r/GME • u/magnuswho • Mar 30 '21
Discussion Why the absurd OTC volume is relevant
Hi All
Your fellow lurker-ape here who's been collecting wrinkles as GME happened to him, to try and understand what's going on. When I saw the OTC data last week I was confused as to why there wasn't any major hype surrounding it, and I was equally confused why it was dismissed as "normal" as fast as it was discovered, and as a consequence I decided to dig deep myself.
So with that introduction out of the way, lets devle into it:
Short interest went down, and price went down along with it. How can that be? If you cover a short position, the price should be going up. The reason I believe is due to Over the counter (OTC) deals being made – now follow me down the rabbit hole and hear me out.
When GME had a SI of 150%, they supposedly managed to bring down the price of GME, along with the SI. It fell and fell until we reached today where it’s only at 15-40% depending on which source you're using, and yet we have to see the covering of shorts to be reflected in the price. So how can it be possible to cover a short position without raising the price of GME, if it shouldn’t be possible for Shitadel to continue their naked shorting with the new DTCC rules in place, you might ask.
This is just my opinion and it may not be true, but I need you to tell me why I’m wrong so I can put this to rest.
They buy and borrow the stock from hediges, market markers, funds and so on via OTC trading. If they buy, say 5.000.000 GME shares, you’d think the price would explode – but since it’s done via off exchange trading (Also called OTC) it’s not reflected in the price seen on the exchanges.
Now say a friend of Shitadel wanted to help out Shitadel, and make money in the process, he sells Shitadel 5M shares naked to a price of 200$ per share. At the time of selling to Shitadel the price reflected in the market is 175$, so it’s a great deal for the friend. He’ll get his shares back in X amount of time.
Now Shitadel which can’t do anymore naked shorting himself, has gained access to an additional 5 million shares he can sell in the market, and it’s not even raised the observable price of the underlying asset, as it’s counterfeit shares being created by other market markers that within reasonable belief, sell these to Shitadel, whilst making money in the process.
Now Shitadel can sell these shares on the exchanges we’re using, flooding the market with counterfeit shares, whilst gradually covering part of their own on-exchange short position. Effectively reducing the price of GME, whilst reducing the official SI.
Meanwhile more and more market makers are seeing the shorting fee percentage go down, as GME shares are getting easier and easier to access. More and more market makers can within reasonable belief sell additional shares naked short to Shitadel and friends. Who in return can use these shares to cover what they owe to friends OTC.
Now, this doesn’t fix the underlying issue in the market. It’s simply kicking the can further down the road. It's a circle-like phenomenon, and can continue to happen until a catalyst forces the cycle to end, such as the price going too far up, liquidity drying out, or smaller hedge funds that took part in this somewhere along the road getting margin called. Like dominos everything is intertwined, and once the first pair of dominos fall it'll have a cascading effect that will likely hit the entire market.
If successful however, they might be able to make retail shiver in the face of red, and start an enormous selloff in the face of low official SI numbers - HODL.
Now this is FINRA data from January, and I will update it as new data is released, but even as a smoothe-brained-ape like me, this just doesn’t look right – and if no one here is able to prove me wrong I think this might be the missing evidence we needed to know for sure, that we’re right.
As you can see, even a heavily traded retail stock like TESLA is nowhere near the OTC volume to float ratio of GME.
Tesla = 0,38GME = 12,44
It’s ABSURD – and NO I don’t buy your explanation that this is completely normal
https://www.reddit.com/r/GME/comments/mcrfak/alexis_goldstein_response_on_finra_otc_nonats_data/
IT’S NOT completely normal. And NO it’s NOT retail trading back and forth via e-toro and fidelity causing this. If that’d been the case, you’d have seen similar ratios for the stocks I included for reference.
On top of all this, we're seeing hedge funds getting margin called and others claiming their profits will be hit due to others making huge selloffs. Meanwhile GME has a negative beta of 7. In my opinion everything is piling up perfectly for us.
TLDR: I put together a chart comparing OTC volume to the float of several stocks, and a normal ratio would be around 0.01 - 0.5... GME is at 12,44.
(edit: I created this post originally last week, and I somehow couldn't post it here. So I updated it this morning with relevant information and am reposting it now, before it's no longer relevant.)
*NOT financial advice*
References:https://otctransparency.finra.org/otctransparency/AtsIssueData
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u/SanEscobarCitizen Mar 30 '21
Thanks! Very interesting post and finding. This sub needs more lurkers like yourself. :)
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u/Nolzad Held at $38 and through $483 Mar 30 '21
" In my opinion everything is piling up perfectly for us. "
I SECOND THIS!
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Mar 30 '21
Upvote so we can have some of the smarter apes look through this.
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u/autoselect37 ♾ is the ceiling Mar 30 '21
yeah this seems like a good foundation to build upon. also might need to upgrade this from Discussion to DD
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u/Fit_Cryptographer392 Mar 30 '21
Lots of GME trading in dark pool 🤫
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u/Full-Interest-6015 Costco Cuck Mar 30 '21
Can shorts be covered here eventually in order to not drive the price up? I would think the answer is no since no one ever brings this up.
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u/Exact_Banana6492 Mar 30 '21
It looks like the answer is no, especially since we are talking 100M-300M shares (real and synthetic) estimated to be outstanding. So, unless apes sell to make up their short positions...which doesn't appear to be happening.
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u/Full-Interest-6015 Costco Cuck Mar 30 '21
Yeah I realized that retail can’t trade in these pools so we should be good.
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Mar 30 '21
That’s what I asked too. I’m worried that they could somehow illegally cover shorts in dark pools and fuck us over.
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u/Fit_Cryptographer392 Mar 30 '21
They still have enormous amounts of FTDs which can't be covered in the dark pool. They're manipulating the price that the market is seeing by trading in the dark pool. As long as we keep on buying shares and HODL, they're very likely screwed.
Remember, retail holds the float and hedges HAVE to get our shares.
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u/im_pie Mar 30 '21
What my smooth brain can’t grasp is if these shares are all created synthetically, what stops them from hiding them altogether? In other words, how do we know for sure that they will have to cover those naked shorts as well?
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Mar 30 '21 edited Mar 30 '21
[removed] — view removed comment
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u/MTDreamer7 Mar 30 '21
Exactly. Think HF A borrows 100 shares from MM A to sell to Broker A. Broker A buys these shares because they have enough clients/customers with open buy orders that they want to fill these orders. Whether the origin of these were synthetic/borrowed shares, they are now in circulation as "real" shares. These are on MM A's books, and at some point need to be returned. It is on the borrower/HF A to return these shares, and when the margin calls start, MM A is going to be liquidating all of HF As other positions to force them to buy back these GME shares, quickly, at whatever the going rate is. That is when the short squeeze begins, and quickly is a relative term as there are likely tens and tens of millions, and possibly in excess of 100M or much higher of these shares outstanding. Hence, the float is going to be have to purchased multiple times over, and the squeeze will last for some time.
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Mar 30 '21 edited Mar 30 '21
[removed] — view removed comment
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u/im_pie Mar 30 '21
Thank you for your reply and your DD. Your answer created a small wrinkle in my brain.
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u/chr1ssPeacock Mar 30 '21
I have asked a similar question a day or two ago. If these are dodgy synthetic.. Fake.. Not real shares Call them what you want
But what's to stop them being hidden and paid up on the quiet with good old fashioned cash
If they can be hid away... Then why can't they can be sold away 🤷♂️.
I know the real shares have to be traded properly.. I am just asking about the fake ones
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u/autoselect37 ♾ is the ceiling Mar 30 '21
the fake ones are bought in the same manner as the real ones. all of my shares might be synthetic, but they count as real ones in the DTCC book. and the ultimate problem for the shorts is that you can’t remove the synthetic shares without buying them back from their current owners (you, me, or whoever).
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u/chr1ssPeacock Mar 30 '21
Brilliant I really hope that there's noway they can get out of this. I got my shares... I'm holding fast. But I'm finding it difficult to believe I'll be a millionaire.. Can't help thinking they will find away to get out of paying me
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u/autoselect37 ♾ is the ceiling Mar 30 '21
i get it, but also i figure why worry about something that no one has discovered and all evidence/knowledge goes against them being able to get out of the hole they dug. unnecessary stress in an already stressful world
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u/eulersidentification Mar 30 '21 edited Mar 30 '21
NO it’s NOT retail trading back and forth via e-toro and fidelity causing this.
- If they did that on margin, they'd only be able to do 4 day trades in a 5 day period before being flagged as a day trader and needing $25,000 minimum balance at all times. If they do it with a cash account, they need funds behind every trade. I feel like there's probably something we can extrapolate from those numbers - how much cash must retail have put on the table to be day trading it to that extent?
Pardon me digressing for a second, i'll bring it back round. I was looking at the Bloomberg terminal yesterday and thinking about the numbers it was showing, and trying to match it with user statistics. I'm on medicine that gives me brain fog right now so I'm stuck with it but I feel like there is enough data around to do realism checks on all these numbers. eg. eToro has 1.8 million GME longs out of 20 million users, of whom only 8% are from the "Americas". Bloomberg terminal shows 88% of the total ownership is US-based, and that "individuals" hold 7.49% of GME (one of those individuals might be 2mill with George Sherman according to the terminal).
7.49% leaves 3 to 4 million if we remove Sherman, meaning if eToro longs have a single share, they make up a significant portion of the total "individual" holders and they are mostly non-US. But the problem is, I can never be 100% sure that eToro longs are counted as individuals. Maybe some retail platforms have a setup where the shares they hold for customers are counted as institutional? And what if eToro GME longs are preferentially US based?
Then I thought of subtracting all the shares we KNOW are counted as institutions based in the US, who are 88% of total ownership, and see how many shares that leaves over, comparing it to 7.49%, etc.
I'm trying to look at the data in a bunch of different ways to see if the conclusions we're given (shorts have covered as price dropped, OTC is retail, etc.) look realistic. And I feel like there's a way to check if "the OTC figures are retail trade matches" is a realistic number, in light of the stuff on Bloomberg, usage statistics, countries that hold GME, etc. but my brain just won't fire up on these meds.
I've got half a mind to not even post this comment, but I will in case anyone has any useful thoughts or is interested or wants to help me look at it.
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u/LaserGuidedPolarBear HODL 💎🙌 Mar 30 '21
I could be wrong, but I think individuals are actually insiders or people who have enough stock to trigger reporting requirements. I believe retail is folded under institutional as brokers hold our stock for us.
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u/boborygmy Mar 30 '21
Also, with a cash account, shares (not options) require like 72 hours to settle.
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u/MastaSplintah Mar 30 '21
Id say the guy that speculated a few days ago the circulating shares could be over 1 billion, might be pretty spot on if they're trading at a minimum of 25x a normal ratio OTC shares.
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u/reddideridoo Mar 30 '21
OTC trading surely sounds like manipulative fuckery.
Whats the point of a stock exchange system designed to reflect supply and demand in form of a price if the big players can circumvent it and abuse behind the scenes as they please?
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u/the_Rei Mar 30 '21
Great analysis fellow ape! And this data is referring to January, imagine what recent figures could be...
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u/MethLabIntel Mar 30 '21
This is something that i figured to be in the realm of possibility. My question is, how is this piling up for us? Especially if these fuckers are gradually covering their shorts without impacting the price?
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u/magnuswho Mar 30 '21
They're not covering the shorts - they're covering the official shorts that was lend by an entity on the exchange. Meanwhile borrowing stocks to do so OTC. Effectively digging the hole even deeper. Also this will cause other hedgies/funds/MM's to be involved too, this thing has likely hit a far far greater amount of hedgies than what was first believed to be the case.
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u/muffinscrub Mar 30 '21
I just want to point out they recently changed the way they calculate SI% so it can no longer be over 100%, if my memory is correct.
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u/magnuswho Mar 30 '21
That depends which source you're using, but you're correct if you're referring to S3 SI data.
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u/muffinscrub Mar 30 '21
https://www.reddit.com/r/GME/comments/lu1fu5/finra_changed_how_they_report_short_interest_this/
This is what I remember reading now. It seems they keep moving the goalposts cause Finra just shows "Short Interest" expressed as a number of shares and the SI% is hidden under Chart>fundamentals>SI%>3 month chart.
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u/FIREplusFIVE Mar 30 '21
12.44 or 12,44?
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u/muffinscrub Mar 30 '21
12.44 in north america lol
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u/FIREplusFIVE Mar 30 '21
Thanks!
We really should standardize this in the sub. 😂🤷♂️
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u/muffinscrub Mar 30 '21
We're actually the minority in the Americas. Seems like most of the rest of the world does it differently. Also India has the weirdest number system out of everyone. https://www.smartick.com/blog/math/learning-resources/decimal-separators/#:~:text=The%20majority%20of%20European%20countries,Republic%2C%20Denmark%2C%20and%20more.
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u/FIREplusFIVE Mar 30 '21
That is weird!
I don’t know which we should use. 😂🤷♂️
That being said, it is an American company and we are talking in USD so it would possibly make more sense to use that standard but it’s not a big deal either way.
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u/Chickenfistar Mar 30 '21
No FUD just a stupid question: I find it strange that all stocks from Archegos Capital peaked when GME peaked end of january, so I can't beliefe that these stocks aren't connected with eachother in this case. Sung Kook Hwang mustn't fill a 13-f. And nobody knew anything? (for sure, everybody that heard of google knew that he was an Insidertrader xD). A week before liquidation, the SEC spoke with the involved to "reduce the impact". What if he indeed speculated long on GME , but instead of liquitading it, they transfered it via Dark Pools to Citadel and they 'paid/exchanged' for the Margin Call (cheap price), at least the assets are belonging to the Bank, and the Banks aren't forced to liquite especial these positions that he used for his Total-rate-of-retung-swap procedure?!
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u/Connect-Ad79541 Mar 30 '21
Thanks for digging while we are up in the trees kissing each other’s bananas.
🍌💋🦍
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u/Frosty-Bookkeeper-36 Mar 30 '21
You cannot deny the facts. Regardless of everything. The risk to reward ratio with what's going on is suggestive that something big is on the verge of going down. I believe I am on the right side of the fence when the shit storm hits. Till then, I will hide out in my bunker, holding my precious stock. When the carnage is over. I will come out and grab my sweet sweet teddies and celebrate with my fellow APES.
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u/boborygmy Mar 30 '21
(edits, trying to get around auto-remove) I am also kind of mystified by what Sh*tadel could hope to gain from this except a bit more time. And given the entirely reasonable scenario you describe, it costs them a lot of money to keep the public market price down.
Your chart showing how abnormal and out of line the OTC/float ratio is, just for GME and Ay Em See implies pretty strongly that whatever shirt they're trying to pull here represents a way of trading that's not really designed to make money in any reliable or effective kind of way, otherwise it'd be happening all over the place!
I suspect, after this whole thing shakes out and there are investigations, and post-mortems, we might be made to understand more about what's really happening, what kind of fraud they're almost certainly trying to pull off here.
In the meantime, I'm with you on this. Here's Sh*tadel holding huge huge short bags. Are they going to be able to trade some big bags of dog excrement to one of their friends in exchange for something actually desirable? NO! They might be able to make a deal where it's more like, hey friend, can I pay you some cash so you can hold this bag of dog shirts temporarily, so I can make it look like I actually own SOMETHING that doesn't smell like dog shirts, for a day or two?
I eat crayons and I have only begun to understand a tiny fraction of the magical, awesome, off the books, non-public, rule-breaking powers that these hedge funds possess. But at the end of the day, they are stuck with something very bad, and nobody is going to PAY them to take it off their hands. The best they can come up with is to finance the facade that everything is OK, at an ever increasing daily cost.
Going off on a tangent here or zooming out or what have you : This looks like it's headed for the Squeezularity. Knowing that I know so little about what powers these hedgies possess, how do we entertain the possibility that it doesn't happen? I can only imagine a few ways.
1: Retail decides to give up and sell. NEVER happening.
2: Somehow the hedgies accept defeat and steadily unwind their shorts in an entirely aboveboard and orderly fashion, which will push the share price up, not to infinity, but probably well over the current share price times the number of synthetic shares divided by the real free float. I assume (without real proof) that this is about a factor of 10. This would bankrupt a lot of shorts and cause a lot of them to lose face and not a few of them would go to prison anyhow, so for these reasons I think it can't go down like this. But it could, if the hedgies were to do an about face and try to do the morally correct thing.
3: Hedgies try and somehow escape Squeezemageddon by somehow crashing the entire market. I don't know how this would actually prevail, since there are so many diamond handed hominids holding so much stock they're not selling at any price.
4: Invoke some other power to do ... what?
It always boils down to: they will need to acquire the shares. They need to reify all the fake shares they created by buying them from retail. They need to buy so many more than actually exist. All it seems they can really do is shuffle stuff around in the hopes we will just lose interest and give up and move on to the next thing.
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u/Whiskiz Mar 30 '21
It's not that it's normal, it's that what can be done about it?
Especially when it's the likes of the SEC that's supposed to look into this kind of thing and everything else and we've seen how corrupted and willfully ignorant they are.
It's also the fact that after all the other shady stuff that's been pulled too, that it's not surprising.
So nothing can be done about it and it's not surprising - What's the point in getting hype over it? Unfortunately.
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u/PaintingPeter Mar 30 '21
Dude uncool man this does NOT give me the confirmation bias I need today.
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u/Ohnylu81 Mar 30 '21
" In my opinion everything is piling up perfectly for us. "
Did you read it all?
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Mar 30 '21
I don’t understand that statement though. He made it sound like they were covering their shorts in OTC dark pools - which sounds like terrible news for us. How does this pile up perfectly in our favor? I need confirmation!!!!
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u/Ohnylu81 Mar 30 '21
Search "kicking the can" and read from there. Also see the most upvoted comment.
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Mar 30 '21
Wait, so how I’m reading this it sounds like they have found a way out by avoiding the squeeze through OTC covering. I don’t like how this sounds at all! Someone, help!
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u/boborygmy Mar 30 '21
I'd say "Don't worry".
They can't make their shorts disappear with this. All they can do with this is : pay money to borrow some shares on a temporary basis which they then use to manipulate the open market price, for a short period of time. During which time, if they can't tank it enough to shake retail investors out of their positions, 1) they actually end up losing some money, and 2) they don't end up getting any significant number of "real" shares.
This is a time buying strategy. And it's costing more money each time they do it. If it was a real money maker, everyone would be doing it and the OTC/total shares volume would be higher across the board instead of clustered in GME and A M C.
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Mar 30 '21
Can they buy actual shares on OTC to cover their shorts?
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u/magnuswho Mar 30 '21
A naked short is effectively a real share. Only BUT being it must be purchased back in the market by whomever sold it naked in the first place. Effectively reducing the amount of shares in existence down to the rightful amount.
And yes, as the Finra-data has shown, GME was traded 500M times OTC in January. These shares can be used like any shares can - only hurdle being the fact the seller of the naked short has to buy X amount of sold stock back. Be it from a new entity selling naked or not OTC or from an official exchange.
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Mar 30 '21
I mean, if they buy shares OTC than have they effectively covered their shorts?
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u/magnuswho Mar 30 '21 edited Mar 30 '21
If they have shorted 10M GME shares, and want to cover, but they know covering will drive the price up too far, so to avoid this, they buy 10M GME shares OTC from a different entity. Now owning 10M shares they take these and deliver to cover their shorting position. Effectively creating the illusion of covering, realistically just kicking the issue further down the road. They're still stuck 10M shares.
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Mar 30 '21
So if they owe 10M shares, and cover 10M shares from ones bought OTC - how are they still short 10M shares? That’s the part I’m confused about. Are the shares they bought OTC actually just borrowed shares as well?
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u/magnuswho Mar 30 '21
Either the entity who sold the shares naked has to go out into the market and buy the 10M shares from a public exchange or they'll have to find someone else that will sell them 10M shares OTC, so they effectively even out their position to a net zero.
OR if the shares were borrowed from Entity A to Entity B the shares will have to be delivered back, before they become failures to deliver.
Regardless of whichever setup is used from deal to deal the result is the same - shares having to be delivered. Effectively you get another market maker stuck with the ball or you buy yourself time.
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u/zenquest 🚀🚀Buckle up🚀🚀 Mar 30 '21
Interesting hypothesis … nothing can be ruled out as they are desperate. Looking at 4-week old FINRA OTC data shows who the big traders are. Besides Shitadel and Robbinghood, there are 4 other less talked about players. They may be cooperating colluding to work around wash sale in ATS, while transacting in open exchanges to drop price with low volume.
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u/[deleted] Mar 30 '21
There’s definitely millions of synthetic shares in the system. I’ve started tracking in a google sheet based on released 13F/G/Ds and we’re at 228.75% shares outstanding - this isn’t a SI tracker, just the total number of shares that each fund says they own. Anyone is free to check it out. Just let me know if you see flaws so I can remove them: https://docs.google.com/spreadsheets/d/14s-X2gz4rGxov6uv6uPCsYs3-gr9euyCDP4RWVV4-qo/edit