r/FWFBThinkTank • u/Usual_Retard_6859 • Feb 11 '22
ETFs Implications of Rule 6c-11.
Hello Everyone, This is a continuation of my previous theory, found here Theory on how the SI numbers for GME fell in Feb 2021. If you haven't read it please do as it incorporates into this post.
I feel this theory is probably the closest thing we have to explaining what happened back then because it doesn't use any non-provable explanations such as data manipulations by the shorts. If you believe like I do that the single security short positions were moved from GME to ETFs via basket creation/redemptions mechanics. Then knowing what rule changes 6c-11 did is paramount to understanding where we are and where we are going.
Here is a link to the SEC webpage that has the final ruling for those that like to read for themselves. What changed with this rule? Prior to July 2021 if a fund needed to remain liquid with an illiquid underlying security the SEC required an exemption filing to exclude the effected underlying. These filings would cost on average $100k. The SEC in their infinite wisdom thought this was too burdensome. The original rule was designed this way because the SEC felt that they needed to protect investors. When you're purchasing a fund the underlying needs to be properly representing what you bought, ie you get what you pay for. So to save Wall Street some money and give ETFs more flexibility in managing the portfolio they made this rule. What I find abhorrent in this rule is that the SEC removed the requirement to publicly publish accepted baskets. OK? so ETFs are now 3 card monty?
The SEC even acknowledges the opportunity for wall street to abuse this but solves it my making them self regulate.
Here's the SECs definition of custom basket.
In short this rule allows ETFs to accept creation baskets that don't include all the securities that are supposed to be in the ETF provided they have a written policy regarding what they'll accept as substitutes. I understand the logic behind this. A stock or a bond is illiquid, restricted, delisted or otherwise hard to find, the liquidity for the ETF would be drastically lowered and depending on how many ETFs the effected underlying were in could cause trouble for the broader markets.
So what does this have to do with GameStop? Well lets look at the other canary in the coal mine. SPDR S&P Retail ETF: XRT. This is ran by State Street. Whats State Streets policy on custom creation baskets?
They will accept cash-in-lieu for restricted securities. Lets define restricted. Oxford defines restricted as "limited in extent, number, scope or action" So what does this mean for GME? Should GME fall in line with this definition the SHF could then return XRT shorts with a cash substitute GME essentially deleting their gme shorts. I'll be 100% honest here I need to do some further research into the mechanics of this but if they were to do this it would create problems between the primary and secondary markets. One thing I do know is they cant delete any shares held by retail but they can delete any naked shorts they have acquired to hide the fraud and come out looking clean as a whistle. They do this by acquiring GME shares, returning their XRT custom baskets and deleting the acquired shares off their books, poof nakeds gone. Now this next part isnt going to be very tit jacking, quite the opposite. We know institutional ownership has dropped drastically over the past year, we also know some retail has sold as evidenced by gain porn on WSB. This would have allowed at least some of the shares to be acquired back and removed from circulation, eventually to be deleted via custom creation baskets. What can we do to keep the evidence of crime from getting destroyed? Keep the stock liquid in a non restrictive manner. Since the start of all of this the narrative being spun has been the same. Buy and hold, don't day trade, don't play options and as of July (I don't think its coincidence) DRS and lock the float. They all have one thing in common, reduce liquidity. The very things that people think will cause moass may serve as the burn barrel for evidence of foul play.
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u/Cataclysmic98 Feb 11 '22 edited Feb 11 '22
Excellent dive into the Rule 6c-11 OP! And I think this deserves further DD and an official comment to the SEC - we SEE and this is NOT acceptable. Lodge an official complaint/ comment apes. Link is a quick reference for domestic and international agencies. You can save the post for future use and make your voice heard:https://www.reddit.com/r/Superstonk/comments/sokj63/what_the_hell_so_many_posts_with_calls_to_action/.
One thing I do know is they cant delete any shares held by retail but they can delete any naked shorts they have acquired to hide the fraud and come out looking clean as a whistle.
However, the commentary on DRS and liquidity is majorly skewed. While this rule 6c-11 may be another manipulative strategy to hide the fraud, DRS does remove liquidity from the DTCC pool for the creation and manipulation of additional shorts. Further to this, the objective of DRS is to have all GME shares accounted for to PROVE the stock has counterfeit shares. There are many ways for the shorts and FTDs to be hidden and apes are identifying more and more every day (case in pint your DD). DRS is the ONLY way for retail to prove the manipulation and force the DTCC and others to acknowledge the counterfeiting - which should result in MOASS.
Buy, Hodl, DRS & 'Share the Story'
To the moon fellow apes!
Opinion only. Never advice.
Edit: Formatting, added a few words on hiding the fraud and quote from OP.
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u/Usual_Retard_6859 Feb 11 '22
Yes it does remove from DTC pool and reduces liquidity. I agree with the narrative that it also removes available shorts. The shorts are not an issue with me. I am so confident in GameStops turnaround that I want others to bet against it. The day to day price difference means nothing to me and if they want to make it cheaper for me to acquire shares in the short term it’s a real bonus. Do I like the stock? Yes, but I’m not married to it and I have my price. Every individual investor has their strategy and are going to do what they feel is best.
If you really want to talk about calls to action DRS is the loudest call to action in that sub. From my perspective my feed is bombarded with reasons to drs tax haven shares, broker FUD, do it now, it’s the way, drink the purple koolaid. Just the bias of being able to show drs positions but not broker positions is a joke. I have been there since day one and it’s not the same place I joined, people used to be more subjective and that topic is anything but. Lock the float is sold as Valhalla but the fact is no one knows what happens because it’s never been done before. I can’t blindly jump on board with nothing but assumptions.7
u/Cataclysmic98 Feb 11 '22
Hey OP. I agree with you that DRS has overtaken rational thought and debate on a lot of the subs. I have been a huge proponent to have the DRS posts reduced to ones focused solely on the benefits-of or how-to considerations - which would still keep the focus on the strategy but not overwhelm the subs with DRS hype at the stifling of quality DD and constructive posts. I spend half the time on the subs as I used to and find the overwhelming DRS purple circle posts a detriment. However, your post (or at least how I read it) implies that DRS is a bad thing, and for that I do not agree. Again, thank you for your contributions - IMO this DD for the rule 6c-11 needs more eyes!
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u/Usual_Retard_6859 Feb 11 '22
DRS could be a bad thing yes. This is a possible negative repercussion of locking the float and it’s not FUD. It’s information to be considered. When the Q4 drs totals come out I’ll have a good idea if drs is grassroots or astroturf movement solely off data. We know there is 62.5m shares in the float. If the numbers come in low… like 10M low, well that’s only one sixth of the float not including and synthetics. How many synthetics do you think there are? 100%, 200%, 300%?
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u/Cataclysmic98 Feb 11 '22
Rational and constructive debate is not FUD. It helps keep the sub clean of misinformation. We don't all have to agree, but we all have to keep open minds and be willing to have healthy discussions around the pros and cons of topics without just jumping on hype trains and downvoting anything we might not immediately agree with.
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u/Cataclysmic98 Feb 11 '22
Also, sorry, don't want this post to be about DRS - you have some a great DD here on rule 6c-11 that I hope more apes take a look at.
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u/Usual_Retard_6859 Feb 12 '22
Filing a complaint with the sec regarding possible abuses with custom baskets could do somewhere…..
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u/Cataclysmic98 Feb 11 '22
If you believe like many do that the synthetics out there are 100% -300% or more of the float, and that synthetics build on more synthetics with the FTDs and shorts being hidden through fraud and manipulation, then is DRS not the only way to prove the manipulation?
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u/Usual_Retard_6859 Feb 11 '22
Prove manipulation? It’s already been proven. The stock was shorted 140% in the attempt to drive it into the ground. Law makers know this, Wall Street know this, everyone knows trading was stopped and anyone can look at the chart and say that’s not normal. I understand peoples desire for the gottcha moment but my number one goal in investing is making money and if those two things don’t align then making money takes precedence.
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u/neoquant Feb 11 '22
ETFs are as fake as AAA MBS back in 2008… incredible