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Superstonk DD Summary: House of Cards Part 2



As someone who is deeply interested in the events surrounding GameStop’s stock price over the past few months, I recently came across a particularly informative post on Reddit. In this post, the author delves into the history of the Depository Trust & Clearing Corporation (DTCC) and its subsidiaries, including the Depository Trust Company (DTC), the National Securities Clearing Corporation (NSCC), and the Fixed Income Clearing Corporation (FICC).

The post explains that the DTC, which was created in 1973 to centralize the clearing of trades, started using a computerized ledger system in the 1980s called the Book-Entry Only (BEO) system. This system allowed for virtual, rather than physical, trading of securities and facilitated the growth of mutual funds and government securities, but also made it easier for securities fraud, including naked short selling, to occur.

The post goes on to discuss how several issuers with securities listed at the DTC wanted to remove their securities from the DTC’s deposit account in 2003 due to concerns about naked short selling by the DTC’s participants. It is revealed that these concerns were justified, as the DTC and its participants have created a market-sized naked short selling scheme. The scheme is made possible by the DTC’s enrollee, Cede & Co., which holds securities on behalf of broker-dealers and enables them to sell securities they don’t actually own.

The post also covers the role that the DTCC’s rule changes, which were proposed in response to the events surrounding GameStop’s stock price, play in all of this. It is argued that these rule changes, which aim to better monitor the DTCC’s participants’ exposure, are necessary to prevent future naked short selling schemes.

Overall, this post offers a comprehensive and eye-opening look at the inner workings of the DTCC and the mechanisms behind naked short selling. If you’re interested in the GameStop saga or in understanding more about the stock market in general, I highly recommend giving this post a read.



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