Market makers can do naked short sells (and have up to 90 days to close their positions)
If a market maker sold more shares than the number of authorized shares
If a market maker sold more shares than the number of authorized shares
What would happen if a market maker sells more shares than exist and fails to deliver ?
- Thread starter wic2021californiaxp
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Very sincere and honest question to you, what do you think a market maker is and what is their business model? I am quite certain that in the process of answering my questions you will find the weak point in your question and agree that they are not speculators with the hedge fund type business model and need to run a next to a perfectly hedged position in order to survive long term in the business. Most of the market makers take on the duty in return for reduced execution costs with the exchange and use that to speculate and execute their own orders at reduced cost, but the MM business is hedged RELIGIOUSLY! Larger hedge funds are market makers and most smaller ones also maintain quotes on some less liquid instruments just to full fill their obligation towards the exchange for the reduced execution fees, however the two activities i.e., speculation and trading contra the MM activity are kept apart.
My understanding is MM's are generally not required to get a locate first to short shares, but still may be bought in on their short stock position.
If the counterparty broker fails to deliver, would I lose the shares ?
The Clearing Brokers bear clearing and settlement risk. Shares in all customer accounts are said to be registered under a "Street Name". You don't get a stock certificate with your name. Your broker just has you down for x amount of shares.
Orders are aggregated and matched between Clearing Brokers executing each side thru a venue.
Apex Clearing is an example of a clearing broker that provides the operational backend to SOFI and First Trade. IBKR and Lightspeed probably have the size and depth to provide Clearing services to a start-up fintech broker.
That's why it is kind of funny that people will pay $40B for Robinhood which is probably just a web app.
But to answer your question, a cascading failure thru that chain will end with the SIPC.
Orders are aggregated and matched between Clearing Brokers executing each side thru a venue.
Apex Clearing is an example of a clearing broker that provides the operational backend to SOFI and First Trade. IBKR and Lightspeed probably have the size and depth to provide Clearing services to a start-up fintech broker.
That's why it is kind of funny that people will pay $40B for Robinhood which is probably just a web app.
But to answer your question, a cascading failure thru that chain will end with the SIPC.