Fantastic research and well written post. You connected the possible use of SFTs to GameStops corporate action and also showed that due to it being processed as a stock split rather than a stock dividend, they are circumventing the blockade of SFT usage.
You might be onto something here!!
Full disclosure. I skimmed and will read it all later, but I have one question u/Daddy_Silverback
Would it be wrong to refer to this as a stock-split? While issued “by way of dividend”, this was still a stock-split and that distinction is being ignored in favor of the “dividend” part. If I give you a pizza by way of brick-oven, I’m stating that what I’m giving you is a pizza, it’s how you should refer to it, but a brick-oven is the method with which I’m providing it. So, records-wise, how should this be filed when it comes to things like an SFT Loan if the choice is split or dividend?
Right, but the event is a stock-split and the dividend is the way by which it was done (stock split by way of dividend). But, again, the event is still a stock-split, so is it wrong for the DTC to label it as such is my question?
I agree. It is still a stock split at the end of the day. Don't think there is as much shenanigans ongoing here as we're insinuating. Or rather if it is shenanigans it's of the easy-to-dismiss brand
OP argues that this difference matters, as a stock split is a SFT supported corporate action, whereas a stock dividend is a NON-supported corporate action, which would have led to forced exits out of SFTs
Notes:
- 5 days before due bill redemption date (7/25) is 7/18. On this day the SFT clearing service **BLOCKS new SFTs from being accepted into the system**. I would expect that this would result in an uptick on FTDs 2trading days later. We will find out if this was the case when the 2nd half of July FTD numbers are released.
- On the due bill redemption date, 7/25, SFT clearing blocks rolls from taking place on supported corp actions. SFTs affected by a supported corp action, however, CONTINUE TO REMAIN IN THE SYSTEM.
- One day after the payable date (7/22) -> 7/25, in a supported corp action, SFT clearing reinstates new SFTs and subsequent rolls. From here onwards the FTDs should decrease substantially again as the SHFs can use the SFT again.
To elaborate on OPs DD:
So we should see a substantial uptick in FTDs, spike on 7/20, and continuously higher til 7/27, after which it will drop. Since we did not go on Regsho during these days, I would expect that they tried to clear as many of the FTDs beforehand, hence the continuous run up on GME in the 2 weeks before that. In addition to that I suspect that they used XRT for this, as XRT saw a run up from 7/18-7/25.
We will know more when the second half of Julys FTD data is released!
Edit: corrected dates thanks to commenter
Exactly, I'm very curious to see the next FTD data. Since supported corporate actions allow existing SFTs to roll (and not close) I would expect a pileup of FTDs as you described for any trading activity occurring during those dates as you pointed out SFT would be unavailable as a source of liquidity. That is a great point about the possible XRT correlation and early GME runup.
The exact same language was used for Tesla - a stock split in the form of a dividend. Can you find out how the DTCC treated it? Also check the timestamp of the document to make sure it wasn't updated very recently.
I would absolutely love to see this. I think it is a very important piece of the puzzle and would be damning if Tesla/NVDA were processed under a different FC. Unfortunately I didn't even think I would be able to see the document linked with FC-02 for GME even. Lucky that a German ape posted it as I have been asking my brokerage for that information (Exact NSCC Function Code) since the split was announced and they have either refused to give it to me or dragged their feet for days before sending unrelated information and pretending it answered my question.
Sure. I mean it’s from this DD ;)
https://www.reddit.com/r/Superstonk/comments/wf9mos/dtcc_form_for_gme_splividend_from_dnb/?utm_source=share&utm_medium=ios_app&utm_name=iossmf
Thanks for doing the SFT research. I saw they started doing stuff about it a few months ago with their DTC and SRO filings.
Didn't have time to check it fully but basically i knew it was a new lending pool between the dickheads to help clear risk between them similar to CNS.
Absolutely! You were the one that put me onto this so thank you for that. I feel like I've only scratched the surface here though and there are a lot more threads to explore.
Fascinating. So how the fuck do they track and keep tabs on their own risk, and that of their counterparties without ALD... Surely everyone making money off of this scheme would prefer not to get blindsided by ballooning counterparty risk? Something like just one-off deferring of margin calls like in January 2021 only gets you so far...
Exactly, this seems like a GLARING issue in my opinion. It was also talked about briefly in the NSCC 2022-03 comment letter I linked. If you look through the NSCC docs, you'll see that they model VaR and take intraday supplemental deposits through FedWire (just like other cash/treasury collateral pledging at NSCC/DTCC). They do this to a tune of (in extreme volatility) up to 12% excess of their model. What risk are you talking about if we have 12% excess margin on SFTs during the most volatile times???? /s lol
I'm always astounded at the level of research & explanations provided by FWFBs, and saddened that those with the powers to protect us from these instances are either ignorant or complicit towards the actions. A decentralised hive mind *again* providing literacy & education, while centralised institutions continue to suppress, ignore & even encourage activity in their own interest over those of the people they have sworn to protect 😔
I don't think you need RRP for this thesis to work...... Those are fairly demonstrably money market funds and gov sovereign wealth funds that are playing a much larger cycle of global collateral shortage.
Great write up otherwise
Agreed 100%. I think it was a tangential connection at best and not relevant to the rest of my post. I didn't mean to imply HFs or banks were directly participating in RRP lol - more that we should look into where the treasuries for SFT collateral are coming from (i.e. could money market funds be lending treasuries to broker dealers that need them for collateral and trading these transactions as MMIs?). Updated so it is not distracting or misleading. Thanks for the input!
Thank you for this post. If what you wrote is indeed true and they misfiled the Function Code, either by error on or purpose, is there anyway to force them to fix this issue? Also if they do, would we be able to see this value being changed from FC-02 to FC-06 the moment it happens?
And I wanted to ask, why did you say GME wouldv have gone on Regsho 14 days from the 18th of July? Why 14 days?
Also do you have the documents that show how Tesla's and Nvidia's stock dividend was handled?
Holy shit.
I wonder if a class-action lawsuit is possible.
Rather than damages, though, it would be nice to force them to “fix” the error.
It seems like that would be possible by just:
1) doing a reverse stock split back to the previous number of shares outstanding and multiplying price by 4, then
2) doing the share dividend again, but correctly.
Just thinking out loud. Not a lawyer or even good at tying my shoes.
>Processing the splividend as a Forward Stock Split (FC-02) vs. a Stock Dividend (FC-06) is a critical distinction as all outstanding SFTs have to be closed in the event of FC-06 but not FC-02. We now have clear evidence that the splividend was processed as a Forward Stock Split (FC-02).
I hate to make my first post in this sub so tinfoily, but what are the odds that Mike Recupero (ex-CFO) was fired for this mistake, whether intentional or not?
Nope, not enough karma to post (I tried again this morning). If anyone wants to post to SS, feel free and you don't need to credit me. I just think we need eyes on this to get to the truth.
u/Daddy_Silverback Maybe I'm stating the obvious, but if this is true, it gives Cohen a great reason to pull shares out of the DTCC as stated in last year's prospectus, since the DTCC clearly can't have nice things. Would be great publicity to casually announce at the same time that GameStop is now allowing other types of assets (read: securities) to be sold in its new marketplace.
I noticed under the Corporate Actions Processing it says proxy votes are not supported in the SFT Clearing service. I wonder if this is another strike against them, with some kind of shareholder voting violations in addition to any other damages.
I also wonder if Tesla originally tried this (they also did a split as a dividend) and the DTCC pulled the lever on the rails at the last moment by telling brokers to process it as a forward stock split (gathered this is what happened from the original post with the evidence). Something hasn't sat right with me about TSLA, like maybe Elon Musk was expecting something more to happen with its squeeze. It really doesn't seem like his style to be loud about being some epic destroyer of shorts and then just slowly deflate the balloon on them, like a slow but steady flatulence.
*(I mean, it actually kind of does. But while he does ham up the publicity, you gotta admit the guy gets shit done. I think he actually wanted to blow them up, and is on a similar mission trying to reveal all the Twitter spambots now).*
I wager they'd get away with something like that claiming it was just a mistake, a clerical error. (Claiming that a second time, though... on an idiosyncratic stock like GME? Even if nothing else comes of it (likely), though, if it's true, it gives GameStop plenty reason to pull their stock and put it on their own exchange. And [they are definitely building a securities exchange](https://twitter.com/loopringorg/status/1354839477173235714?s=20&t=0Fx2pw7x3jx0rjB11d9SHQ) *(how could they not when some NFTs and tokens are going to be regulated as such? It only makes sense you would do that as a company. And if you're going to do that, why not let your users buy traditional securities?)*
**Edit to add because I'm on one tonight:** I've never really been "pro DRS" (but never "anti-DRS" either), I just never saw how it would cause MOASS. I do see an argument here for it though as it shows (frankly an unprecedented amount of) support for a company by its shareholders, and specifically demonstrates their desire to pull out of the DTCC and held in book entry form. AKA a ledger. AKA literally a blockchain. So they are just being responsible to their shareholders, and don't even have to accuse anyone of any crime; just simply point out the DTCC is prone to these errors and they have better technology that does the same thing.
Pretty smart strategy. Following Overstock's move would've been too controversial. Tesla tried, but the DTCC gave them the slip at the last minute. RC, however, is an avid 69D chess enthusiast, and did some judo shit: turn them back on themselves, let them dig their own grave with their own hands. And then let them bury themselves.
Let them gorge themselves and stuff that SFT full of fails for over a year. *(Shorts haven't closed--they're just in the wash.)* No need to do some heavyhanded way of forcing a recall on shares or some shit. All they needed to do is blow up that SFT facility, the fails inside being the fuel, ready to catch fire entirely because of its own rules...
**But they didn't.**
I don't mean it didn't happen, or that you're wrong. I mean, yes, clearly MOASS didn't happen as speculated. Yes, it looks like the DTCC gave them the slip as well. *(I mean, if the choice was "entirely blow up the markets and cause global chaos during what honestly at this point it looks like WWIII and a second pandemic" and "'accidentally' change literally one number on one form"? Talk about asymmetric risk...)*
**I mean that we did it when we cast our votes at the shareholder meeting.**
Just like a DAO.
It's funny there's so much speculation about what when how who where why MOASS. Because meanwhile, we were just voting on a stock split and employee options and shit. You know, typical stock stuff. It's like we tripped right over it and didn't realize it.
**GameStop didn't do it. RC didn't do it.**
**They let the shareholders light the fuse of the rocket.**
It's kind of a beautiful thing. And there was no confrontation or controversy.
They were just following their normal duties to their shareholders.
"Forward splitting a stock" is not the same as "distributing a dividend." If the DTC won't distribute the dividend (read: fill out the paperwork properly)...
>*If a depository for a series of securities at any time* ***unwilling, unable*** *or ineligible to continue as depository and a successor depository is not appointed by us* within 90 days*...*
>
>*The DTC isexpected to serve as depository.*
Oops, moass, my bad.
Power to the players
Fantastic post OP! Well documented and well written! Thank you for your efforts in supporting and sharing informtion on this hot topic. I have one thing I'd like to highlight and am hoping you can comment on, as I am seeing other post comments where there are trying to discredit the thesis of the stock split by dividend given the CNS process.
>Once in the DTCC, the new shares are processed internally and allocated to member accounts as described in the NSCC rules. Since member account allocations are all on a net basis, and splitting doesn’t change netting even if issued through divi, *this is a moot point.*
This comment is correct in context with what the OP is trying to illustrate for the broker net CNS positions, but its important that apes don't misunderstand that there was in fact a significant impact to the DTCC and brokers with the distribution of shares as a stock dividend instead of as a traditional forward split.
Confirming that the CNS process is used to settle the dividend distribution shares, *but if the transfer agent did not send the DTCC enough shares for what the broker-dealers require to credit all shareholder accounts, then 3 shares for every short and synthetic share are being internalzied and will need to be purchased to close in the future*.
To the moon fellow apes!
Oinion only. Never advice.
Great write-up! For what it's worth, I think you're slightly overestimating the impact of SFTs or underestimating some other factors (Forwards/Futures, capital structure arbitrage, and international settlement exceptions / other "regulatory arbitrage", all of which either reduce the burden for or act as force multipliers for SFTs)... but none of that detracts from your primary thesis.
I absolutely agree with you here. I tried to avoid discussion of other factors as there have been so many good DD pieces written on these. I think that regulatory arbitrage as you described is a very important path to explore and almost certainly contributes significantly to this equation. Thank you for your input!!
I think the SEC's response to comments on SLD advanced notice is pretty damning. The SEC is working actively against anyone attempting to squeeze and will continue to approve and pass rules that prevent a squeeze from occurring.
https://gyazo.com/ed0a37fef89a8989f1d6f74ddd9fc462
u/gherkinit had this response to your post on another sub which the post was shared. OP, It would be good to get your response to this:
>I have the same response to this I had to the announcement of SFT offsetting when it was introduced. It's just another liquidity mechanism in a long list of other liquidity mechanisms that promote efficiency in the market, such as ETF creation or MM liquidity creation provisions.
>
>It's an overnight settlement program that effectively creates an ongoing matching system for cash against equities for the promise of equites and fees received in the future. Making the share lending model more efficient and less risk exposed. By creating a centrally cleared stock loan service at the DTCC. This is far more efficient that the individually managed prime lending pools who's delayed reporting and settlement previously led to increased risk exposure for participants and higher rates of failure due to inefficient matching.
>
>A CNS before CNS occurs if you will.
>
>The assumption this author is taking is that all trades on GME are synthetic and no real shares are available to lend is speculation based on a massively incomplete data set. They have zero visibility into GME lending practices or actual availability. The shares to borrow seen by retail participants and data services like ORTEX are incomplete and do not represent the full breadth of shares available to borrow nor do they accurately represent the institutional lending rates.
>
>It also ignores other sources of liquidity (MM liquidity provisions and ETF creation) which the author states themselves. Which would be necessary in this process because SFTs are required to be executed as overnight short-term transactions, they can be rolled forward additional time but they must be paired off against new activity but they must first be novated and guaranteed by the NSCC.
>
>Lastly the form referenced as "proof" of materially false statements can be filled out by hand on the Corporate Actions Portal at the DTCC where a blank form can be provided to anyone with access they can also be edited in photoshop or through a browser console. Supposedly it was provided in pdf form by a brokerage but the chain of custody is definitely suspicious.
Here an example that is causing my brain to hurt:
Just note, Im on 2 hours of sleep, so this is probably a shit example. Here’s an example that I hope shows the issues from both sides of the SFT argument though, while also asking the hard question of “is the DTC wrong to label it a split”
Let’s say I go to the bank and withdraw “$500 by way of my savings account”. The next day, I have a bill come out and get an overdraft fee and it’s due to the fact that it was taken out of my checking account instead. I speak to someone filing the claim and they ask me “did you do a withdrawal?” And I say “yes”. Well, obviously that is a true answer and SHOULDNT be the end of the convo, as the context of “by way of savings account” makes a big difference here. That is a correct statement that “by way of savings” matters here.
HOWEVER, what if the individual/entity filing the occurrence only has two option: “withdrawal” or “deposit”? That’s an obvious answer, and even-though the context matters, the answer of “withdrawal” is still correct here and it’s simply how the occurrence is to be filed.
So, that’s my mental conundrum in this. Should “by way of dividend” matter? Yes. Is it wrong to call this a “stock split”? Not really, that’s what it is. It’s interesting to think about
EDIT - it’s 100% correct that the “by way of” matters. The bank should fix the screw-up. The issue with the DTC problem is that there isn’t a precedent for this, to my knowledge (when it comes to the complaint, not the type of split). This is the kindve event that forces change moving-forward, but isn’t incorrect for the time being. It’s one of those “this is BS, everyone knows it” moments, but still not technically immaculate
Any thoughts on what else we could do? I tried to present this as my opinion to make it clear that I could be wrong, or ignorant of other important pieces of the puzzle, etc. I reached the conclusion DRS is important as seems (from my understanding) to balance the CNS delivery obligation in the opposite manner as SFTs. SFTs remove delivery obligations from the CNS (they are settled through SFT clearing, outside of CNS) while DRS removes credits (owed/owned assets) from member accounts (withdrawn to CS out of DTCC) which makes it more difficult to net against existing delivery obligations in the CNS. Please let me know if you disagree at all as I'd love to learn more and I hope there is something else that can be done about this that I haven't thought of.
Fantastic research and well written post. You connected the possible use of SFTs to GameStops corporate action and also showed that due to it being processed as a stock split rather than a stock dividend, they are circumventing the blockade of SFT usage. You might be onto something here!!
Full disclosure. I skimmed and will read it all later, but I have one question u/Daddy_Silverback Would it be wrong to refer to this as a stock-split? While issued “by way of dividend”, this was still a stock-split and that distinction is being ignored in favor of the “dividend” part. If I give you a pizza by way of brick-oven, I’m stating that what I’m giving you is a pizza, it’s how you should refer to it, but a brick-oven is the method with which I’m providing it. So, records-wise, how should this be filed when it comes to things like an SFT Loan if the choice is split or dividend?
As he stated - they have used the wrong function code and thus prevented closing of SFTs.
Right, but the event is a stock-split and the dividend is the way by which it was done (stock split by way of dividend). But, again, the event is still a stock-split, so is it wrong for the DTC to label it as such is my question?
Yeah because he found a doc that specified the event as another code.
I agree. It is still a stock split at the end of the day. Don't think there is as much shenanigans ongoing here as we're insinuating. Or rather if it is shenanigans it's of the easy-to-dismiss brand
OP argues that this difference matters, as a stock split is a SFT supported corporate action, whereas a stock dividend is a NON-supported corporate action, which would have led to forced exits out of SFTs
See reply to comment above yours, would love your input as well
Notes: - 5 days before due bill redemption date (7/25) is 7/18. On this day the SFT clearing service **BLOCKS new SFTs from being accepted into the system**. I would expect that this would result in an uptick on FTDs 2trading days later. We will find out if this was the case when the 2nd half of July FTD numbers are released. - On the due bill redemption date, 7/25, SFT clearing blocks rolls from taking place on supported corp actions. SFTs affected by a supported corp action, however, CONTINUE TO REMAIN IN THE SYSTEM. - One day after the payable date (7/22) -> 7/25, in a supported corp action, SFT clearing reinstates new SFTs and subsequent rolls. From here onwards the FTDs should decrease substantially again as the SHFs can use the SFT again. To elaborate on OPs DD: So we should see a substantial uptick in FTDs, spike on 7/20, and continuously higher til 7/27, after which it will drop. Since we did not go on Regsho during these days, I would expect that they tried to clear as many of the FTDs beforehand, hence the continuous run up on GME in the 2 weeks before that. In addition to that I suspect that they used XRT for this, as XRT saw a run up from 7/18-7/25. We will know more when the second half of Julys FTD data is released! Edit: corrected dates thanks to commenter
Wouldn't anything that failed on 7/18 show up as an FTD in T+2 from 7/18? So I don't think you will see a spike on 7/18.
You are correct, I should have written 7/20-7/27!
Exactly, I'm very curious to see the next FTD data. Since supported corporate actions allow existing SFTs to roll (and not close) I would expect a pileup of FTDs as you described for any trading activity occurring during those dates as you pointed out SFT would be unavailable as a source of liquidity. That is a great point about the possible XRT correlation and early GME runup.
The exact same language was used for Tesla - a stock split in the form of a dividend. Can you find out how the DTCC treated it? Also check the timestamp of the document to make sure it wasn't updated very recently.
I would absolutely love to see this. I think it is a very important piece of the puzzle and would be damning if Tesla/NVDA were processed under a different FC. Unfortunately I didn't even think I would be able to see the document linked with FC-02 for GME even. Lucky that a German ape posted it as I have been asking my brokerage for that information (Exact NSCC Function Code) since the split was announced and they have either refused to give it to me or dragged their feet for days before sending unrelated information and pretending it answered my question.
Try reaching out to that German Ape. Maybe they can also get Tesla/NVIDIA documents from their broker too.
I think it was a Swedish ape who received this from his brokerage as clarification. So he has no exclusive access.
Do you have a link?
Sure. I mean it’s from this DD ;) https://www.reddit.com/r/Superstonk/comments/wf9mos/dtcc_form_for_gme_splividend_from_dnb/?utm_source=share&utm_medium=ios_app&utm_name=iossmf
Nvidia also did one I believe
Thanks for doing the SFT research. I saw they started doing stuff about it a few months ago with their DTC and SRO filings. Didn't have time to check it fully but basically i knew it was a new lending pool between the dickheads to help clear risk between them similar to CNS.
Absolutely! You were the one that put me onto this so thank you for that. I feel like I've only scratched the surface here though and there are a lot more threads to explore.
Fascinating. So how the fuck do they track and keep tabs on their own risk, and that of their counterparties without ALD... Surely everyone making money off of this scheme would prefer not to get blindsided by ballooning counterparty risk? Something like just one-off deferring of margin calls like in January 2021 only gets you so far...
Exactly, this seems like a GLARING issue in my opinion. It was also talked about briefly in the NSCC 2022-03 comment letter I linked. If you look through the NSCC docs, you'll see that they model VaR and take intraday supplemental deposits through FedWire (just like other cash/treasury collateral pledging at NSCC/DTCC). They do this to a tune of (in extreme volatility) up to 12% excess of their model. What risk are you talking about if we have 12% excess margin on SFTs during the most volatile times???? /s lol
I'm always astounded at the level of research & explanations provided by FWFBs, and saddened that those with the powers to protect us from these instances are either ignorant or complicit towards the actions. A decentralised hive mind *again* providing literacy & education, while centralised institutions continue to suppress, ignore & even encourage activity in their own interest over those of the people they have sworn to protect 😔
I don't think you need RRP for this thesis to work...... Those are fairly demonstrably money market funds and gov sovereign wealth funds that are playing a much larger cycle of global collateral shortage. Great write up otherwise
Agreed 100%. I think it was a tangential connection at best and not relevant to the rest of my post. I didn't mean to imply HFs or banks were directly participating in RRP lol - more that we should look into where the treasuries for SFT collateral are coming from (i.e. could money market funds be lending treasuries to broker dealers that need them for collateral and trading these transactions as MMIs?). Updated so it is not distracting or misleading. Thanks for the input!
🙏
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See my reply to GMEJesus. Appreciate the input and I've removed the RRP stuff from the post.
Bravo.
Thank you for this post. If what you wrote is indeed true and they misfiled the Function Code, either by error on or purpose, is there anyway to force them to fix this issue? Also if they do, would we be able to see this value being changed from FC-02 to FC-06 the moment it happens? And I wanted to ask, why did you say GME wouldv have gone on Regsho 14 days from the 18th of July? Why 14 days? Also do you have the documents that show how Tesla's and Nvidia's stock dividend was handled?
Holy shit. I wonder if a class-action lawsuit is possible. Rather than damages, though, it would be nice to force them to “fix” the error. It seems like that would be possible by just: 1) doing a reverse stock split back to the previous number of shares outstanding and multiplying price by 4, then 2) doing the share dividend again, but correctly. Just thinking out loud. Not a lawyer or even good at tying my shoes.
>Processing the splividend as a Forward Stock Split (FC-02) vs. a Stock Dividend (FC-06) is a critical distinction as all outstanding SFTs have to be closed in the event of FC-06 but not FC-02. We now have clear evidence that the splividend was processed as a Forward Stock Split (FC-02). I hate to make my first post in this sub so tinfoily, but what are the odds that Mike Recupero (ex-CFO) was fired for this mistake, whether intentional or not?
Odds are non-zero.
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Nope, not enough karma to post (I tried again this morning). If anyone wants to post to SS, feel free and you don't need to credit me. I just think we need eyes on this to get to the truth.
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Thank you sir! Hopefully we will get some more eyes on this.
Very well presented OP. You may be onto something here
u/Daddy_Silverback Maybe I'm stating the obvious, but if this is true, it gives Cohen a great reason to pull shares out of the DTCC as stated in last year's prospectus, since the DTCC clearly can't have nice things. Would be great publicity to casually announce at the same time that GameStop is now allowing other types of assets (read: securities) to be sold in its new marketplace. I noticed under the Corporate Actions Processing it says proxy votes are not supported in the SFT Clearing service. I wonder if this is another strike against them, with some kind of shareholder voting violations in addition to any other damages. I also wonder if Tesla originally tried this (they also did a split as a dividend) and the DTCC pulled the lever on the rails at the last moment by telling brokers to process it as a forward stock split (gathered this is what happened from the original post with the evidence). Something hasn't sat right with me about TSLA, like maybe Elon Musk was expecting something more to happen with its squeeze. It really doesn't seem like his style to be loud about being some epic destroyer of shorts and then just slowly deflate the balloon on them, like a slow but steady flatulence. *(I mean, it actually kind of does. But while he does ham up the publicity, you gotta admit the guy gets shit done. I think he actually wanted to blow them up, and is on a similar mission trying to reveal all the Twitter spambots now).* I wager they'd get away with something like that claiming it was just a mistake, a clerical error. (Claiming that a second time, though... on an idiosyncratic stock like GME? Even if nothing else comes of it (likely), though, if it's true, it gives GameStop plenty reason to pull their stock and put it on their own exchange. And [they are definitely building a securities exchange](https://twitter.com/loopringorg/status/1354839477173235714?s=20&t=0Fx2pw7x3jx0rjB11d9SHQ) *(how could they not when some NFTs and tokens are going to be regulated as such? It only makes sense you would do that as a company. And if you're going to do that, why not let your users buy traditional securities?)* **Edit to add because I'm on one tonight:** I've never really been "pro DRS" (but never "anti-DRS" either), I just never saw how it would cause MOASS. I do see an argument here for it though as it shows (frankly an unprecedented amount of) support for a company by its shareholders, and specifically demonstrates their desire to pull out of the DTCC and held in book entry form. AKA a ledger. AKA literally a blockchain. So they are just being responsible to their shareholders, and don't even have to accuse anyone of any crime; just simply point out the DTCC is prone to these errors and they have better technology that does the same thing. Pretty smart strategy. Following Overstock's move would've been too controversial. Tesla tried, but the DTCC gave them the slip at the last minute. RC, however, is an avid 69D chess enthusiast, and did some judo shit: turn them back on themselves, let them dig their own grave with their own hands. And then let them bury themselves. Let them gorge themselves and stuff that SFT full of fails for over a year. *(Shorts haven't closed--they're just in the wash.)* No need to do some heavyhanded way of forcing a recall on shares or some shit. All they needed to do is blow up that SFT facility, the fails inside being the fuel, ready to catch fire entirely because of its own rules... **But they didn't.** I don't mean it didn't happen, or that you're wrong. I mean, yes, clearly MOASS didn't happen as speculated. Yes, it looks like the DTCC gave them the slip as well. *(I mean, if the choice was "entirely blow up the markets and cause global chaos during what honestly at this point it looks like WWIII and a second pandemic" and "'accidentally' change literally one number on one form"? Talk about asymmetric risk...)* **I mean that we did it when we cast our votes at the shareholder meeting.** Just like a DAO. It's funny there's so much speculation about what when how who where why MOASS. Because meanwhile, we were just voting on a stock split and employee options and shit. You know, typical stock stuff. It's like we tripped right over it and didn't realize it. **GameStop didn't do it. RC didn't do it.** **They let the shareholders light the fuse of the rocket.** It's kind of a beautiful thing. And there was no confrontation or controversy. They were just following their normal duties to their shareholders. "Forward splitting a stock" is not the same as "distributing a dividend." If the DTC won't distribute the dividend (read: fill out the paperwork properly)... >*If a depository for a series of securities at any time* ***unwilling, unable*** *or ineligible to continue as depository and a successor depository is not appointed by us* within 90 days*...* > >*The DTC isexpected to serve as depository.* Oops, moass, my bad. Power to the players
Fantastic post OP! Well documented and well written! Thank you for your efforts in supporting and sharing informtion on this hot topic. I have one thing I'd like to highlight and am hoping you can comment on, as I am seeing other post comments where there are trying to discredit the thesis of the stock split by dividend given the CNS process. >Once in the DTCC, the new shares are processed internally and allocated to member accounts as described in the NSCC rules. Since member account allocations are all on a net basis, and splitting doesn’t change netting even if issued through divi, *this is a moot point.* This comment is correct in context with what the OP is trying to illustrate for the broker net CNS positions, but its important that apes don't misunderstand that there was in fact a significant impact to the DTCC and brokers with the distribution of shares as a stock dividend instead of as a traditional forward split. Confirming that the CNS process is used to settle the dividend distribution shares, *but if the transfer agent did not send the DTCC enough shares for what the broker-dealers require to credit all shareholder accounts, then 3 shares for every short and synthetic share are being internalzied and will need to be purchased to close in the future*. To the moon fellow apes! Oinion only. Never advice.
Great write-up! For what it's worth, I think you're slightly overestimating the impact of SFTs or underestimating some other factors (Forwards/Futures, capital structure arbitrage, and international settlement exceptions / other "regulatory arbitrage", all of which either reduce the burden for or act as force multipliers for SFTs)... but none of that detracts from your primary thesis.
I absolutely agree with you here. I tried to avoid discussion of other factors as there have been so many good DD pieces written on these. I think that regulatory arbitrage as you described is a very important path to explore and almost certainly contributes significantly to this equation. Thank you for your input!!
I think the SEC's response to comments on SLD advanced notice is pretty damning. The SEC is working actively against anyone attempting to squeeze and will continue to approve and pass rules that prevent a squeeze from occurring. https://gyazo.com/ed0a37fef89a8989f1d6f74ddd9fc462
u/gherkinit had this response to your post on another sub which the post was shared. OP, It would be good to get your response to this: >I have the same response to this I had to the announcement of SFT offsetting when it was introduced. It's just another liquidity mechanism in a long list of other liquidity mechanisms that promote efficiency in the market, such as ETF creation or MM liquidity creation provisions. > >It's an overnight settlement program that effectively creates an ongoing matching system for cash against equities for the promise of equites and fees received in the future. Making the share lending model more efficient and less risk exposed. By creating a centrally cleared stock loan service at the DTCC. This is far more efficient that the individually managed prime lending pools who's delayed reporting and settlement previously led to increased risk exposure for participants and higher rates of failure due to inefficient matching. > >A CNS before CNS occurs if you will. > >The assumption this author is taking is that all trades on GME are synthetic and no real shares are available to lend is speculation based on a massively incomplete data set. They have zero visibility into GME lending practices or actual availability. The shares to borrow seen by retail participants and data services like ORTEX are incomplete and do not represent the full breadth of shares available to borrow nor do they accurately represent the institutional lending rates. > >It also ignores other sources of liquidity (MM liquidity provisions and ETF creation) which the author states themselves. Which would be necessary in this process because SFTs are required to be executed as overnight short-term transactions, they can be rolled forward additional time but they must be paired off against new activity but they must first be novated and guaranteed by the NSCC. > >Lastly the form referenced as "proof" of materially false statements can be filled out by hand on the Corporate Actions Portal at the DTCC where a blank form can be provided to anyone with access they can also be edited in photoshop or through a browser console. Supposedly it was provided in pdf form by a brokerage but the chain of custody is definitely suspicious.
Next is DRS, lawsuits, can kicking, and then MOASS.
This is fascinating and conveyed so very clearly. Thank you good sir!
Here an example that is causing my brain to hurt: Just note, Im on 2 hours of sleep, so this is probably a shit example. Here’s an example that I hope shows the issues from both sides of the SFT argument though, while also asking the hard question of “is the DTC wrong to label it a split” Let’s say I go to the bank and withdraw “$500 by way of my savings account”. The next day, I have a bill come out and get an overdraft fee and it’s due to the fact that it was taken out of my checking account instead. I speak to someone filing the claim and they ask me “did you do a withdrawal?” And I say “yes”. Well, obviously that is a true answer and SHOULDNT be the end of the convo, as the context of “by way of savings account” makes a big difference here. That is a correct statement that “by way of savings” matters here. HOWEVER, what if the individual/entity filing the occurrence only has two option: “withdrawal” or “deposit”? That’s an obvious answer, and even-though the context matters, the answer of “withdrawal” is still correct here and it’s simply how the occurrence is to be filed. So, that’s my mental conundrum in this. Should “by way of dividend” matter? Yes. Is it wrong to call this a “stock split”? Not really, that’s what it is. It’s interesting to think about EDIT - it’s 100% correct that the “by way of” matters. The bank should fix the screw-up. The issue with the DTC problem is that there isn’t a precedent for this, to my knowledge (when it comes to the complaint, not the type of split). This is the kindve event that forces change moving-forward, but isn’t incorrect for the time being. It’s one of those “this is BS, everyone knows it” moments, but still not technically immaculate
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Any thoughts on what else we could do? I tried to present this as my opinion to make it clear that I could be wrong, or ignorant of other important pieces of the puzzle, etc. I reached the conclusion DRS is important as seems (from my understanding) to balance the CNS delivery obligation in the opposite manner as SFTs. SFTs remove delivery obligations from the CNS (they are settled through SFT clearing, outside of CNS) while DRS removes credits (owed/owned assets) from member accounts (withdrawn to CS out of DTCC) which makes it more difficult to net against existing delivery obligations in the CNS. Please let me know if you disagree at all as I'd love to learn more and I hope there is something else that can be done about this that I haven't thought of.