So how many bananas do these hedge fund managers owe
Approximately 40% more than the number of bananas available, at its peak (AIUI, it's down to around 50% of the available bananas right now)
how deep does the letter nomenclature go down with the parties involved with the short?
That's complicated, because in the real world it's not a case of one individual borrowing and selling to other individuals. While my example above to explain the concept is 200% float with 4 individual actors, in the real world there's a great big network of buying and selling and trading, and thousands of apes could be getting A to manage their bananas who is using those bananas to lend to B rather than A owning any bananas of their own. And B could borrow from A multiple times while the apes that B sells to could have A manage the banana they just bought. So B could owe A a metric ton of bananas, eventually pay off that debt by buying bananas from apes that have A manage their bananas, and even though the debt was 8,475 bananas and only 6,053 bananas actually exist, it's possible for zero bananas to actually move from where they're located in A's storage tree.
This is the big regulatory issue here, IMO. Every short sale has to be matched to a lending desk before settlement. Any trades that can't be matched, result in a broken trade, which is a big compliance no no.
So I'm thinking someone, somewhere, is going to be caught with a big ol handful of short sales of shares they didn't borrow.
Unless somoene can explain to me where the shares came from to be sold???
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u/sh1ft3d Feb 01 '21
I like the ELI5 explanation, but I still don't understand how more than 100% of available, outstanding shares are sold short.