A broker handling several sellers will borrow synthetic or manufactured shares, or “locate” the same stocks for multiple shorts. Short sellers borrow the stock, usually from a broker, who either has it in their inventory, borrows it from another broker, or vows to “locate” the stock when the time comes and cover the short. The SEC allows traders to short a stock, which means to sell it even if they don’t own it, hoping to buy it back later at a lower price and bank the difference. The financial media also ignores this systemic corruption. The Securities and Exchange Commission (SEC), which along with other regulators could confirm whether the patterns seen in GameStop trading constitute fraud, has known about and largely ignored practices like this for years. What happened around GameStop can be explained only by massive counterfeiting of shares. But as retail investors looked into the details in the aftermath, they found telltale signs of a common yet egregious trading fraud by major brokers and hedge funds, which evaded what could have been far bigger losses. The rally eventually subsided, and the stock fell, though it remains well above its original price. Another fund, Maplelane, lost 40 percent. The hedge fund Melvin Capital reportedly closed out its position after taking a drubbing of 51 percent. According to Markets Insider, one analyst estimated losses in February of roughly $19 billion. This brought disaster upon a handful of hedge funds that had bet on GameStop’s stock to drop. Millions of retail investors made the stock soar by over 1,000 percent in January 2021. I have written previously for the Prospect about the frenzy over GameStop (GME), the video game and electronics company. Both your business and personal decisions should always be made after conducting your own research and gaining feedback from a professional.In the aftermath of the GameStop run-up in January, retail investors found telltale signs of a common yet egregious trading fraud by major brokers and hedge funds. Whether you are looking to invest in traditional financial services or cryptocurrency, you should never invest in what you don't have an understanding of. If you don’t understand it, don’t put your money in it Unless traditional financial institutions adopt a community approach, it will be difficult, if not impossible, to collaborate with a mass population actively attempting to overthrow them.Ĥ. It is necessary to recognise the importance of emerging funding opportunities through Initial Coin Offerings (ICOs) and other peer-driven Fintech. Some ways to do this are partnering with new ventures or engaging in service design processes.īanks and other incumbents (such as credit unions) are likely to be the most affected by cryptocurrencies and other forms of new financial technology. Strategies should be ambidextrous – identifying and operationalising ways to grow a firm’s current markets (core business), while stimulating the initiation of new markets. Leaders wanting to survive in a market dominated by new financial technologies need to proactively anticipate emerging changes and deliberately design strategies to shape the market for their own advantage. By learning with the market, firms can develop new open and collaborative innovation processes.Ģ) Embrace emerging social and technical changes
As new market-entrants, they are also potential competitors (Trail-Blazers) or even sources of venture-capital (Fortune-Hunters). Learn from the social groups actively influencing financial markets, like the ones active on Reddit. So, what can you and your organisation do to thrive in this brave new world of crypto finance and peer-to-peer fintech services?ġ) Keep your finger on the groundswell pulse Four tips to help you thrive in the new era of digital finance:
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