. So lets shortly go through some parts of the annual report and see how it looks like. Feel free to correct me and point out any important things I missed or got wrong.

Also is there some way the debt could be turned to something good like supposedly in BBBY with the NOLs?

Doug Cifu trades “nice” in September

Market Statistics - Monthly Share Volume (finra.org)

Why should he do this? Ah, remember his meltdown on X? Maybe it’s rather the same impulse which lead him to do this… maybe not.

More debt, less equity

What blew my mind was on page 6. Leverage blew through the roof. From a moderate debt/equity ratio of 29% to 831% from FY22 to FY23

What did they do?

The balance sheet is a total mess… cash is gone, equity is nearly gone. Their borrowings went up.

(p. 28)

And it widened to $54m in two years.

(p. 29)

(p. 73)

Build up debt, scale down assets… the new key to success?

Also exchanging long term debt for higher interest rate short term debt, right?

(p. 76)

So they surely have massive countermeasures in place, right? They have massive countermeasures in place, right?

Oh nice… so during the course of one year the equity went down 96% or $32m while taking on $15.8m additional debt. Now their plan is to get rid of the UK business which will reduce loss by $6m, which brought in $5.3m. Wtf?

They are loosing roughly $1m/month (while operating activities might be seasonality).

Only (a) month(s) in run way (as of annual report)

So what is the financial runway left? (Total Capital ÷ Monthly Operating Expenses = Runway)

1,766 / (12,465 / 12) = 1.7 months

Wow.

So, wen profitable?

(p. 8)

(p. 2)

Breakeven by 2025? How do they want to survive with such high short-term debt, risk-free compensation and high burn rate?

Who owns the debt? A death trigger?

(p. 9)

(p. 63)

Ah, there is a death trigger.

The lender seems to be TRU Kids Inc (TRUK). See p. 71. If someone wants to dig in.

Losses as an asset?

(p. 63)

What about their US comeback?

In short... no.

(p. 68)

Execs with risk free compensation

(p. 18)

(https://wcsecure.weblink.com.au/pdf/TOY/02688802.pdf)

Edit: as of 17.11. Pen Cox got granted vested 14.5m shares. For a price of $0.011 AUD thats 160k AUD vested over the next years.

Well you could argue that the 40-80% variable Renumeration might be risk based, but there is no clear indication it will be.

There is no huge stock package with vested options and she gets roughly the same base as Matt Furlong got at GME for comparison.

This ends with: I would recommend for everyone to READ THE ANNUAL REPORT (https://wcsecure.weblink.com.au/pdf/TOY/02734815.pdf), dig into the available information.

origin: https://lemmy.whynotdrs.org/post/429107

TL;DR: As seen in Blurring DD part 3 a free and fair market will be on a self-custodial defi blockchain (link see below) which needs to be built on an open source platform. This will render nearly everything in the short toolkit useless. Stocks will no longer behave like infinite fiat money supply where you can always borrow more, but rather a finite share of a company. One thing left to them are (meme) stock traps. We have to begin understanding them. The DD has just begun.

Topics:

• A really free and fair market
• How would shorting work in such a market?
• Comparing todays short technics with those in a free and fair market
• What is left for shorts and how can we be one or two steps ahead?

A really free and fair market

First I want to thank the team of DRS GME, especially chives who went through several iterations of the post with me. I started writing it in mid 2022 and happy to share the thoughts now.

Counterfeit Shares 2.0 lists a lot of ways to create a counterfeit share. During the last years we got ample evidence that this is how the stock market operates (see last DD https://lemmy.whynotdrs.org/post/331876/). Looking at the loopring whitepaper (https://loopring.org/resources/en_whitepaper.pdf) and imagine a stock exchange based on self-custodial wallets and decentralized exchanges there eventually cannot be counterfeit assets, given certain conditions (see below). In this environment Fails to Deliver, Settlement Fails, Wrong labeling, False Locates, Naked Options and Perpetual Rolling may not occur. For context this is all about the loopring technology based on Etherium and not about their token (LRC).

As main condition everyone would have to use the particular uncompromised platform. E.g. the loopring wallet app for iPhone or Android, again not talking about LRC as a token here. If on the opposite every broker kept its own platform and would pinky promise to connect to the Loopring backend, we could probably end up in the same situation as today. Brokers could internalize orders or route to only certain exchanges. So how to solve this? A) only allow "Loopring App" for holding and trading shares B) implement authenticity checks at B1) shareholder interactions, like voting B2) other purposes, like interacting with products of the company (e.g. the Twitter Account would connect with your wallet and show the amount of shares you own). So this as an example for the "ownership" part (see also the DD about ownership here (https://lemmy.whynotdrs.org/post/331878), for the exchange part solution A would solve the issue, B maybe. A graphical overview of those stages:

We will go on in this post mostly assuming the green path would take the majority of shares and orders (aka “free and fair market”).

How would shorting work in such a market?

Here is a thought experiment on how shorting could work in such a free and fair market. Let’s say realGME was the token of the company and wrappedGME the derivative which you get instead of realGME when lending your share.

Here is a thought experiment on how shorting could work in such a free and fair market. Let’s say realGME was the token of the company and wrappedGME the derivative which you get instead of realGME when lending your share.

1. If you buy a tokenized stock you would always know that realGME is the one which is a real share, always with 1:1 voting rights and 1:1 rights of 1/(shares outstanding) of the company, always.
2. A buyer would therefore only buy realGME, not some wrappedGME (this is very different today with e.g. EU brokers going to EU exchanges and only offering GS2C instead of GME).
3. A shortseller would then need to somehow get realGME which he needs to sell to a buyer, he could not sell wrappedGME. Yes, you could maybe fuck around with the derivative wrappedGME, but you could not with realGME - thus any buyer always gets a real share, the lender may be cheated, true. So the lender should know the risk when getting wrappedGME. Today lenders and buyers are cheated. Also the (short-term) negative price pressure on realGME would still be there. Keep this in mind for now.
4. The new buyer becomes owner of the realGME with its voting and economic rights on the company attached, no one can take the realGME from him by whichever force.
5. The old owner who gave his share away to shortsellers receiving a wrappedGME which only signals the ownership rights on a realGME, but losing his voting and economic rights - the old owner got a derivative, which is clear at the time.

So the ownership right is clear in every second of this transaction. This is fundamentally different than today. And now to make this system work we would need:

6. wrappedGME could be provided by a smart contract which holds collateral from the short seller (e.g. ETH or some kind of USD).
7. the short seller can either buy back a realGME and exchange it for wrappedGME or in case of a "margin call" the smart contract will automatically buy back realGME and do the exchange.

7b) for this to work the margin call would always be below the value of the collateral.

7c) still, in extreme situations when the price of realGME is higher than the value of the collateral a buy back is not possible. Then the old owner would lose the realGME and receive the collateral instead.

7d) we'd likely see a huge number of variants in how collateral is paid, upon which terms, etc.

In short: shorts would still pretty much work, maybe even better than today. But it forces more honesty between two people or entities making a deal.

Comparing todays short technics with those in a free and fair market

However, there are many more tactics to influence a stock price and we will dive into each and look whether the whitepaper provides a solution.

Or in short:

What is left for shorts and how can we be one or two steps ahead?

Man, such a free and fair market would be something I am really scared of if I had a lot of naked shorts in nearly every stock on the planet. This would indeed something, shorts never forget. Since its also a few years that individual investors theorized such a system for GME, there is no way shorts haven’t been doing this for some years now. And while there might be countermeasures from shorts in the political, regulatory, behavioral and so many different corners, we will just look at their usual techniques and see what’s left. So the three main things which work independently of a free and fair market are pumps & dumps, poops & scoops, short & distort. Let’s call them traps.

So if they cannot beat individual investors by their normal tactics they have to probably level up on what’s left. Ah, and make no mistake also institutional investors are being played. Don’t forget, this is a game of longs vs naked shorts.

Now, to be one step ahead, we should discuss exactly the matter of this post. We know about GME pretty well, but we can only direct register every share once, so probably the question in which stock to invest is a pretty important questions. Maybe also some might want to become activist investors themselves. Therefore, to be two steps ahead we should already begin to understand short traps (where a subset is surely “meme traps”). And I imagine this is game where we never finish learning. Let’s begin.

Sources https://www.reddit.com/r/Superstonk/comments/v20yqz/best_tldr_of_this_whole_saga_by_ujgatprime/ (I really recommend you to look through the comments of JG-at-Prime) https://web.archive.org/web/20210131131256/http://www.counterfeitingstock.com/CS2.0/CounterfeitingStock20Full.pdf https://loopring.org/resources/en_whitepaper.pdf

TL;DR: As seen in Blurring DD part 3 a free and fair market will be on a self-custodial defi blockchain (link see below) which needs to be built on an open source platform. This will render nearly everything in the short toolkit useless. Stocks will no longer behave like infinite fiat money supply where you can always borrow more, but rather a finite share of a company. One thing left to them are (meme) stock traps. We have to begin understanding them. The DD has just begun.

Topics:

• A really free and fair market
• How would shorting work in such a market?
• Comparing todays short technics with those in a free and fair market
• What is left for shorts and how can we be one or two steps ahead?

A really free and fair market

First I want to thank the team of DRS GME, especially chives who went through several iterations of the post with me. I started writing it in mid 2022 and happy to share the thoughts now.

Counterfeit Shares 2.0 lists a lot of ways to create a counterfeit share. During the last years we got ample evidence that this is how the stock market operates (see last DD https://lemmy.whynotdrs.org/post/331876/). Looking at the loopring whitepaper (https://loopring.org/resources/en_whitepaper.pdf) and imagine a stock exchange based on self-custodial wallets and decentralized exchanges there eventually cannot be counterfeit assets, given certain conditions (see below). In this environment Fails to Deliver, Settlement Fails, Wrong labeling, False Locates, Naked Options and Perpetual Rolling may not occur. For context this is all about the loopring technology based on Etherium and not about their token (LRC).

As main condition everyone would have to use the particular uncompromised platform. E.g. the loopring wallet app for iPhone or Android, again not talking about LRC as a token here. If on the opposite every broker kept its own platform and would pinky promise to connect to the Loopring backend, we could probably end up in the same situation as today. Brokers could internalize orders or route to only certain exchanges. So how to solve this? A) only allow "Loopring App" for holding and trading shares B) implement authenticity checks at B1) shareholder interactions, like voting B2) other purposes, like interacting with products of the company (e.g. the Twitter Account would connect with your wallet and show the amount of shares you own). So this as an example for the "ownership" part (see also the DD about ownership here (https://lemmy.whynotdrs.org/post/331878), for the exchange part solution A would solve the issue, B maybe. A graphical overview of those stages:

We will go on in this post mostly assuming the green path would take the majority of shares and orders (aka “free and fair market”).

How would shorting work in such a market?

Here is a thought experiment on how shorting could work in such a free and fair market. Let’s say realGME was the token of the company and wrappedGME the derivative which you get instead of realGME when lending your share.

Here is a thought experiment on how shorting could work in such a free and fair market. Let’s say realGME was the token of the company and wrappedGME the derivative which you get instead of realGME when lending your share.

1. If you buy a tokenized stock you would always know that realGME is the one which is a real share, always with 1:1 voting rights and 1:1 rights of 1/(shares outstanding) of the company, always.
2. A buyer would therefore only buy realGME, not some wrappedGME (this is very different today with e.g. EU brokers going to EU exchanges and only offering GS2C instead of GME).
3. A shortseller would then need to somehow get realGME which he needs to sell to a buyer, he could not sell wrappedGME. Yes, you could maybe fuck around with the derivative wrappedGME, but you could not with realGME - thus any buyer always gets a real share, the lender may be cheated, true. So the lender should know the risk when getting wrappedGME. Today lenders and buyers are cheated. Also the (short-term) negative price pressure on realGME would still be there. Keep this in mind for now.
4. The new buyer becomes owner of the realGME with its voting and economic rights on the company attached, no one can take the realGME from him by whichever force.
5. The old owner who gave his share away to shortsellers receiving a wrappedGME which only signals the ownership rights on a realGME, but losing his voting and economic rights - the old owner got a derivative, which is clear at the time.

So the ownership right is clear in every second of this transaction. This is fundamentally different than today. And now to make this system work we would need:

6. wrappedGME could be provided by a smart contract which holds collateral from the short seller (e.g. ETH or some kind of USD).
7. the short seller can either buy back a realGME and exchange it for wrappedGME or in case of a "margin call" the smart contract will automatically buy back realGME and do the exchange.

7b) for this to work the margin call would always be below the value of the collateral.

7c) still, in extreme situations when the price of realGME is higher than the value of the collateral a buy back is not possible. Then the old owner would lose the realGME and receive the collateral instead.

7d) we'd likely see a huge number of variants in how collateral is paid, upon which terms, etc.

In short: shorts would still pretty much work, maybe even better than today. But it forces more honesty between two people or entities making a deal.

Comparing todays short technics with those in a free and fair market

However, there are many more tactics to influence a stock price and we will dive into each and look whether the whitepaper provides a solution.

Or in short:

What is left for shorts and how can we be one or two steps ahead?

Man, such a free and fair market would be something I am really scared of if I had a lot of naked shorts in nearly every stock on the planet. This would indeed something, shorts never forget. Since its also a few years that individual investors theorized such a system for GME, there is no way shorts haven’t been doing this for some years now. And while there might be countermeasures from shorts in the political, regulatory, behavioral and so many different corners, we will just look at their usual techniques and see what’s left. So the three main things which work independently of a free and fair market are pumps & dumps, poops & scoops, short & distort. Let’s call them traps.

So if they cannot beat individual investors by their normal tactics they have to probably level up on what’s left. Ah, and make no mistake also institutional investors are being played. Don’t forget, this is a game of longs vs naked shorts.

Now, to be one step ahead, we should discuss exactly the matter of this post. We know about GME pretty well, but we can only direct register every share once, so probably the question in which stock to invest is a pretty important questions. Maybe also some might want to become activist investors themselves. Therefore, to be two steps ahead we should already begin to understand short traps (where a subset is surely “meme traps”). And I imagine this is game where we never finish learning. Let’s begin.

Sources https://www.reddit.com/r/Superstonk/comments/v20yqz/best_tldr_of_this_whole_saga_by_ujgatprime/ (I really recommend you to look through the comments of JG-at-Prime) https://web.archive.org/web/20210131131256/http://www.counterfeitingstock.com/CS2.0/CounterfeitingStock20Full.pdf https://loopring.org/resources/en_whitepaper.pdf

Inspired by u/Region-Formal.

Awesome WHYDRS team. Thanks for your work!

I feel this work is early, but spot on. GameStop can set the precedent for household investors waking up, realizing how the market works and with DRS have a relatively easy way to really impact the market.

As the question bothered me if GameStop is such an outlier or more or less business as usual, I gathered data and did some graphs. I never really finished or published them, cause I feel that still with GameStop and DRS we are testing an hypothesis and the result is still to be seen (successful business & high DRS & huge shorts should positively corelate with the price). Why start DRSing other stocks if the impact of the "biggest DRSing community" is still not really proven. At the same time, if the hypothesis proofs to be right, other stocks will follow.

However, I feel that here might be the place to share the drafts for Days /w FTD, 10y Turnover and daily average FTDs (as % of shares outstanding). I also did some other analysis, like price elasticity. This is not financial advice, also please proof and test the numbers, I might have made errors.

Sources:

• For Days with FTD and daily FTD the SEC data was used: https://www.sec.gov/data/foiadocsfailsdatahtm
• For Shares Outstanding the SEC API was used: https://data.sec.gov/api/xbrl/companyconcept/[CIK]/DEI/EntityCommonStockSharesOutstanding.json (where the CIK of the ticker is derived from https://www.sec.gov/Archives/edgar/cik-lookup-data.txt)
• The Volume was fetched using yahoo finance
• All data was curtailed for 2012 to 2022 (Q3), so about 10 years
• ETFs were filtered out
• Only the top ~400 tickers as of days with FTDs were used

10y Turnover (volume / shares oustanding) to Daily avg FTD

Days with FTD and daily avg FTDs as % of Shares Outstanding

Same as above but zoomed out

The work was inspired by u/sdfprwggv . Thanks! Even if I didn't finish the work - maybe someone wants to continue.

Could also provide the source. Everything was written in Python.

Special thanks go out to jackofspades, Bibic-jr, Chives, 6days1week and lawsondt for their contribution and support. Love you guys.

PREFACE – A quick little short squeeze

SOME OF THE GREAT DD AND ITS CONNECTION TO GAMESTOP AND THE STOCK MARKET

HOW LONGS WIN THIS WAR – SOMETHING THEY WILL NEVER FORGET

1. What is a share and where is it held?
2. How many entities technically have access to a share?
3. Where are the shares traded and how is the price derived?
4. How regular people think price discovery works and how it actually works?

WHAT NEEDS TO CHANGE FOR A FAIR MARKET

PREFACE – A quick little short squeeze

GameStop is what brought most of us here. I wasn’t really into GameStop and had experienced the short attacks and FUD on Tesla. So as Musk tweeted GameStonk!! [https://twitter.com/elonmusk/status/1354174279894642703] and Ihors3 with SI partners reported like 140% short interest [https://twitter.com/ihors3/status/1354477089471295492], I thought I had one short squeeze but how about a second one? A quick litte short squeeze cannot be wrong, can it?

I checked RC and Chewy and I thought I knew what I was doing clicking buy on my neo brokers interface. I thought I knew roughly how the market worked. I had shares before. I mean I thought I bought shares of US companies on the stock exchange.

Boy, I had no idea…

Credit to u/Mousiaris

So the price shot up and we won … oh no, actually brokers canceled the buy button for many stocks (https://twitter.com/magsonthemoon/status/1697231772252045333), the media tried to convince us that shorts closed (https://twitter.com/ihors3/status/1356261806612885509) and demonstrated that individual investors could never win in the current system.

And Just looking at the FTDs, volume, institutional ownership there are hundreds or even thousands of companies where the price is wrong (https://www.reddit.com/r/whydrs/comments/13ckpsz/unfinished_stonk_overview_for_days_w_ftd_10y/).

SOME OF THE GREAT DD AND ITS CONNECTION TO GAMESTOP AND THE STOCK MARKET

We learned from the Amazon Bust Out Scheme ™ (http://web.archive.org/web/20210601141915/https://www.reddit.com/r/Superstonk/comments/np33hr/amazon_bain_capital_and_citadel_bust_out_the/) that cellar boxing (https://investorshub.advfn.com/boards/read_msg.aspx?message_id=2543759) can be helpful to scoop up assets very cheaply. So big companies (like Amazon), lending banks, DTCC, shorts, corrupt board members, overpriced consultants, lawyers and corrupt politicians all profit from this.

The ones who lose are the bankrupted company, the employees who lose their job and of course us, individual investors.

Looking back to 2020 GameStop ticked all the cellar boxing boxes (https://www.reddit.com/r/Superstonk/comments/1663z0n/comment/jyhpdw5/):

• incompetent (and/or) fraudulent management with a losing strategy (https://www.sec.gov/Archives/edgar/data/1326380/000101359420000821/rc13da3-111620.pdf),
• which applied a 10% $216m debt during COVID (https://www.sec.gov/Archives/edgar/data/1326380/000132638021000032/gme-20210130.htm) while losing money since 2018 (smells like death spiral financing),
• bad press and
• a steadily declining share price from $44 2015 to under $4 2020 (pre-split) accompanied by huge volume (https://www.reddit.com/r/Superstonk/comments/wursjt/gme_outstanding_shares_turnover_compared_to_msft/), high institutional ownership and massive Failure to delivers (https://www.reddit.com/r/Superstonk/comments/wlrdlk/previous_research_found_that_tsla_and_bdlp_had/).

This stock market is designed this way. Individual investors don’t own stock, we got beneficial rights (https://www.whydrs.org/why-register-shares) where with many, especially international brokers you can’t even vote or votes are cut due to over-voting (https://cdn.ymaws.com/stai.org/resource/collection/1DEFBE7C-390F-4D83-AE14-99E53B32892E/2019.12.3_SEC_letter_re_Proxy_concept_release.pdf). With naked shorts broker-dealers collect 100% of the profit while giving out counterfeit shares, keeping everything in case the company goes bust (https://finance.zacks.com/tax-stocks-exchanged-through-merger-acquisition-11818.html). And this is not one stock, this is the stock market (https://www.reddit.com/r/whydrs/comments/13ckpsz/unfinished_stonk_overview_for_days_w_ftd_10y/).

I strongly believe a lot of the over 180.000 long-term DRSd individual investors are here for system change. To stop this unfair and corrupt market. Like Elon said, he didn’t start the fight with the SEC but he will finish it (https://twitter.com/elonmusk/status/1496564151493304324). So we will with predatory short sellers.

Part 2: https://lemmy.whynotdrs.org/post/331878

PREFACE – A quick little short squeeze

SOME OF THE GREAT DD AND ITS CONNECTION TO GAMESTOP AND THE STOCK MARKET

HOW LONGS WIN THIS WAR – SOMETHING THEY WILL NEVER FORGET

1. What is a share and where is it held?
2. How many entities technically have access to a share?
3. Where are the shares traded and how is the price derived?
4. How regular people think price discovery works and how it actually works?

WHAT NEEDS TO CHANGE FOR A FAIR MARKET

HOW LONGS WIN THIS WAR – SOMETHING THEY WILL NEVER FORGET

But how can longs win over shorts? Is a successful turnaround enough? Did for example naked shorts bleed with the Tesla meteoric rise in share price or did they just switch sides and end up earning even more money? Is pure DRS enough? How is the system working today anyway and what needs to change?

To answer those questions we will dive in:

1. What is a share and where is it held?

2. How many entities technically have access to a share?

3. Where are the shares traded and how is the price derived?

4. How regular people think price discovery works and how it actually works?

5. What is a share and where is it held?

A share of a company consists of voting and economic rights. Vote on the annual meeting and thus have direct influence of who runs the company and indirect to the strategy and organization

Economic right is the right to own and you would think also to buy and sell. But the right to buy and sell is not attached to a share but rather in combination with an exchange and a broker-dealer, e.g. the right to buy was removed per brokers during January 21 and in general with places like “the expert market”, where only a few brokers allow individual investors to buy, while one can sell anytime. Also some brokers (maybe the minority) allow one to select an exchange or OTC to place your order while some don’t.

Like with money you can decide where to hold your shares. Money can be held as hard cash in your wallet, in a bank account or even be invested and held in a derivative (e.g. overnight money). Thus, when giving the money to another party it becomes clear that they are technically able to do something with it, e.g. loan or invest it. This could technically be done without your consent, which might be legally required or not. So the next question is when changing the way to hold an asset (money or shares) how many entities have technically access to it.

2. How many entities technically have access to a share?

The place the share is held also defines how many entities technically have access to the share. Legally that’s a different story, but see with a broker-dealer you are holding an entitlement as beneficial owner. For Transfer Agent Regulations the SEC called for comments on transfer agent regulation in 2015, since current regulations are from 1977 (https://public-inspection.federalregister.gov/2015-32755.pdf, p. 1) . Obviously, no regulation was put into action and there is rather no action and meetings since 2019. Looking at what the SEC already state in 2015 is that shares maybe not safe with a transfer agent and issuer plan are typically not in the name of the investor (p. 194 and https://www.sec.gov/about/reports-publications/investor-publications/holding-your-securities-get-the-facts). Bibic-jr created this wonderful graph in showing the differences in the ways of holding shares:

Yet, it bugged me that all of those ways include at least one counterparty who technically has access. So I added one more step and compared the amount of entities having technical access with Money, Crypto and Shares:

Who should have access to your equity? Here's how to hold for your preference:

Wait a minute… so DRS is not the way? Indeed, it’s the only way. DRS and DWAC transfers into Direct Registration might be the only way out of this fraudulent system.. Still, one entity beside you always has access and could in theory also remove the buy button. Can MOASS happen with another entity having access? I don’t know and I repeat, without DRS we are stuck in the system with DTC.

Some may also ask, wait but Plan is equal to Pure DRS isn't it? Well the SEC said "[t]o hold in DRS once [plan shares] are acquired, you would need to instruct the transfer agent to move the securities from the issuer plan to DRS" (https://www.sec.gov/about/reports-publications/investor-publications/holding-your-securities-get-the-facts), since share plans (dividend reinvestment, direct stock purchase, etc.) could not be considered your property (https://www.sec.gov/comments/s7-27-15/s72715-40.pdf, p.12). Also finra says that “[y]ou’ll need to instruct the transfer agent to move [bought plan shares] to the DRS” https://www.finra.org/investors/insights/know-the-facts-direct-registered-shares.

Next, to exercise the economic right to buy or sell there must be an economic value, which is detached from the share and the place it is stored.

Part 3: https://lemmy.whynotdrs.org/post/331876

PREFACE – A quick little short squeeze

SOME OF THE GREAT DD AND ITS CONNECTION TO GAMESTOP AND THE STOCK MARKET

HOW LONGS WIN THIS WAR – SOMETHING THEY WILL NEVER FORGET

1. What is a share and where is it held?
2. How many entities technically have access to a share?
3. Where are the shares traded and how is the price derived?
4. How regular people think price discovery works and how it actually works?

WHAT NEEDS TO CHANGE FOR A FAIR MARKET

HOW LONGS WIN THIS WAR – SOMETHING THEY WILL NEVER FORGET

3. Where are the shares traded and how is the price derived?

Economic value is defined by the exchange (or OTC) where the share is traded. The market capitalization of a company is defined by the public exchange where the security is mainly listed, e.g. NYSE or NASDAQ.

For some security this exchange will have not the most volume, which is kind of odd isn’t it? Also the security might trade on foreign exchanges or in dark pools, the latter often deriving the price from public exchanges (https://www.investopedia.com/terms/d/dark-pool.asp), while having far greater volume than the public exchange.

Those exchanges use an order book to match bids for supply and demand. Watching the the Wallstreet Conspiracy (https://www.youtube.com/watch?v=26_IcexvePA) or The Problem (https://www.theproblem.com/episode-5-the-problem-with-the-stock-market/) it’s always about scraping pennies on the dollar. So doesn’t really feel that bad, does it?

Let’s recap how regular people think price discovery is working and see how price discovery it’s actually working with all we learned during the journey.

4. a How regular people think price discovery works?

Supply & Demand sets the Price. You can think of this as an orderbook, so for a price of $25 there are buy orders for 50 shares, while for a price of roughly $11 there are buy orders for 150 shares.At the same time for $25 there are sell orders for 150 shares and at ~$0 only 50 shares are paper handed. The intersection of those curves is than what defines the market price which is roughly $15 with a volume of roughly 100 shares exchanged hands.

Sounds easy right? And would look like this: Price is where Supply and Demand meet, 𝑄𝐷(𝑃)=𝑄𝑆(𝑃) where Q is quantity of D(emand) and S(upply) at a certain (P)rice (see: https://www.core-econ.org/the-economy/v1/book/text/leibniz-08-04-02.html)

Thanks to a young boy from Bulgaria (Vlad Tenev, https://www.youtube.com/live/RfEuNHVPc_k?t=1305) GME investors soon learned about Payment for Order Flow, which would route orders to wherever the counterparty, mainly Citadel and Virtu in our case, wants. The Problem with Jon Steward (https://www.theproblem.com/episode-5-the-problem-with-the-stock-market/what-is-the-stock-market) and also the movie Gaming Wallstreet (https://www.imdb.com/title/tt18332840/) brought the concept on the big screen.

The Problem states that this scheme is to make pennies off of every transaction processed. However, Dark Pools were literally defined to do large trades without price adverse effects on the price [https://www.investopedia.com/articles/markets/050614/introduction-dark-pools.asp]. Some of them use the past price of lit exchanges (https://www.investopedia.com/terms/d/dark-pool.asp), where individual investors trades barely go to. Rereading some old DD it feels like there are some logical flaws in the early DDs. Like this post claiming "I don't believe you can suppress the price of a stock through manipulation that only involves dark pools or off-exchange trading, as it is all publicly reported." (https://www.reddit.com/r/Superstonk/comments/o70lid/dark_pools_price_discovery_and_short/). But I rather agree with the logical deduction in the comment (https://www.reddit.com/r/Superstonk/comments/o70lid/comment/h2w36ex/?utm_source=reddit&utm_medium=web2x&context=3).

Price is a function of supply and demand (like shown above). If you now print several different graphs instead of one and spread demand over them the individual demand is lower, while as a big market maker supply is not a problem even without naked shorts. So naturally the price will be lower when having several exchanges with lower demand but high supply (sponsored by the liquidity fairy). As example, let’s take lemonade stalls. Supply of lemonade is ample. So imagine, there is just one stall and everyday there is a huuuge queue (high demand) in comparison to you having one stall but there are like 10 more lemonade stalls around you and the queue would spread equally. In which scenario would it be easier to raise the price of lemonade? Easy, isn't it?

Further there are settlement delays (T+2 at least) and shorting which allow broker-dealer and market makers to temporarily inflate supply and thus lower the price. The graph would change to the following:

Changed equation: Price is where increased Supply (by shorts and settlement delay -> QSi) and reduced Demand (by routing -> QDr) meet, 𝑄𝐷r(𝑃)=𝑄𝑆i(𝑃)

Wow we just lowered the price of the shares and also the market cap of a company.

Interestingly through the GameStop sneeze saga the size of the trades handled by dark pools shrank (https://www.reddit.com/r/Superstonk/comments/mx4j9p/dark_pool_dd_summary_and_a_quick_update_on_all/) leading to the theory of retail orders having no more influence on the share price.

Even if synthetic shares are mentioned here and then, even on The Problem with Jon Steward, it’s almost never clearly put like Mark Cuban put it “[t]heir goal is to never [close] their short”.

I didn’t understand it when he said it, but its as simple as that: someone sells shares, collects 100% of the money and doesn’t actually deliver the share, forever.

So, if you want to cellar box a company somewhen even temporarily inflated supply would not be enough to reach a certain price point. “Finance professor (not me) mathematically proves that it's impossible to short a stock to zero without naked shorting at least as many shares as there are outstanding, doubling the float in the process” (https://www.reddit.com/r/Superstonk/comments/nw8281/math_black_magic_vol_1_why_it_is_mathematically/ ).

Everything changes if supply can be inflated indefinitely. And naked shorts are just one way, finra often fines broker-dealers for wrongly labelling shorts as long [see Citadel has no clothes], also there is perpetual rolling and many more (see https://www.petepetit.com/mimedx/downloads/Counterfeiting-Stock.pdf). Synthetic shares are additional to the outstanding shares, meaning shares that should not exist.

4. b How is the price actually discovered?

Adding synthetic shares the Price is now where already reduced Demand (by routing -> QDr) meets infinite Supply (QS∞), 𝑄𝐷r(𝑃)=𝑄𝑆∞(𝑃), which obviously is at some point ~0, or should we say finally cellar boxed.

Imagine MOASS starts, Tomorrow was Today, in which of the above systems would you rather want to be?

What are implications of “Supply & Demand” being actually “(routed to lit market) Demand & (synthetic) Supply”?

• The seller of a synthetic share receives 100% of the cash but giving 0% of additional value. (The buyer receives some value still, e.g. the economic value and maybe partial voting rights)
• Derivatives are tied (mostly leveraged) to the price of the underlying, so little swings in the price can mean huge swings for derivatives. (if the price moves to much from the perceived fair price and investors are willing to invest/divest huge swings are not possible w/o moving the perceived fair price or buying power)
• The company loses market capitalization and thus value which credit score is tied to but also suppliers will look cautiously at the market cap and probably revise their payment terms (e.g. upfront payment instead of late payments).
• Cellar boxing and bankruptcy jackpot become possible only with naked shorts.
• …

In 2004 blurring wrote "[t]hese massive naked short positions need to be looked upon as huge assets that need to be developed." (https://investorshub.advfn.com/boards/read_msg.aspx?message_id=2543759). So what are the steps to do so?

WHAT NEEDS TO CHANGE FOR A FAIR MARKET

A massive short squeeze may not happen with GME under current market structure. Too many entities have access to shares in a way that the supply/demand relationship can always be manipulated through a nearly endless number of tactics including corrupt exchanges to suppress true price discovery. The main way an individual investor can change the current situation is by limiting access to their shares to exclusively themselves and that’s through the DRS system.

The second part beside exclusive ownership is something we cannot do ourselves easily. It’s an uncorrupt exchanges like tzero or loopring doing the absolute majority of the trades.

Only with those two pieces in place a large short squeeze may begin to unfold. The foundation of that happening is due to large short positions that exist as a hidden asset. The asset exists, but it’s hidden and therefore isn’t reflected in current market price. It is only through the extraction of this hidden asset that it will contribute to fair market price for the stock.

I just came across a research I did a year ago and wanted to share with you further evidence from another angel that the stock market is rigged (not only GME, surprise, surprise) and how to test this.

Boring theory.

Ever wondered how much a change in price would change the demand (and supply) of a product? And vice versa how much a change in demand would change the price of a product?

If the price of gas rises will the demand shrink and if so by how much?

If the demand for stocks rises will the price rise and if so by how much?

Common sense would suggest with rising demand the price of a stock should rise, right? (Okay, okay, we already know about Dougie the liquidity fairy and his friends).

This concept is called price elasticity (of demand/supply) and measured by the coefficient of price and demand, which could be anything between

• perfectly inelastic (demand doesn’t change no matter the price)
• Inelastic (demand changes less than the price)
• Unitary elastic (demand changes in union with the price)
• Elastic (demand changes more than the price)
• Perfectly elastic (demand is detached from the price, welcome to the
• MOASS scenario haha, Kenny and Dougie are looking forward to very perfectly elasticity)

There is ample research on the topic as well on the demand as on the supply side.

Would you buy less gas if the price doubles? Probably not, which COVID and inflation when travel restrictions were lifted clearly showed. Demand was relatively constant while prices shot up.

Was this already predicted? Oh yes, demand for gas was always very price inelastic.

Buff waff abouf Mayonnaise?

What about MAYONNAISE I hear you say. It just depends on whether you are a loyal or non-loyal consumer:

We also get a feeling on price elasticity. So we see detergent nearly perfectly inelastic for loyals, gas being inelastic, Mayonnaise for loyals unitary elastic (they should, floorcloth for non-loyals being very elastic. Nobody buys floorcloth if price goes up!

What do you think is the price elasticity of the stock market? Make your guess, maybe Pulte is buying you a burger if you are right.

Here are some more examples, also since in high inflation, high interest rate times it could be good to know how demand is behaving here are some more

(Source: https://scholar.harvard.edu/files/alada/files/price_elasticity_of_demand_handout.pdf)

Okay, so in general one (or in this case Investopedia could say) “When a good or service is a luxury or a comfort good, the demand is highly price-elastic when compared to a necessary good. Conversely, the demand for an essential good, such as food, is generally price-inelastic because consumers still buy food even if the price changes.” (https://www.investopedia.com/ask/answers/040715/which-factors-are-more-important-determining-demand-elasticity-good-or-service.asp)

Now, how would stocks behave? What number would you assume? Ready for Pultes burger?

And of course how would stocks we like behave?

And would there be differences for stocks which are mainly owned by individual investors vs. institutional investors (mainly, like >140%....)? But this is for another time.

Of course we have data also on the stock market. A study from 2021 found “[…] both theoretically and empirically, that the aggregate stock market is surprisingly price-inelastic in general […]”.

Ah, yes, ah, surprisingly. Not only for meme stocks, but for all stocks the demand does not really change a lot with a change in the price. The study found a coefficient of 0.2 which would be comparable to gas or coffee. So the price changes 100% while demand would only change 20%. But also a small change in demand would hugely impact the price.

Stonks we like in comparison.

Now, lets do this for some of our favorite stonks as well as some other well-known ones.

(Monthly aggregated values based on daily close prices from 2019-01-01 to 2023-09-13: one can perfectly see the capital inflow post 2020-03, GME price elasticity picking up after the Sneeze and the market going nuts in 2023-Q2/Q3)

All the time we talked about numbers between 0 and infinity (I like infinity), why are some stocks below 0 here?

They do the reverse. As the price goes up, demand goes up, too. Price goes down, demand goes down, too. Like for really luxury products, the higher the price, the higher the demand (expensive Champagne, Rolex Daytona, Tesla, Apple, Microsoft,… and AMC in August???).

I didn’t dig too much into AMC, but there was the 10:1 stock split August 24, the 40m new shares offering finished September 13 and a lot of price movement.

What stings out is the rather flat line 2018, 2019, 2020 for GME and BBBY. Especially GME hovering around the perfectly inelastic demand. Again, this means the price is detached from any volume change… of course it is, greetings to the finest investors of our time, Ken and Dougie.

One could form a thesis that those two stocks were obviously price controlled with a clear price target being ~0, until something broke.

Even if you didn’t get a burger from Pulte you now know what price elasticity is, how elastic Mayonnaise is, that the stock market behaves counter intuitively and especially GME and BBBY look the most manipulated.

Looking forward

rom all we know (cellar boxing, dark pools, naked shorts) we can safely say that the price in the current system will never be a real output of supply and demand. Thus it is to question if price discovery for the whole stock market is real at all.

But there are boundaries. With GME in late 2020 and January 2021 one could theorize that the buying pressure in relation to the former very low stock price got too large. Also that BBBY is in a similar position right now.

So if whatever stock comes out successful of a restructuring (or near certain bankruptcy like GME in 2020/21) the valuation changes and the stock price has to be adjusted for one or two orders of magnitude (like $4 -> $400 now $80, BBBY from $0.2 to we will see).

That is without a real price discovery, just avoiding an insane buying pressure w/o a certain bankruptcy (and most probably to profit from derivate trades after the price adjustment). We’ll call this disruptive price adjustment to valuation (Level 1).

And yes, that’s a nice play. But it doesn’t foster all those nice naked shorts, or any short covering at all. Remember mcuban, shorts don’t plan to ever close, also see the SEC report on the sneeze showing nearly no short covering.

Okaaay, who of you sweet little stocks already had a short squeeze? OSTK, you? The PED (price elasticity of demand) went up from 0.04 to 0.11. Hmm and getting into perfectly inelastic territory right after??

Also even if FTDs for OSTK went down, it traded its outstanding shares 2017: 6x, 2018: 14x, 2019: 19x, 2020: 25x, 2021: 11x while also institutions own ~80% of the outstanding shares. I don’t think we saw a real short squeeze here either.

So for a real shortsqueeze and especially MOASS including an infinity pool, we would assume a rather (perfectly) elastic price curve (PED > 1). The price will remain astronomically while the demand is huuuuuge. We’ll call this MOASS with real price discovery (Level 2).

TL;DR: we never passed disruptive price adjustment to valuation (Level 1). MOASS will require real price discovery, which potentially would be visible due to a change in price elasticity of demand. The question remains whether real price discovery is part of the plan, if so there will be fireworks.

“Securities held pursuant to […] share plans (dividend reinvestment, direct stock purchase, etc.) should be registered such that they could not be considered property of the transfer agent. (https://www.sec.gov/comments/s7-27-15/s72715-40.pdf, p.12)

“DTCC shares the Commission’s concerns that securities and funds held by transfer agents are subject to a risk of loss from fraud, theft or other misappropriation or disruption and supports the Commission’s proposals to strengthen the practices and procedures involving the safeguarding of funds and securities by transfer agents.” (https://www.sec.gov/comments/s7-27-15/s72715-32.pdf, p. 8)

"[...] Plan Administrators maintain custody of purchased shares on the participants’ behalf, with the purchased shares typically being registered in the name of the transfer agent’s nominee." (https://public-inspection.federalregister.gov/2015-32755.pdf, p. 194)

Source: https://public-inspection.federalregister.gov/2015-32755.pdf)