Naked Shorting GME

…and how the pieces suddenly fit together

BY: u/rainforest11

TLDR: Naked shorting appears prevalent in GME, and if true was likely aided by DTCC, whom by extension may have shut down the short squeeze on 1/28 because it would’ve caused a massive scandal had the squeeze happened. I know ape can’t read but I implore you to read the whole thing (originally wasn’t going to add a TLDR but decided to add it just so more people will read even just a little bit)

(1AO) – I was doing some research on naked shorting in the context of GME which led me down a rabbit hole of pieces connecting with each other as it relates to GME. I was taking notes while reading and below are the results of my notes. This is still a hypothesis and theory but appears supported by numerous pieces of the puzzle, I could be wrong but personally the pieces seem clear to me now:

One of the interesting things about GME and a big part of what triggered the short squeeze happening is the extraordinarily large short interest percentage reported by Finra to be 226%, and later in the range of 150% percent of total float. Another interesting factor is the extraordinarily high number of FTIDs ( Both are strong indicators of the practice of naked short selling which in general is illegal. In addition there have been many indications that there are far more shares out there then should exist (there are many analysis and data points pointing to this but just one example: Where do these shares come from? One potential explanation is synthetic long shares (created via a loophole described here or counterfeit shares caused by naked shorting.

I’m an entrepreneur, not a finance expert, so I started doing some more digging on naked short selling to educate myself more on the subject. I started with this “Failures to deliver may result from either a short or a long sale. There may be legitimate reasons for a failure to deliver. For example, human or mechanical errors or processing delays can result from transferring securities in physical certificate rather than book-entry form, thus causing a failure to deliver on a long sale within the normal three-day settlement period. A fail may also result from “naked” short selling.”

Interesting. We have a consistent and very high rate of FTIDs dating from 2020 and beyond, an indicator that the stock has potentially been naked shorted for a long time.

According to former Chairman of the SEC Christopher Cox, “Abusive naked short sales… can be used as a tool to drive down a company’s stock price to the detriment of all of its investors. The Commission is particularly concerned about persistent failures to deliver in the market for some securities that may be due to loopholes in the Commission’s Regulation SHO, adopted just two years ago… Selling short without having stock available for delivery, and intentionally failing to deliver stock within the standard three-day settlement period, is market manipulation that is clearly violative of the federal securities laws… We are particularly concerned about the potential negative effect that substantial and persistent fails to deliver may be having on the market in some securities. Specifically, these fails to deliver can deprive shareholders of the benefits of ownership – voting, lending, and dividends from issuers. Moreover, they can be indicative of abusive naked short selling, which could be used as a tool to drive down a company’s stock price. (Source:

In a different speech Mr Cox re-iterated that short selling helps prevent “irrational exuberance and bubbles. But when someone fails to borrow and deliver the securities needed to make good on a short position, after failing even to determine that they can be borrowed, that is not contributing to an orderly market – it is undermining it.” Mr Cox also “referred to “the serious problem of abusive naked short sales” as “a tool to drive down a company’s stock price” and that the SEC is “concerned about the persistent failures to deliver in the market for some securities that may be due to loopholes in Regulation SHO” (which reminds me of this piece I wrote (source for SEC Chairman’s words:

As another datapoint, Robert J. Shapiro, former undersecretary of commerce for economic affairs has claimed that naked short selling has cost investors $100 billion and driven 1,000 companies into the ground. (Source: This was originally in a time magazine article from 2005 which was deleted,9171,1126706-3,00.html but the statement still exists in record in an SEC Filing from 2008

I also read ‘One complaint about naked shorting from targeted companies is that the practice dilutes a company’s shares for as long as unsettled short sales sit open on the books. This has been alleged to create “phantom” or “counterfeit” shares, sometimes going from trade to trade without connection to any physical shares, and artificially depressing the share price’”. Shortly after, I read that Matt Taibbi contended the use of naked shorting and counterfeit shares was the tactic used to help kill both Bear Sterns and Lehman Brothers. Taibbi said that the two firms got a “push” into extinction from “a flat-out counterfeiting scheme called naked short-selling”. (Source:

All these sources above seem to support the theory that GME stock was wildly naked shorted, which put funds in the risk of being badly short squeezed. If investing on the basis of the extraordinarily high short interest percentage, GME was a prime candidate for a short squeeze to happen — potentially even an infinite short squeeze. On 1/26 Elon tweeted about Gamestop and that was the day the stock entered the mainstream for a lot of people and retail investors began to really pile on to the stock outside of WSB. The goal of this was to push the stock price up and trigger a short squeeze, the theorized losers would be the funds that naked shorted and would be stuck in the squeeze.

On 1/28 Thursday when the stock had immense momentum from the moment pre-trading started (the stock shot up to 513 in pre-trading) and it looked like the squeeze was going to happen that day, the momentum was suddenly shut down when Robinhood (where many or potentially majority of retail investors were on) were shut off from the ability to buy GME stock and only allow selling, followed by several other brokers. Many believe this was a result of collusion and that this shut down allowed badly besieged hedge funds to close some positions while the public was shut out of buying (but funds were not.) When this happened people were upset at Robinhood suspecting it was a result of potential collusion between Robinhood and Citadel (which along with Point72 invested a lifeline of 2.5 billion to Melvin Capital, one of the short side funds, and is also responsible for something like 40% of Robinhoods entire revenue by buying their order books), but many also speculated collusion with DTCC itself. Now, personally speaking, its kind of crazy to think about DTCC being complicit in something like this. However, looking into the details of what happened, a skeptical part of me became suspicious.

Apparently what triggered the shut down on trading GME on that day was DTCC sending a letter at 4 am to Robinhood requiring them to come up with 3 billion dollars ( . So it sounds like it was essentially this DTCC letter that led to the shut down of the momentum on GME and the short squeeze happening. On that day, there were theories thrown out that DTCC was potentially complicit in the naked short selling of GME and intentionally did this to stem the massive blow back/scandal if an infinite short squeeze did happen. Assuming the price of share of the price rocketed to 1000 or beyond (which would be likely in the event of a short squeeze or infinite short squeeze), hedge funds would likely go bankrupt as financially speaking there would be no way they would be able to cover all their shorts, and presumably entities that lent the short side hedge fund the shares to short would be holding the bag. Worse, DTCC would be exposed for being complicit in this entire thing, I imagine it would be an incredible scandal to say the least.

Then I read something that caught my eye… DTCC has had a history of being at the center and source of naked shorts. From an article dating back to 2007, “Depository Trust & Clearing Corp. is a little-known institution in the nation’s stock markets with a seemingly straightforward job: It is the middleman that helps ensure delivery of shares to buyers and money to sellers. About 99% of the time, trades are completed without incident. But about 1% of the shares — valued at about $2.5 billion on a given a day — aren’t delivered to the buyer within the requisite three days, for one reason or another. These “failures to deliver” have put DTCC in the middle of a long-running fight over whether unscrupulous investors are driving down hundreds of small companies’ share prices.” (Source:

Apparently the DTCC has been known to be allowing or complicit in this action for a very long time. According to Wall Street Journal “There is no dispute that illegal naked shorting happens. The fight is over how prevalent the problem is — and the extent to which DTCC is responsible. Some companies with falling stock prices say it is rampant and blame DTCC as the keepers of the system where it happens. DTCC and others say it isn’t widespread enough to be a major concern.” (Source:

As a thought experiment, lets say naked shorting is rampant in GME (many many indicators point to this) and lets say DTCC was ultimately responsible for allowing a wide scale naked shorting campaign on GME, wouldn’t it be in their best interest to make sure this doesn’t get out and blow up in their faces? Something to consider. Because had they not done what they did on 1/29 Thursday, many traders believe the squeeze would’ve happened that day.

From the Wall Street Journal: “The Securities and Exchange Commission has viewed naked shorting as a serious enough matter to have made two separate efforts to restrict the practice. The latest move came last month, when the SEC further tightened the rules regarding when stock has to be delivered after a sale. But some critics argue the SEC still hasn’t done enough… Some delivery failures linger for weeks or months. Until that failure is resolved, there are effectively additional shares of a company’s stock rattling around the trading system in the form of the shares credited to the buyer’s account, critics say. This “phantom stock” can put downward pressure on a company’s share price by increasing the supply… Critics contend DTCC has turned a blind eye to the naked-shorting problem.” (source:

From everything I’ve seen, as someone who has been an observer and a participant of this saga starting from 1/26, many things look very fishy and there are a lot of red flags people have documented. I personally hold the following hypothesis:

  • GME shorts engaged in rampant naked shorting which lead to the short interest of the stock being 221% and 150% at various times, and as late as 1/29 reported by S3 to be 122%
  • GME shorts potentially hid their positions via a loophole of generating synthetic longs ( and using those to “cover” their positions but not truly covering, which is illegal to cover using this particular method, and which has the effect of delaying the short needing to be closed, potentially betting on retail investors to lost interest and price to go back down before they truly close
  • As a result of naked shorting a large amount of counterfeit shares are floating in the market leading to there being far more GME shares then the actual float
  • The counterfeit shares can/have been used in aggressive naked short attacks to further drive down the price of GME, which may have led to the precipiotous price drop starting last Monday and which may have also been aided by if they were able to artificially cover their shorts using synthetic long shares
  • Due to the widespread naked shorting that all signs are pointing to, DTCC which has had history of being accused of turning a blind eye to naked shorts, may’ve turned a blind eye to the rampant naked shorting happening in GME
  • There was potentially collusion on 1/29 to stop the short squeeze from happening whereby DTCC may be involved and may be implicated had the squeeze happened due to the position of naked shorts, it would have been an unbelievable scandal if exposed.

Edit 1: Someone asked “so what’s the current short position? Looks like they some how covered?”

Pasting my response below because I’d like people to see:

I’ve heard people say 78%, thats still a high number, but personally I made the decision not to care about this percentage from the short interest report released today. Correct me if I’m wrong, that number is generated from data hedge funds submit and hedge funds in this context have every incentive to submit data that would favor their current position. Apparently the fine they get for submitting false is nothing more than a slap on the wrist/a small fine. I also believe hedge funds may have covered some shorts illegally using a loophole to generate synthetic longs to cover with, more on that on my post here. In addition, there seems to have been some fuckery (I recommend you give this a read) with short interest numbers lately so for those reasons I don’t place much trust in the current reported short number, and believe the real short interest percentage could be much higher.

Edit 2: A compelling theory put forth by someone on what the 800 dollar calls were for and how they could be used to cancel out naked shorts includes data/graphs, recommend giving it a read.