Bernardo Osorno Comment On Regulatory Notice 21-19
Bernardo Osorno
N/A
What the world saw in the final week of January 2021 was the cartelization of speculators who specialize in selling short stocks and options in the American capital markets. Whether or not this association's formation was premeditated or ad hoc is irrelevant to the events that unfolded and are continuing to unfold in relation to the impending implosion, real or perceived, of the system that allowed this group to operate. This association exploited—and may continue to exploit—oversight gaps, opacity, and legal and extralegal technocratic means to lucratively short assets in lit and dark exchanges. Whether or not they knew they had formed a group of this kind, during this week they used regular-way communications to seek out recourse among one another, establishing an interconnected web of pre-existing relationships that shared the same interests across partnerships and institutions. During this week, this association used option contracts to their advantage in conjunction with shutting out the retail community. The modern option contract is a new asset class in America, with less than five decades of trading history. In contrast, gold predates America itself, and has been speculated upon since at least the 1500s. The option contract asset class calls for (yes, pun intended) newfound scrutiny from all angles, and in particular in relation to short sale activity and opposite bet-induced squeezes. The call contract in particular has built in it an exponential amount of potential energy as a temporary store of value. Its limited life span may even add more gasoline into the mix. Its representation of control over 100 shares of an underlying stock makes many drool over it. In the context of a short squeeze, as the strike is inversely correlated with skyrocketing price action, many begin acting on their drooling and will pay quite the premium just to get their grubby hands on one. That is exactly what happened during this week. The short squeeze, a perfectly legitimate phenomenon in a free market vacuum, allows for derivatives to act as a tool of value creation for some privy traders. For others, these contracts serve as a valuable tool with a special utility built in to them. Enhance the transparency and accessibility to data surrounding the power built in to these contracts. It is a smart move by FINRA to crowdsource these ideas for free. Enhancing the ledgers that compile and record these contracts will only be a good thing. Blockchain technology is one solution that can be used in the implementation of enhancements and can help to close many gaps that a certain securities baron in particular exploited during this week. Blockchain ledgers also afford an element of anonymity, a plus for certain actors. But most importantly, in relation to derivatives, blockchain ledgers can permanently store data on positionality, shorts, longs, buyers, sellers, holders, openers and closers, and most importantly, certain actions built in to these contracts. Speaking of a certain baron, go ahead and take a second look at him. At his cash cow. His algorithms. At his role as lit market maker, hedge fund extraordinaire, angel investor and venture capitalist, order flow whiz and off-exchange, alternative trading venue administrator.
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Bernardo Osorno Comment On Regulatory Notice 21-19
What the world saw in the final week of January 2021 was the cartelization of speculators who specialize in selling short stocks and options in the American capital markets. Whether or not this association's formation was premeditated or ad hoc is irrelevant to the events that unfolded and are continuing to unfold in relation to the impending implosion, real or perceived, of the system that allowed this group to operate. This association exploited—and may continue to exploit—oversight gaps, opacity, and legal and extralegal technocratic means to lucratively short assets in lit and dark exchanges. Whether or not they knew they had formed a group of this kind, during this week they used regular-way communications to seek out recourse among one another, establishing an interconnected web of pre-existing relationships that shared the same interests across partnerships and institutions. During this week, this association used option contracts to their advantage in conjunction with shutting out the retail community. The modern option contract is a new asset class in America, with less than five decades of trading history. In contrast, gold predates America itself, and has been speculated upon since at least the 1500s. The option contract asset class calls for (yes, pun intended) newfound scrutiny from all angles, and in particular in relation to short sale activity and opposite bet-induced squeezes. The call contract in particular has built in it an exponential amount of potential energy as a temporary store of value. Its limited life span may even add more gasoline into the mix. Its representation of control over 100 shares of an underlying stock makes many drool over it. In the context of a short squeeze, as the strike is inversely correlated with skyrocketing price action, many begin acting on their drooling and will pay quite the premium just to get their grubby hands on one. That is exactly what happened during this week. The short squeeze, a perfectly legitimate phenomenon in a free market vacuum, allows for derivatives to act as a tool of value creation for some privy traders. For others, these contracts serve as a valuable tool with a special utility built in to them. Enhance the transparency and accessibility to data surrounding the power built in to these contracts. It is a smart move by FINRA to crowdsource these ideas for free. Enhancing the ledgers that compile and record these contracts will only be a good thing. Blockchain technology is one solution that can be used in the implementation of enhancements and can help to close many gaps that a certain securities baron in particular exploited during this week. Blockchain ledgers also afford an element of anonymity, a plus for certain actors. But most importantly, in relation to derivatives, blockchain ledgers can permanently store data on positionality, shorts, longs, buyers, sellers, holders, openers and closers, and most importantly, certain actions built in to these contracts. Speaking of a certain baron, go ahead and take a second look at him. At his cash cow. His algorithms. At his role as lit market maker, hedge fund extraordinaire, angel investor and venture capitalist, order flow whiz and off-exchange, alternative trading venue administrator.