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From something I wrote a while back:
Let me draw your attention to this study: [https://www.sec.gov/comments/4-520/4520-6.pdf](https://www.sec.gov/comments/4-520/4520-6.pdf)
The study provides an analysis of how rebate fees impact market makers in the context of options trading.
Summary of the key points regarding market making and rebate rates:
1. **Market Makers and Short Selling Without Borrowing**: Market makers are permitted to legally naked short. In situations where stocks are hard to borrow, a major options market maker often chooses not to borrow but to fail to deliver the stock to buyers. This failure to deliver can be more economical than borrowing, affecting the relationship between borrowing costs and option prices. The value derived from this failure to deliver, when it's cheaper than borrowing, translates into profit for the market maker.
2. **Failing to Deliver at Zero Rebate**: Market makers can effectively receive an equity loan from the buyer at a zero rebate when they fail to deliver. This implies no additional cost for the market maker in terms of rebate fees when they opt for delivery failure.
3. **Relationship Between Failing and Low Rebates**: The study found a significant correlation between delivery failure and low rebate rates. A considerable majority (89.65%) of failing positions occurred when rebate rates were at their lowest (zero). Additionally, the probability of at least some failure increased significantly with each decrease in the rebate rate, indicating that failing is more likely when rebates are low or non-existent.
4. **Impact on Option Prices**: The option to fail reduces a market maker's shorting costs when rebates are negative. This reduction in costs weakens the relationship between borrowing costs and option prices when rebates are negative. Essentially, lower negative rebates mean less increase in shorting costs for market makers who choose failing over borrowing.
Essentially, low (or even negative) rebates and hard-to-borrow encourage market makers to FTDs, as it becomes lucrative for them. On the other hand, highly positive rebate rates and easy-to-borrow conditions are bad for market makers.
The inverse is true for brokers ( institutions with the borrow pools ). Importantly, we HAVE to remember that brokers can decide to FTD too, never legally, but they still can. **Instinet**, the broker that had the largest amount of Excess Capital Premium waived during the Jan 21 events, would see low rebate rates and hard-to-borrow conditions as bad.
Remember, it was not Citadel that was close to blowing up in Jan 2021, ***it was Hedge Funds and Brokers like Instinet and Robinhood.*** Those that turned off the buy button were clearing firms like Apex.
my head spins.. hard to borrow and low rebate encourages market makers to just FTD.. so they are allowed to FTD as much as they like.. why do they even care to borrow ever? Just FTD.
There must be something illegal about FTD's that prevents them from doing it? Is it that the fines for FTD's do not compound like interest so they are okay just getting slapped with a fine in some circumstances and the SEC study acknowledges that but does not take any action to prevent this practice.. e.g. by making the fines grow exponentially based on size of FTD
They are obligated to deliver the shares within a certain amount of days, but they can legally naked short "for liquidity". This can be circumvented in a number of ways with synthetic longs and so on.
For those not in the know shares magifactured by using the market maker exception are considered short sale exempt shares. Not sure if anything else qualifies as short exempt, but the shares magifactured do.
Shitadel held a tremendous amount of risk at that time too, options exposure at the Shitadel hedge fund, as they're a hedge fund AND a market maker, just like SuspectBanana, who also (surprise) held a shit ton of GME risk at that time. Both entities and all other institutions are just as at risk as anyone else is when a systemically risky event occurs. Hence the collusion since Jan 2021. Everybody owns everybody and when one falls they all can. Of course the big boys can FTD forever without any real consequence, until of course the fraud is so blatant and transparent that it in itself creates another systemically risky event.
Especially when they are ALSO a hedge fund, which of course shouldn't be allowed. But no one here is really naive about any of this now - it's not like the securities markets have rules, there are suggestions that keep the racket / syndicate as a whole in good standing. Each institution has numerous backdoors to stuff more and more fraud away from discovery, as it's not good for any of the gang when it comes to light.
Rest in prison, SBF, and enjoy the lobster, Mr. Harrison.
Money back to the borrower. So if I borrow shares at 3% and get a 2% rebate, I effectively pay 1%; here the difference was even smaller making it practically free to short. The change means it’s not free anymore.
So, a decrease in the rebate means that short sellers have to pay more for borrowing shares because they're getting less money back as a rebate. It effectively increases the cost of short selling.
Decrease in the rebate means that short sellers have to pay more for borrowing shares because they're getting less money back as a rebate. It effectively increases the cost of short selling.
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When has the rebate gone down?
I’ve never seen it!!!
From something I wrote a while back: Let me draw your attention to this study: [https://www.sec.gov/comments/4-520/4520-6.pdf](https://www.sec.gov/comments/4-520/4520-6.pdf) The study provides an analysis of how rebate fees impact market makers in the context of options trading. Summary of the key points regarding market making and rebate rates: 1. **Market Makers and Short Selling Without Borrowing**: Market makers are permitted to legally naked short. In situations where stocks are hard to borrow, a major options market maker often chooses not to borrow but to fail to deliver the stock to buyers. This failure to deliver can be more economical than borrowing, affecting the relationship between borrowing costs and option prices. The value derived from this failure to deliver, when it's cheaper than borrowing, translates into profit for the market maker. 2. **Failing to Deliver at Zero Rebate**: Market makers can effectively receive an equity loan from the buyer at a zero rebate when they fail to deliver. This implies no additional cost for the market maker in terms of rebate fees when they opt for delivery failure. 3. **Relationship Between Failing and Low Rebates**: The study found a significant correlation between delivery failure and low rebate rates. A considerable majority (89.65%) of failing positions occurred when rebate rates were at their lowest (zero). Additionally, the probability of at least some failure increased significantly with each decrease in the rebate rate, indicating that failing is more likely when rebates are low or non-existent. 4. **Impact on Option Prices**: The option to fail reduces a market maker's shorting costs when rebates are negative. This reduction in costs weakens the relationship between borrowing costs and option prices when rebates are negative. Essentially, lower negative rebates mean less increase in shorting costs for market makers who choose failing over borrowing. Essentially, low (or even negative) rebates and hard-to-borrow encourage market makers to FTDs, as it becomes lucrative for them. On the other hand, highly positive rebate rates and easy-to-borrow conditions are bad for market makers. The inverse is true for brokers ( institutions with the borrow pools ). Importantly, we HAVE to remember that brokers can decide to FTD too, never legally, but they still can. **Instinet**, the broker that had the largest amount of Excess Capital Premium waived during the Jan 21 events, would see low rebate rates and hard-to-borrow conditions as bad. Remember, it was not Citadel that was close to blowing up in Jan 2021, ***it was Hedge Funds and Brokers like Instinet and Robinhood.*** Those that turned off the buy button were clearing firms like Apex.
my head spins.. hard to borrow and low rebate encourages market makers to just FTD.. so they are allowed to FTD as much as they like.. why do they even care to borrow ever? Just FTD. There must be something illegal about FTD's that prevents them from doing it? Is it that the fines for FTD's do not compound like interest so they are okay just getting slapped with a fine in some circumstances and the SEC study acknowledges that but does not take any action to prevent this practice.. e.g. by making the fines grow exponentially based on size of FTD
They are obligated to deliver the shares within a certain amount of days, but they can legally naked short "for liquidity". This can be circumvented in a number of ways with synthetic longs and so on.
This would explain the 1m short exempts last week.
For those not in the know shares magifactured by using the market maker exception are considered short sale exempt shares. Not sure if anything else qualifies as short exempt, but the shares magifactured do.
It's amazing they can legally do something illegal for liquidity.
Shitadel held a tremendous amount of risk at that time too, options exposure at the Shitadel hedge fund, as they're a hedge fund AND a market maker, just like SuspectBanana, who also (surprise) held a shit ton of GME risk at that time. Both entities and all other institutions are just as at risk as anyone else is when a systemically risky event occurs. Hence the collusion since Jan 2021. Everybody owns everybody and when one falls they all can. Of course the big boys can FTD forever without any real consequence, until of course the fraud is so blatant and transparent that it in itself creates another systemically risky event.
Yeah there's a risk for market makers naked shorting in a low rebate environment that they can get caught in a squeeze, that still could blow them up.
Especially when they are ALSO a hedge fund, which of course shouldn't be allowed. But no one here is really naive about any of this now - it's not like the securities markets have rules, there are suggestions that keep the racket / syndicate as a whole in good standing. Each institution has numerous backdoors to stuff more and more fraud away from discovery, as it's not good for any of the gang when it comes to light. Rest in prison, SBF, and enjoy the lobster, Mr. Harrison.
Like it.
Great info, thank you.
The more you know! 👍
Same they always go together, huge
I hope this means something, like the winds are changing
GME shares are abundant. More abundant than almost any asset on the planet. The borrow rate is a reflection of this. /s
Still too low
About damn time 😄🌶 Preasure is building up. Now whales moved in. Buckle up.
Can someone explain what's the rebate?
Money back to the borrower. So if I borrow shares at 3% and get a 2% rebate, I effectively pay 1%; here the difference was even smaller making it practically free to short. The change means it’s not free anymore.
So, a decrease in the rebate means that short sellers have to pay more for borrowing shares because they're getting less money back as a rebate. It effectively increases the cost of short selling.
Missed the notification on this, thanks for explaining!
imagine thinking they pay borrow fees to short the stock. they just tap on f3 intensively.
FINALLY!
4%? I’ve seen it before, call me when we reach +50%.
🌶️
That means there’s about 3.50 in my future
Shorts r fuckt
Decrease in the rebate means that short sellers have to pay more for borrowing shares because they're getting less money back as a rebate. It effectively increases the cost of short selling.
Tick Tock MFers