February 7, 2022
It has become clear to the average investor that the vehicles, information, and market access available to institutes, market makers, and hedge funds far exceed that which is available to retail investors. The inaccessibility to the types of investments that large institutions can make is understandable as there are typically large capital requirements necessary to make some of these investments. The lack of transparency, however, significantly disadvantages retail as it is impossible to determine what kind of deck the opposing party is even playing with. On the other hand, retail trades, which are typically simplistic in comparison to the trades made by large institutes, are completely visible to the parties handling, clearing, and even taking the opposite side of the trade. There is very strong evidence suggesting a significant number of artificial shares or a \"failures to deliver\" exist on the market due to the lack of transparency around the type of instruments being used by institutes. This lack of transparency and abuse of power has done three things.
One: it has destroyed an unknown number of potential businesses that had viable products as a result of naked shorting the company's shares to the point that supply of these shares far exceeds the number of shares legally issued (supply demand).
Two: it has put many retail investors (and I'm sure some large institutes investments) at risk as there is no way for an investor to counteract abusive short selling without accurate information about the short interest and positions against the company (which can be manipulated through ETFs, swaps, options, etc.).
Three: it has put the entire financial system at risk. The DTCC is fully aware of how many shares in a company are legally issued and area also aware of how many failure to delivers/synthetic shares are actually on the market. If there were ever an event requiring mass repurchasing of these synthetic shares (due to margin requirements, stock splits, etc.) and no real shares are able to be located, it would create massive instabilities in the market. Take this one step further, if the owners of these shares refused to sell it could cause a mass margin call event requiring anyone short the stock to liquidate all assets in order to repurchase these shares at astronomical costs. It would be a snowball effect that could drive every single penny in the stock market to several very shorted companies.
It is believed that swaps and other complicated custom derivative positions are one way that institutes can hide information related to shares shorted. In order to eliminate this major market risk, transparency of these investment/insurance vehicles is 100% necessary.