Frontera Energy Corp FECCF

Canadian Banks Make $Billions off Naked Short Sales

[kcac1]

Below is part of an article from the Small Cap Advocacy Group, explaining that Canadian Banks are making Big profits off of Naked Short Selling and currently trying to stop the practice that is costing Canadian Small Cap Companies and Investors many $Billions. They have gone public with their findings and asking for support to make the changes needed to stop this predatory practice. A link to their website is in the paragraph below.

"Terry Lynch is the CEO of Power Nickel and the co-Founder of “Save Canadian Mining”,  Save Canadian Mining  the small cap stock advocacy group backed by industry giants such as Eric Sprott, Keith Neumayer, Robert McEwen and multiple sponsors who have worked tirelessly and given generously over the last 4 years to conduct research, create reports and meet with key government officials & regulatory bodies … for the singular purpose of putting an end to the devastating practice of illegal short selling in the Canadian small cap market"



"In Canada’s stock markets naked short selling goes on unabated every single day, and the public is largely unaware that banks generate significant revenue and profits from this activity. Every time you buy or sell shares you are subject to this risk.

The 6 chartered banks are the largest and most active hedge funds in Canada. They are regulated by the Canadian Investment Regulatory Organization (“CIRO”), a self-regulatory body that is funded by the banks and other industry participants, so they are resistant to reform that would hinder their own profitability. In other words, CIRO is conflicted. US and international hedge funds have learned that Canada does not regulate short selling like other nations do so we attract inordinate inflows of hedge funds seeking to profit from the loopholes and lack of oversight and enforcement arising from our self-regulated securities industry.

Our banks do not break out short trading or stock lending revenues in their financial statements. However, we can arrive at a reasonable proxy by looking closely at their 2023 annual reports. Our estimates show that collectively the 6 chartered banks may have generated ‘short’ revenues of as much as $12.5 billion and profits of $4.2 billion last year. Using their current P/E multiples that implies their ‘shorting’ business could be worth upwards of $48 billion.

In 2021 Finder.com, reported that 1 in 3 Canadians bought or sold shares on Canadian stock markets, which means they may have unknowingly paid our chartered banks $12.5 billion. When we include US and international hedge funds, a study conducted by CIRO in December 2022 reported “failed” trade volume, which can also be labeled “counterfeit” trade volume, ranged from approximately 3% to 19%, depending on the exchange. Therefore, based on trade volumes in 2023, counterfeit short selling totaled $121.9 billion which translates to an average cost of $9,800 per retail investor. In reality, it would be a fraction of this amount for smaller investors and a multiple of this amount for active traders and high net worth bank clients.

Counterfeit short selling has been facilitated by CIRO’s decision to rescind the ‘tick test’ in 2012 and their lack of oversight and enforcement of the existing rules plus their unwillingness to institute new rules to prevent manipulation and malfeasance. Conclusion - Canadians are unknowingly burdened with a significant cost arising from loopholes and non-existent enforcement in our self-regulated structure which CIRO is doing nothing to prevent because they are conflicted.

Recommendations:
Impose a temporary ban on all naked short selling activity to determine the scope and scale of the overall problem.
Appoint a national securities regulator that is not conflicted to oversee the damage assessment from the loopholes, lax enforcement and naked counterfeit short selling, with powers both to compel and enforce.

 

[Frank007]

Thank for the  artical Kcac .....I already knew this but hopefully others can learn from it ....as a trader this what I look for ....thanks again ...

[Kelvin]

Thanks kcac1. So how's it work? Say a stock is at $10. Bank A colludes with Bank B to naked short the stock. Bank A promises to buy 1 million shares from Bank B at $10 if the sp drops to say $7. Bank B promises to buy 1 million shares at $10 from Bank A if the stock falls to $7. So it's a wash. Nobody is out any money on the naked short. Mesnwhile Banks A & B have taken out normal

[Frank007]

Kevin...here is how you can do it too.......take out put option on your favourite stock ...can,t be one in the news as that can work against you .....sell ....selll  ...sell as you watch ...the stock go down .....buy some call options as you short ....cash in the put options ....and start to buy buy buy ....up goes the shares cash in the call options and ........fill your ....jeans with cash

[Kelvin]

Thanks Frank, It would be too nerve racking for me. I can barely figure out what 2-way collars are in options/future trading as a way to lock in an "in the money" price range and hedge against downside price movements but I see that bte employs 3-way collars (whatever they are) in their futures contracts. I'll leave the options stuff to the big banks and much smarter people. But you

[a2bman]

Kelvin naked shorts dont borrow the shares, they just sell them.  If they borrow from another bank or their own accounts thats just regular shorts. Just because shorts borrow the shares from another account doesnt mean they dont have to replace it.  There is no wash.  They pay a borrowing fee, like an interest rate but much higher, and still have to replace what they short (sell).

[Kelvin]

Ok thanks a2bman, I'm just caught up on how you can sell something that is not in your legal possession either owned or borrowed.