Cellar Boxing - the Market Maker's pièce de résistance and "Legal" tool for Stock Manipulation
I've been following the "meme stock" fiasco with many other fellow apes across Reddit and other various platforms. In the case of GME I firmly believe that Ryan Cohen will be turning the company into an ecommerce player that gives even Amazon pause, but that's not the topic for today. Recently the supposed practice of "Cellar Boxing" has become a major talking point and I would be interested in hearing what the experts here on WSO might have to say.
I am not trying to claim this is being used on GME, it clearly isn't because GME is not a pink sheet. But specifically with respect to the mass naked short selling required as the first condition of the trade to flood the market with shares and pummel the price downward, could this have been happening as it fell close to $1 during the depths of COVID? And could that explain why suddenly there's so much bashing and negativity surrounding the stock since it has rebounded, making it effectively impossible for market makers to cover given the ever shrinking float? Can anyone explain why hypothesis this is impossible/incorrect? I've sent the posts to a friend of mine who's quite familiar with the Market Maker model and is much more senior in the industry and he's yet to poke any holes in it.
Text in quotes below for both
Archived link from an InvestorsHub forum post back in 2004 discussing the practice
Comments on the official SEC website in 2008 mentioning the practice of Cellar Boxing
ARCHIVED 2004 LINK
"Cellar Boxing"
There’s a form of the securities fraud known as naked short selling that is becoming very popular and lucrative to the market makers that practice it. It is known as “CELLAR BOXING” and it has to do with the fact that the NASD and the SEC had to arbitrarily set a minimum level at which a stock can trade. This level was set at $.0001 or one-one hundredth of a penny. This level is appropriately referred to as “the CELLAR”. This $.0001 level can be used as a "backstop" for all kinds of market maker and naked short selling manipulations.
“CELLAR BOXING” has been one of the security frauds du jour since 1999 when the market went to a “decimalization” basis. In the pre-decimalization days the minimum market spread for most stocks was set at 1/8th of a dollar and the market makers were guaranteed a healthy “spread”. Since decimalization came into effect, those one-eighth of a dollar spreads now are often only a penny as you can see in Microsoft’s quote throughout the day. Where did the unscrupulous MMs go to make up for all of this lost income? They headed "south" to the OTCBB and Pink Sheets where the protective effects from naked short selling like Rule 10-a, and NASD Rules 3350, 3360, and 3370 are nonexistent.
The unique aspect of needing an arbitrary “CELLAR” level is that the lowest possible incremental gain above this CELLAR level represents a 100% spread available to MMs making a market in these securities. When compared to the typical spread in Microsoft of perhaps four-tenths of 1%, this is pretty tempting territory. In fact, when the market is no bid to $.0001 offer there is theoretically an infinite spread.
In order to participate in “CELLAR BOXING”, the MMs first need to pummel the price per share down to these levels. The lower they can force the share price, the larger are the percentage spreads to feed off of. This is easily done via garden variety naked short selling. In fact if the MM is large enough and has enough visibility of buy and sell orders as well as order flow, he can simultaneously be acting as the conduit for the sale of nonexistent shares through Canadian co-conspiring broker/dealers and their associates with his right hand at the same time that his left hand is naked short selling into every buy order that appears through its own proprietary accounts. The key here is to be a dominant enough of a MM to have visibility of these buy orders. This is referred to as "broker/dealer internalization" or naked short selling via "desking" which refers to the market makers trading desk. While the right hand is busy flooding the victim company's market with "counterfeit" shares that can be sold at any instant in time the left hand is nullifying any upward pressure in share price by neutralizing the demand for the securities. The net effect becomes no demonstrable demand for shares and a huge oversupply of shares which induces a downward spiral in share price.
In fact, until the "beefed up" version of Rule 3370 (Affirmative determination in writing of "borrowability" by settlement date) becomes effective, U.S. MMs have been "legally" processing naked short sale orders out of Canada and other offshore locations even though they and the clearing firms involved knew by history that these shares were in no way going to be delivered. The question that then begs to be asked is how "the system" can allow these obviously bogus sell orders to clear and settle. To find the answer to this one need look no further than to Addendum "C" to the Rules and Regulations of the NSCC subdivision of the DTCC. This gaping loophole allows the DTCC, which is basically the 11,000 b/ds and banks that we refer to as "Wall Street”, to borrow shares from those investors naive enough to hold these shares in "street name" at their brokerage firm. This amounts to about 95% of us. Theoretically, this “borrow” was designed to allow trades to clear and settle that involved LEGITIMATE 1 OR 2 DAY delays in delivery. This "borrow" is done unbeknownst to the investor that purchased the shares in question and amounts to probably the largest "conflict of interest" known to mankind. The question becomes would these investors knowingly loan, without compensation, their shares to those whose intent is to bankrupt their investment if they knew that the loan process was the key mechanism needed for the naked short sellers to effect their goal? Another question that arises is should the investor's b/d who just earned a commission and therefore owes its client a fiduciary duty of care, be acting as the intermediary in this loan process keeping in mind that this b/d is being paid the cash value of the shares being loaned as a means of collateralizing the loan, all unbeknownst to his client the purchaser.
An interesting phenomenon occurs at these "CELLAR" levels. Since NASD Rule 3370 allows MMs to legally naked short sell into markets characterized by a plethora of buy orders at a time when few sell orders are in existence, a MM can theoretically "legally" sit at the $.0001 level and sell nonexistent shares all day long because at no bid and $.0001 ask there is obviously a huge disparity between buy orders and sell orders. What tends to happen is that every time the share price tries to get off of the CELLAR floor and onto the first step of the stairway at $.0001 there is somebody there to step on the hands of the victim corporation's market.
Once a given micro cap corporation is “boxed in the CELLAR” it doesn’t have a whole lot of options to climb its way out of the CELLAR. One obvious option would be for it to reverse split its way out of the CELLAR but history has shown that these are counter-productive as the market capitalization typically gets hammered and the post split share price level starts heading back to its original pre-split level.
Another option would be to organize a sustained buying effort and muscle your way out of the CELLAR but typically there will, as if by magic, be a naked short sell order there to meet each and every buy order. Sometimes the shareholder base can muster up enough buying pressure to put the market at $.0001 bid and $.0002 offer for a limited amount of time. Later the market makers will typically pound the $.0001 bids with a blitzkrieg of selling to wipe out all of the bids and the market goes back to no bid and $.0001 offer. When the weak-kneed shareholders see this a few times they usually make up their mind to sell their shares the next time that a $.0001 bid appears and to get the heck out of Dodge. This phenomenon is referred to as “shaking the tree” for weak-kneed investors and it is very effective.
At times the market will go to $.0001 bid and $.0003 offer. This sets up a juicy 200% spread for the MMs and tends to dissuade any buyers from reaching up to the "lofty" level of $.0003. If a $.0002 bid should appear from a MM not "playing ball" with the unscrupulous MMs, it will be hit so quickly that Level 2 will never reveal the existence of the bid. The $.0001 bid at $.0003 offer market sets up a "stalemate" wherein market makers can leisurely enjoy the huge spreads while the victim company slowly dilutes itself to death by paying the monthly bills with "real" shares sold at incredibly low levels. Since all of these development-stage corporations have to pay their monthly bills, time becomes on the side of the naked short sellers.
At times it almost seems that the unscrupulous market makers are not actively trying to kill the victim corporation but instead want to milk the situation for as long of a period of time as possible and let the corporation die a slow death by dilution. The reality is that it is extremely easy to strip away 99% of a victim company’s share price or market cap and to keep the victim corporation “boxed“ in the CELLAR, but it really is difficult to kill a corporation especially after management and the shareholder base have figured out the game that is being played at their expense.
As the weeks and months go by the market makers make a fortune with these huge percentage spreads but the net aggregate naked short positions become astronomical from all of this activity. This leads to some apprehension amongst the co-conspiring MMs. The predicament they find themselves in is that they can’t even stop naked short selling into every buy order that appears because if they do the share price will gap and this will put tremendous pressures on net capital reserves for the MMs and margin maintenance requirements for the co-conspiring hedge funds and others operating out of the more than 13,000 naked short selling margin accounts set up in Canada. And of course covering the naked short position is out of the question since they can’t even stop the day-to-day naked short selling in the first place and you can't be covering at the same time you continue to naked short sell.
What typically happens in these situations is that the victim company has to massively dilute its share structure from the constant paying of the monthly burn rate with money received from the selling of “real” shares at artificially low levels. Then the goal of the naked short sellers is to point out to the investors, usually via paid “Internet bashers”, that with the, let’s say, 50 billion shares currently issued and outstanding, that this lousy company is not worth the $5 million market cap it is trading at, especially if it is just a shell company whose primary business plan was wiped out by the naked short sellers’ tortuous interference earlier on.
The truth of the matter is that the single biggest asset of these victim companies often becomes the astronomically large aggregate naked short position that has accumulated throughout the initial “bear raid” and also during the “CELLAR BOXING” phase. The goal of the victim company now becomes to avoid the 3 main goals of the naked short sellers, namely: bankruptcy, a reverse split, or the forced signing of a death spiral convertible debenture out of desperation. As long as the victim company can continue to pay the monthly burn rate, then the game plan becomes to make some of the strategic moves that hundreds of victim companies have been forced into doing which includes name changes, CUSIP # changes, cancel/reissue procedures, dividend distributions, amending of by-laws and Articles of Corporation, etc. Nevada domiciled companies usually cancel all of their shares in the system, both real and fake, and force shareholders and their b/ds to PROVE the ownership of the old “real” shares before they get a new “real” share. Many also file their civil suits at this time also. This indirect forcing of hundreds of U.S. micro cap corporations to go through all of these extraneous hoops and hurdles as a means to survive, whether it be due to regulatory apathy or lack of resources, is probably one of the biggest black eyes the U.S. financial systems have ever sustained. In a perfect world it would be the regulators that periodically audit the “C” and “D” sub-accounts at the DTCC, the proprietary accounts of the MMs, clearing firms, and Canadian b/ds, and force the buy-in of counterfeit shares, many of which are hiding behind altered CUSIP #s, that are detected above the Rule 11830 guidelines for allowable “failed deliveries” of one half of 1% of the shares issued. U.S. micro cap corporations should not have to periodically “purge” their share structure of counterfeit electronic book entries but if the regulators will not do it then management has a fiduciary duty to do it.
A lot of management teams become overwhelmed with grief and guilt in regards to the huge increase in the number of shares issued and outstanding that have accumulated during their “watch”. The truth however is that as long as management made the proper corporate governance moves throughout this ordeal then a huge number of resultant shares issued and outstanding is unavoidable and often indicative of an astronomically high naked short position and is nothing to be ashamed of. These massive naked short positions need to be looked upon as huge assets that need to be developed. Hopefully the regulators will come to grips with the reality of naked short selling and tactics like "CELLAR BOXING" and quickly address this fraud that has decimated thousands of U.S. micro cap corporations and the tens of millions of U.S. investors therein.
And the SEC link
2008 SEC COMMENT
Subject: File No. S7-08-08
From: John DromboskyMarch 27, 2008
Let's see You're asking for public comments about naked short selling and a proposed anti-fraud rule you propose to implement?
What's wrong with you folks? Naked short selling of securities, is someone selling something he/she does not have, does not have any "borrowed" shares to back up the short sale, historically does not even have a plan to cover because the hope is the manipulation it causes typically drives the targeted victim out of business so no cover is ever required.
You're asking if it's OK to enact a rule that prohibits THEFT? Have you never been to an ethics training session?
Something like a prohibition of theft should be a no-brainer, regardless of your position at the SEC. And by the way, the way naked short selling is done, it constitutes counterfeiting of securities, since the broker/dealers who participate in this practice assure the victim-buyer that yes, the share exists, even if it's just an electronic marker in the buyer's account. It's a fake share that was created out of thin air. And the result when done en mass, is to drive the price per share of the target company into the cellar. (ever hear of cellar-boxing?)
Naked short selling robs the investors of their money, in exchange for something that never existed in the first place. The investor doesn't even know the share doesn't exist when the purchase is made. But in spite of the investment being made in a company that should have potential, the price per share keeps going down as the manipulation continues. The company doesn't get the revenues for these naked short shares sold. The company loses operating revenues. And most times, the company is forced out of business.
When the company goes under, the naked shorts never have to be covered, and the crooks who sold these fake shares never even have to pay taxes on these ill-gotten gains.
Where is your common sense? Of course nakes short selling should be illegal. In fact, there are already criminal statues on the books for grand theft. (many naked short schemes net the perpetrators millions of dollars and more)
The SEC needs to enforce the laws that already exist, that prohibit market manipulation. The Secret Service should be involved since this activity constitutes counterfeiting of securities. The Department of Justice needs to be involved to prosecute those (even in the SEC) who condone such activities. The SEC is, after all, supposed to be protecting the investor against such crooks who rig the securities system against the investor.
Most of all, the FED needs to be involved, because the penalties are already on the books for compensating individual investors against such fraud, such as naked shorting securities. If I read it right, the FED guarantees compensation to harmed investors, to the tune of a dollar per share MINIMUM. The penalties involve a formula to extract payment from the perpetrators, backed by the FED to ensure full payment, which includes a multiple of the trading price per share, plus a dollar, times the number of days the naked short share failed to deliver.
On top of that, if the naked short activity is a coordinated effort among broker/dealers and the DTCC, CEDE and Co, and SEC, RICO laws kick in which allow for triple damages to the injured investor.
The laws are already on the books, and you want to know our comments concerning your new proposal about naked short share selling? How about "enforce your rules and laws already on the books?"
In reading the other comments, it surprises me how many other companies are in the same situation as the company I own stock in. This problem is PERVASIVE, and appears to be SYSTEMIC in the security exchanges. I assumed that it was just a practice common to the micro-cap companies. Well, I was wrong. And your failure to act before now, with laws already on the books is even more egregious
I am a shareholder in several companies that were naked shorted off the exchanges. But one in particular did not go bankrupt like so many others did. CMKX was the trading symbol on the Pink Sheets. Our corporate attorney tried to present evidence of 2+ TRILLION naked short shares, during the administrative hearing to revoke CMKX. He was kept from presenting such evidence. The proof exists.
CMKX requested the initial decision to be enforced, revoking the trading status of CMKX. This locked in the naked short position. Many of the shareholders now own certificates of ownership. Documented proof of what is claimed to be the naked short in our company. DO YOUR JOB
By the way, CMKX was revoked because of the failure to file financial statements with the SEC. How, may I ask, can a CEO of any company legitimately sign off on financial statements, knowing that a significant naked short position exists? That naked short position affects the financial statement. A huge naked short position affects the financials in a HUGE way. Signing off on financials, places the CEO in jeopardy if those financials are flawed.
I submit Urban Casavant was in a no-win situation. Turn in signed financials, and he's in trouble for flawed financials. Don't file financials, and his company gets revoked. (in most cases, revocation results in a corporate bankruptcy, in which case the naked shorts go away.) Well, CMKX got revoked, and we didn't go away. It's time for your to do your job
My understanding, is that if presented with evidence of a crime, you become obligated to investigate to determine the merits of that evidence. Instead, prior officials simply discounted the evidence by denying the existence of naked shorts, saying it was meerly an excuse to complain about a stock that didn't increase in value.
Times have certainly changed. Naked short sales do exist now, don't they? Well, the proof of 2+ trillion naked short shares still exists in CMKX. I don't think you need to wait for this proposed rule to become effective. You already have the rules and laws on the books to open your investigation, and go after the perpetrators of what seems to be the largest example of naked short selling in the history of the exchanges.
To continue ignoring the naked short position of CMKX is to exagerate your dereliction of duty in pursuing the criminals who continue to rob the small investors of this country.
Finally, I recall President Bush proposed modifying the Social Security system, to permit individuals to invest in the stock market, rather than invest in the Social Security system, as a way to bolster and protect the system. Can you imagine the debacle if investors put their social security money into your stock exchanges, only to have it evaporate because of naked shorting market manipulation and fraud? Please, if you would, explain to the President why his Social Security Reform plan won't work
Comments on the naked short selling anti-fraud rule? How about, on the way to passing this new rule, you go back and begin enforcing the rules you already have against market manipulation, counterfeiting securities, and fraud? How about explaining how REFCO can have millions of dollars on their balance sheet for shares "sold but never purchased"? And perhaps even explain how it is NevWest can get off with a minimal fine for millions of dollars in questionable transactions of CMKX securities, and the seller, can get off scott-free?
Come on guys DO YOUR JOB This rule-making exercise you're going through might make for good press releases, but it's just one more rule in a BOOK of rules to prohibit the same activities DO YOUR JOB
John Drombosky
MFW reading both of these
......
You are a rando progressive nutcase who studied computer science and works in neither finance nor entrepreneurship. You know squat and have 0 value-add to this discussion. Cohen has already built an ecommerce unicorn that displaced Amazon's market share in the pet goods market and continues to grow. The idea that it's impossible for him to do it again for a much larger category like gaming when he's starting with a multi-billion dollar company with a globally recognizable brand name, nearly $2b in cash reserves, on top of millions worth of free advertising from organic WOM and media coverage makes about as much sense as someone saying real women have dicks.
Bezos is shaking I'm sure
I'm confused. I don't disagree that this is a thing, but as you mentioned, this occurs with OTC Pink Sheets who are trading at less than a penny. Even at their lows GME, AMC, etc. never got below a few dollars. So while naked shorting may have something to do with the situation, what does this 'cellar boxing' have to do with meme stocks?
If you read the section from the 2004 forum post it's clearly talking about how the goal is to flood the market with counterfeit shares of a given company which suppresses upward momentum for the stock and forces the price downward into pink sheet territory where it is easier to control and keep low. This lowers the risk of the stock moving back up and forcing the market maker to have to cover. Upward momentum for a stock is the thing that kills the entire play because it is inherently impossible for the market maker to cover during this process given the volume of naked short selling required. This is what makes GME so unique, because it has had a complete turnaround for the management team and been revitalized so that the business itself will become a growing concern. It's impossible for them to now go bankrupt having paid off all their debt and there is no way with all the attention they're getting (just look at their buy/sell ratios across brokers) that they will become a pink sheet now.
This section from the SEC comment also highlights that the goal is to never cover, a key point of the thesis since in order to cover they would have to buy up the tsunami of nakedly sold shorts, exploding the price and blowing up the market maker in the process.
If GME were really going to a million dollars a share, why wouldn't Hedge Funds be taking large positions in GameStop to capitalize on the upside. Hedge funds don't operate together they are separate.
Also as for your business thesis.
Gamestop is in literally no position to pivot to being an e-commerce player for video games. What you fail to realize is GameStop has no software for games or an ability to store their games via Library, they have no ability to compete against players like Epic Games, Riot games or Steam. You already have massive companies like Netflix, Disney, Amazon and Google gearing up to start video game streaming services. Gamestop has 0 competitive advantage over literally any retailer that sells video games, they are essentially a toy company that sells memorabilia.
Ok you stupid little intern, I'll admit it's entertaining that this is the second comment you make on this entire website and you are going so out of your way to prove your own ignorance. The only things I "copied" were the links to the archived 2004 InvestorHub forum post and the 2008 SEC comments, the rest of the OP is just the text from those two links and my own personal commentary. The thread you are no doubt referencing is this one, which anyone can clearly see I'm not quoting anything else from. You are correct to say that the majority of posters and commenters are not well-educated in finance, that is quite literally the point of the subreddit. But there are people posting in there with analysis skills you should pray you can develop during whatever is left of your time in school. You could use a refresher course in reading comprehension to start since I didn't even try to suggest that hedge funds are conspiring or that GME is headed to $1mm a share (which is ridiculous), this post is specifically about cellar boxing, a trading practice supposedly carried out by Market Makers going back to the early 2000s.
You don't even attempt to address any of the content I've posted (the actual point and question being asked in the OP surrounding specifically the topic of Cellar Boxing) and instead fixate on my throwaway ecommerce comment. And in doing so show your utter lack of understanding of GME's current growth engine, financial situation and the background of Ryan Cohen and his new management team. They've been hiring software and blockchain engineers en masse for months now, have established a same-day delivery partnership with DoorDash for their ecommerce orders, and the new CEO was literally the CEO for Amazon Australia and a former technical advisor for their North American Commerce unit. From his profile:
Learn to finish shittily putting together comically broken theses for your school's investment club presentations and leave this type of discussion to actual working professionals, ok? 😊 Maybe someday you'll have something worth contributing to this kind of discussion, but this definitely isn't one of those days.
What does same day orders have to do with gaming? The entire market they're after is online software sales and becoming a marketplace like steam. Why would I want to buy a video game disc? You could have the worlds best management team behind GameStop but their products are bad; also you mention blockchain engineers? Why would a company be hiring blockchain engineers when they're on the verge of bankruptcy. Talk about financial mis-management.
Kiddo, gaming and ecommerce are two sectors I cover for my day job. You're just fucking embarrassing yourself now.
You don't know dick, have done 0 research and it shows. What you’ve just said is one of the most insanely idiotic things I have ever read. At no point in your rambling, incoherent response were you even close to anything that could be considered a rational thought. Everyone in this thread is now dumber for having seen it. I award you monkey shit, and may God have mercy on your soul.
;I don’t have a GameStop position, but they’ve had a SIGNIFICANT management overhaul. And this is 2021, so I’m not surprised by anything anymore.
You really think that clunky ass software known as Steam is some kind of unique creation only a single soul could ever create? GME by its very nature has connections to game studios and can get access to digital licenses to sell. Hell the studios would love it, save them an ass load of capital requirements to manufacture a bunch of packaging and physical medium.
There are a bunch of things that don't make sense here. Market makers don't care about the % spread, they care about the absolute spread because that's how much money they make. A $0.00 bid $0.001 ask nets the market maker exactly $0.001, which is not very good, given that the spread on most small-cap equity trades exceeds $0.01.
Second, if a market participant sold a share they did not borrow, someone would buy it, effectively printing a new share. It's unclear how someone would even do this given the way brokers operate. And even if they did, it would be fairly obvious at any scale. The article says: "Our corporate attorney tried to present evidence of 2+ TRILLION naked short shares, during the administrative hearing to revoke CMKX. He was kept from presenting such evidence." So there's "evidence", but not the kind that's acceptable in a court of law? I have a hard time believing that this is happening anywhere.
Both articles were filled with comments that reflect little knowledge of the way the market works. Lots of emotionally charged and demagogic comments like "the Secret Service need to get involved" and "Can you imagine the debacle if investors put their social security money into your stock exchanges, only to have it evaporate because of naked shorting market manipulation and fraud?"
Not impressed at all tbh
Doesn't the Secret Service protect the president? Does he mean the SEC?
You're so fucking dumb it HURTS
This isn't accurate, the major market makers care about both the absolute and the % spread. Both are accounted for by their algos as the process is fully automated. HFTs don't care about absolute spreads because if their model shows there's a correlation factor or momentum frequency they can abuse in OTCs they can do it even it it's only fractions of a penny. You don't know how the brokers work either, naked shorting is actually legal and is a key function of how they provide liquidity within the market. All the major primes have been fined in the past by FINRA for mismarking shorts, improperly reporting them, etc. so the idea that they're doing it substantially more often than they get caught isn't far fetched (especially if you understand that the cases take years to reviews and banks view the fine as a cost of doing business, not a punishment).
The CMKX suit is a whole different rabbit hole that I have not gone down so I can't really comment on that. At face value it sounds pretty batshit, though given 2020/2021 I'm not really one for saying what is and isn't feasible anymore. If you think that's an impossibly high number you should look at how big the derivatives exposure across all the big banks is. That'll make you need to change your underwear.
Actutally the secret service would be involved in this as it involves indirectly counterfitting US currency.
I mean, it's kind of the conspiracy theorist's m-o to start with something assumed as correct and asking to be disproven. It's nonsense and bad faith because it's extremely difficult to prove a negative. So, I question your motive here given that most of the "due diligence" (lmao) on reddit is written one tab away from Q-anon websites - I think you're looking for a fight and evidenced by your novel length responses, you seem to get off on this.
My thinking is though, well, if GME was that low and had SO much value , why didn't anyone come over the top and buy out the whole company for pennies when they were getting hammered by short-sellers?
All of these points you're making - same day delivery for ecommerce, in-game transactions...how does GME have a role here? Why would anyone voluntarily go through a third party processor of game transactions if they don't need to? Epic literally just lost a lawsuit to Apple yesterday on this very point. You're throwing out buzzwords like "Metaverse" but the only way you can monetize the metaverse is by owning the game or the access platform or the data - does GME have any of these?
And this "same day delivery agreement with Doordash" - what moat exists there? What is GME offering that Amazon does not and why would a consumer prefer them? Their bread and butter was physical video game distribution but all gaming is shifting to digital distribution - so what's left for them to be a leader in?
They extinguished debt came from them finding a lottery ticket in irrational exuberance - I don't fault them for it. If I covered them I would be saying sell stock and continue selling stock every freaking day. Reverse split and then sell some more. Pile up cash financed by retail, become a holding co and start acquiring - become Berkshire or Triangle or National Can. Get as far away from physical retail as possible. But they haven't done any of that and don't seem like they want to. They want to plow more cash into being a tech company, and I think that when the music stops, they'll be the first to feel the pinch.
You're not wrong about me being in conspiracy theory territory or that I get some mild gratification from writing lengthy responses where I can. However, I don't agree that it's a bad faith question. I'm asking for clarification about the dynamics around market making that make the hypothesis in the first portion fall apart (i.e Are market makers even able to do something like this? What about the mechanics of the strategy itself are readily falsifiable?). My friend has basically brought the argument to "Why would anyone even want to do something stupid like this?" rather than "This is why nobody can do something like this" which strikes me as odd since normally he has no issue tearing apart the multitude of retarded ideas I share with him on a regular basis. I answer the why with simply "because they can, it might be obscenely lucrative to do so, and the US has a history of very limp-wristed punishments when it comes to the financial elites in this country." It's not exactly a doctoral thesis, but it's enough for me unless someone can show me why it's impossible.
I really wish you would stick to the Cellar Boxing topic and not get so hung up on GME specifically. On the basic level looking at the company you're absolutely right, in the depths of Covid when the stock was trading in the trash it was genuinely near-worthless. It's a colossal undertaking to take a company that's been so insanely mismanaged for years and try to turn it around. Insanely high risk given the state of the gaming industry shifting away from physical distribution and the poor brand reputation GME had developed over the years as being where you go to get "trade-in raped" for what most would consider a low reward if you could somehow return it to or slightly beyond its former glory.
The entire point of the long thesis now is that the company didn't have any of this "unseen value" until Ryan Cohen came in and started changing things. The man is a wizard when it comes to customer experience, has built out a new all-star management team, is expanding into other lines of merchandising and consumer goods, going on a hiring spree in blockchain/software development engineers to build something, acquiring massive fulfillment centers, trademarking new entities across NA and the EU, etc. The majority of people are perturbed with the short and empty management calls saying that they indicate that there is "no plan," but that's just not true. RC clearly has a plan, but he also has history of not wanting to telegraph what he's doing and instead just puts all his time into executing on it.
My past experiences span entrepreneurship (ecommerce), VC (tech and consumer), GE and buyouts (tech), and one thing that's been drilled into me the entire time has been to always focus on the team and the customers. If the team is good and the customers love the business, then barring a nuclear holocaust you can often bet that the business will do reasonably well. Quantifying exactly how well is the hard part, which is why you don't see me throwing around insane multi-million dollar price targets like the apes on reddit.
Just imagine for second that GME is a stealth startup, a publicly traded one somehow but still, look at it like a startup. They have just raised ~$2b in capital and have put together an absolute all-star team for the ecommerce world and clearly have something in the works but aren't telling anybody exactly what. They're being led by a well-renowned founder along with executives he brought from his previous success, which was one of the largest ecommerce exits ever, and a top executive from Amazon as their CEO.
Is this a team you would be comfortable betting against being able to execute? I personally would not. But I'm also a compulsive gambler who lost a mortgage down payment the last time I visited Vegas. High risk for high reward, greedy where others are fearful and fearful where others are greedy, yada yada yada. I'm not telling you to invest, because unless you like a shit load of risk and can stand the entire media complex telling you you're wrong you shouldn't. But I am a greedy fuck. And I believe in this team's ability to deliver, so I'm plowing every spare cent I have into buying as much of what I believe to be a rocket ship in disguise as I can. Guess we'll see what happens. Worst case I lose all my savings and look like an idiot to a bunch of anonymous people on the internet while I still make more than enough at my day job to fund my day-to-day. YOLO
LOL, a tech startup? More like best buy with funko pops. This is gamestop's plan
"Increasing the size of our addressable market by growing our product catalog across consumer electronics, collectibles, toys, and other categories that represent natural extensions of our business.
Expanding fulfillment operations to improve speed of delivery and service to our customers.
Building a superior customer experience, including by establishing a U.S.-based customer care operation.
Strengthening technology capabilities, including by investing in new systems, modernized e-commerce assets and an expanded, experienced talent base."
Oh my god will you please just choke on your girlfriends strap-on and disappear already?
LOL posting snippets from gamestop's filing is really triggering you huh? Like a vampire seeing light.
I don't have an issue with the filing snippets, it's the side commentary when you're such an obscenely prideful idiot who clearly understands bupkis about the topic that triggers me.
Many current incumbent tech firms in their respective spaces; basically FAANGM also contribute billions in R&D into new products. I just did a quick google and it looks like Google spent $27.5 billion on R&D last year. This is basically "corporate entrepreneurship" where they have a team of top engineers and managers working together with almost unlimited capital to push out and design new products and technologies. Yet they still frequently get beat to market by startups with $20 million in funding and 7 members on the team. Do you think a company like GME which has nothing close to startup culture stands a chance with a 2 billion dollar war chest; against not only FAANGM but also 10-30 startups working on a similar product in the same vertical?
I personally do not. However, I think it is great to hear your side of the argument. You are definitely more of an optimist than I am. However, this is not to say I do not believe that cooperative entrepreneurship is ineffective. A great example of when cooperative entrepreneurship is successful is Apple's air pods. I probably do not need to tell you about how big of a release air pods was for Apple and how big of a division it is in Apple. Respectively, it does contribute a sizable amount to the P&L.
The best-case scenario for GME in my personal opinion is they get an air pod-like equivalent of a product into the market that can net 2-10 billion every year. That being said, I think the probability is very low for something like this to happen in an established company with employees working 40-50 hour weeks and taking vacation days. Or they use that 2 billion in well-thought-out M&A and buyout a few fast-growing tech startups in their respective spaces and essentially start from scratch.
No this is not what’s happening. There are people that like the stock and then there are people that do not. GME is trading on a ev/ebitda of 223 cy22. The company would need to generate revenue growth of 80-100% to justify those multiples which means going from 5b sales to 50b+ within the next five years. If Ryan Cohen were to turn the company around, it could also take 5-10 years for him to get it right considering the limited infrastructure (all he has right now are stores and some inventory). He would need to win market share from established players like Steam and GOG, along with other stores such as the App Store, google play store, and other venues. I’m not saying it can’t happen, but what I am saying is that there are enough reasons to believe that a lot could go wrong or that the company may just do just 10b (of sales) in 2025 rather than 50b, which would bring the stock down to something like 40-80 per share (depending on margins and such) rather than 200+.
Welcome to public markets.
The cellar boxing crap doesn't make sense. The whole idea is that market makers would naked short a company to bankruptcy just so we could profit off of a 0.0001 @ 0.0003 stock because the spread is a large % of the stock price.
I'm not even going to get deep into the FTD misunderstanding and how the market maker exemption rule works, but just know that even though we can naked short before finding a locate, we're still forced to buy back after a certain number of days without getting the borrow. (And no, you can't buy a $1 put to offset a naked short share position)
The underlying assumption with cellar boxing is that a delisted stock like BLIAQ is more profitable from a market making perspective than it would be in its normal state. Although the relative spread matters, collecting 0.0002 per share on a dead company isn't very lucrative because those companies rarely trade. Volume and absolute width are really what it comes down to in the end. Less liquid names, including rarely traded OTC garbage, will have wider spreads on a % basis, but that's because there's so little flow that many MMs don't even bother competing in that space because there's no money to be made. A lot of the stocks I make markets in have wider spreads but are much less profitable to me because there's lower volume.
It also doesn't make sense for the main alleged culprits in the GME saga according to Reddit to want to get a stock delisted. Citadel & friends make a lot of money making option markets on stocks, and if a company gets delisted, that revenue stream goes away.
You want to know what kind of stock is SUPER profitable for market makers? Volatile, high volume stocks with mostly retail flow. GME currently is way more profitable for those "evil MMs" than it ever was before Jan or would be if it was delisted. Look at the spread in GME options and the share price. At ~1 million shares a day and tens of thousands of contracts, market makers make more every day on that stock than they would in a lifetime of a "cellar boxed" company.
I could actually believe that Ken Griffin actually is paying teams of shills to post on Reddit, but they would absolutely be the ones encouraging the wild conspiracies and meme stock frenzy that has been so profitable for MMs this year that it rivals the Fed's printer.
Omnis est numquam nihil quia. Harum recusandae nam libero minus. Ipsam beatae sunt quia iure. Numquam molestiae ipsum sunt.
Et labore officia exercitationem est rerum. Accusamus quisquam ut itaque est dolorem ut. Rem veritatis ad facere distinctio doloremque qui dolores magni. Voluptatibus doloremque in quis et. Hic possimus aliquam velit deleniti natus.
Blanditiis eos ut dolore voluptas fugit. Nihil atque voluptatibus quia corporis totam et. Incidunt minus et qui sapiente non nisi necessitatibus.
Quis eius corporis ratione magnam tenetur. In illum ut eum vero non. Dolorem fugit vel non est sunt et.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Amet et odio enim ut id occaecati ea. Harum nihil et assumenda ab omnis autem. Voluptate ut excepturi aliquid id. Ducimus molestiae voluptatum non et autem. Est nemo perferendis odio est culpa nihil ipsum. Cumque porro placeat architecto unde temporibus. Dolor dolor excepturi ut hic provident.