From: https://www.reddit.com/r/DDintoGME/comments/p2gnuz/how_to_rig_an_options_market/
Suppety sup, fellow deep value investors. This is a repost/re-edit of my last post.
Because I am a true retard and ze mathz in my last post didn’t quite add up, I took it down for further edit. It’s hard to compete with quants and supercomputers when you are but a simple retard with crayons and an abacus.
HoWeVeR, because I am only just below-average at lez languezez, there was still some still meat and potatoes in the middle of my last post that I submit to apes for more flavoring.
This is a story about Simplex Trading, Susquehanna, and how Susquehanna tried to rig the CBOE options exchange in 2019 to ‘legalize’ its reset-transaction scheme on failing to deliver short-sales.
All of this is publicly available information.
Bait on the Hook, Bite on the Line
While skimming through all y’all’s comments and DMs on my last DD there were two that caught my eye.
Why? Because just like inaccessible, sesquipedalion jargon is the sword and shield of the otherwise mediocre finance bro, inaccessible retarded vulgarity is the sword and shield of a true degenerate ape. You either get it, or you don’t. And in an echo chamber of vulgar degeneracy, the degeneracy that outsiders react to is usually what they are most uncomfortable with.
What ShOuLd I know about you using synthetic positions to mask FTDs, Simplex?!
Wut Doin… Simplex Trading LLC?
Y’all smoothbrains remember those X-17A-5 (NOT Elon’s kid lol) thingies I was talking about in my last DD? Don’t worry I won’t give you another homework assignment.
Well, I went through every X-17A-5 for the last 5 years, and I didn’t scope anything big. They run a portfolio that would make a retard proud (80-90% derivatives on both the asset and liability side), but they’re also an options Market-Maker so it isn’t as admirable as it appears. They do specify though that they use ABN Amro as their securities clearing broker (which is sus).
However, when I went through Simplex’s FINRA Brokercheck violations I found this good good.
Now as a piece of not-financial-advice to y’all, when you read a FINRA Brokercheck report for violations you can generally get a good idea of how each broker-dealer operates (read: cheats) to try to get a leg up in the market. Some will attack the National-Bid-Best-Offer (NBBO), some will effect one-sided trading (I.E market-making against customer [read: your retail] orders if it hurts their own proprietary positions), many will incorrectly mark short sales as to hide short positions, and some, like Citadel Securities, do all of these things and more. FINRA is totally fine with letting all of this go on, because 55% of their annual revenue comes from “regulatory” sources. They don’t get paid to stop any of this shit from happening. They only get paid if this shit happens in the first place.
These violations, however, are PARTICULARLY tasty. It seems like Simplex Trading has a history of missing net capital requirements as well swapping large options positions “off-floor”. Meaning outside the auction process. Meaning a back-room transfer. You couldn’t even call it a darkpool trade, because in a darkpool there is still an auction process (just not for retail).
These are the ONLY two violations Simplex has. And as a firm that is an options-MM only that also runs a stonky stonks account on the side, this looks like, smells like, and almost certainly is, a textbook naked short-selling prop-shop. Short sell shares into the market with your equity account, kick the profits over to your options MM side, set up options plays reset-transactions with another options MM to never actually be forced to “locate” the shares, and keep all of the difference between the short-selling and the options positions as phat profit. A multi-leg transaction indeed.
You wanna know why hedge funds mostly short-sell and rarely go long? Because their sole reason for existing is to accumulate capital, and the best way to do that is by destroying companies that, you know, actually create capital.
However, I was interested in learning more. So lets actually dive into this specific 6.49 rule they violated, shall we?
(Chicago-Based Options Exchange) CBOE Rule 6.49a
Rule 6.49a regards “off-floor” transfer exceptions, specifically for OPTIONS contracts. To put it simply, CBOE Rule 6.49 states the only times when it is A-okay for members to move their options positions outside of an auction process.
Up until mid-2019, Rule 6.49a gave six exemptions for where an off-floor exchange of options contracts was kosher (source listed below)
- Dissolution of a joint account in which one Trading Permit Holder (TPH) takes on the positions of the joint account
- Dissolution of a Corporation or Partnership in which nominee of said Corp. or Partnership takes on the positions
- Position transfers to a TPH’s new joint account/partnership/corporation
- Donations to a non-profit
- Transfer to a minor
- Merger or Acquisition
An IMPORTANT side-definition: A Trading Permit Holder (TPH) means someone who is registered to trade on the CBOE. A TPH has the ability to sponsor a user participant, so that even if that user isn’t a TPH themselves, they can still trade on the exchange.
On July 17, 2019, the CBOE filed a proposal to amend rule 6.49a with the Federal Registrar, seeking comments from market participants regarding implementation of four additional exemptions to the “off-floor” trading rule. These were:
- A Transfer to correct a bona fide (good faith) error in recording a transaction
- A Transfer if it is from one account to another where there is no change in ownership involved
- A Transfer if it is a consolidation of accounts where no ownership change is involved
- A Transfer through operation of law from death, bankruptcy, or otherwise. As well, there was also a rule proposal regarding “off-floor” transfers of risk-weighted assets (RWA).
NOW, according to the CBOE Membership list there are 232 users who are approved members of the CBOE exchange, either as a TPH, or sponsored member. Of these, 98 are registered as being able to market-make for options on the CBOE. Of these 98 options MMs, only TWO submitted comments to this rule change proposal. One was IMC Financial, who submitted a brief, 2 page comment to voice support SPECIFICALLY for the proposal’s RWA language.
Can you guess who the other options MM was that submitted a comment?
Susquehanna International Group.
Yup. That one. The HF and MM who owns the SECOND most put options (61,511) on GME as of 08/02. They submitted a TEN page comment on the 6.49a rule proposal.
Has the crayon started hitting your veins yet retards? Because I also just started getting a raging clue.
WUT DOIN… SUSQUEHANNA?
Before diving into Susquehanna’s comments regarding the Rule 6.49a proposal, I wanted to make SURE this wasn’t some coincidence. I dove back into Susquehanna’s FINRA report to see if they had a rule 6.49a violation history. And you fuckin bet ya they do. In fact they currently have a PENDING INVESTIGATION with FINRA for rule 6.49a violation. And if ya’ll needed any more evidence as to how FINRA really operates… this case against Susquehanna has been open for four years now.
I then checked IMC Financial’s (as they were the other broker to comment on the rule filing) Brokercheck to see if they had any rule 6.49a “off-transfer” violations. Not. One. Despite having 30 regulatory violations with FINRA including mismatching short sales, wash trades, and not ensuring 2-sided trading, they’ve never had a 6.49a violation.
I then went to Jane Street’s report as they hold the 3rd highest amount of GME (35,557) puts. They’ve never had a rule 6.49a violation. I checked Wolverine’s report – 52 total violations, 0 Rule 6.49a violations. Even fucking Citadel, despite having 58 regulatory violations with FINRA, has never had a 6.49a rule violation.
A Much Needed Respite
We’ve covered a lot of ground so far, so let’s take a quick inventory.
- Both Simplex Trading LLC and Susquehanna have a history of swapping bulk options positions “off-floor” (again: outside of an auction process) against rule CBOE 6.49a.
- These are the ONLY MMs that we know (at least from this DD) who’ve broken this rule.
- Simplex Trading LLC and Susquehanna have the two largest open put positions on GME which is a combined 142,231 puts.
- Out of 98 options MMs approved on the CBOE, ONLY 2 had something to say about the new proposed exceptions for 6.49a “off-floor” transfers of options rule. One of them was Susquehanna
It’s time to roll out again, smoothbrains. You can have your erect-nipple wet dreams on the march.
Tipping Their Hand
So what DID Susquehanna have so much to say about with this rule proposal? Well, a whole lot, and a whole lot of nothing. Which is par for the course in HiGh FiNaNcE. But no worries smoothbrains, I cut out the wheat from the chaff.
So it looks like Susquehanna had beef with this specific exception in the proposed 6.49a rule:
- A Transfer if it is from one account to another where there is no change in ownership involved Now I don’t hold any reservations when it comes to accepting the fact that I’M a huge retard, but I’m really not exactly sure how this proposal could be overly restrictive. If options Market-Makers were able to swap positions with each other outside of the auction process, that wouldn’t really be a fair market at all, now would it?
So HOW does SUSquehanna think this proposal is “overly restrictive”?
I… I…. I just… I… I… I…. like… I….. I don’t even have words for this level of idiocy, or arrogance, or greed, or all these combined.
Susquehanna.. I know you have shills and interns scouring these forums, so this question is for you – How many BILLIONS OF DOLLARS have you made profiting off of Naked Short Selling and then using options plays to avoid FTD close-out obligations
Because did you really try to get an exception to this rule for not wanting to pay A. $40,000. DOLLAR. FUCKING. FINE?
Yes, my sweet summer retards, because THAT is exactly how much FINRA fines MMs for rule 6.49a “off-floor” transfer of options violations. And when the CBOE proposed this rule amendment two years ago, Susquehanna, rather than operating business as usual and paying the pittance $40k fine that FINRA would possibly dish out 5 years after the fact, saw an opportunity to try to make their scam ‘legal’ in that proposed 6.49a exception.
Fortunately, there is SOME iota of integrity left in this disgusting fucking world, and the CBOE told Susquehanna to fuck right off without accepting any of their suggestions on this rule proposal. I really feel bad for the poor fucking retards at the CBOE who had to actually read through that 10 page piece of odorous filth without wanting to slam their head through their desk and lose all faith in humanity.
So Jeff Yass, you crusty old greedy boomer. You World’s-Voted “Old Man Most Likely to Hang Around A School Playground”
How does being able to swap options positions with another MM “off-floor” help YOU mitigate risk? And what EXACTLY do you fucking mean by the phrase “separate … MM accounts” that are “closely risk managed together”?
Bringing the Noobs in this LFG Raid Party up to Speed
Most of you OGs and retards who’ve been hodling GME for long term have some idea WHY we’re looking at put options, and options in general, with respect to hiding Short-Sale Fail-to-Delivers, but for the newer apes and smoothbrains here – let’s dive in. The Sauce is straight from the source itself… the SEC
Now… when a broker-dealer or market maker sells a stock like GME short, they are “required” to locate a share. Per SEC REG SHO, there is a window of time they are allowed to ‘locate’ the stock before they are FORCED to “close-out” or “buy-back” said stock back
However, in the case of illiquid stocks (hmmm… sound familiar), or stocks that are hard-to-borrow (hmmmm), a market maker or trader who is trying to AVOID a forced buy-in (HMMMM) can enter into a specific trade – called a ‘reset transaction’
This is also called a synthetic position, just like the Simplex shill asked me.
There are two kinds of options plays a MM can employ in a reset transaction to AVOID closing out fail-to-deliver shares
As u/IPromisedNoPosts stated in my briefly-alive, last post. These married-puts or buy-writes are then paired in a multi-step/multi-leg transaction called a ‘reversal’
So how are these types of transactions set up by market-makers?
Did you catch it? If not I’ll restate it.
“Buy-write transactions may be (but not always) prearranged trades between market-makers.”
This also applies to married-puts too.
THIS is why (w/ 99.99 repeating % certainty) Simplex shills messaged me, your resident retard, about synthetic positions to mask FTDs
THIS is why (w/ 99.99 repeating % certainty) the SEC litigated ABN Amro and Simplex regarding Simplex failing to disclose their trading strategy including multiple leg trades on the Complex Order Auction (COA) market.
THIS is why (w/ 99.99 repeating % certainty) both Simplex Trading and Susquehanna have rule 6.49a trading violations for swapping large options positions outside of the auction process.
THIS is why (w/ 99.99 repeating % certainty) Susquehanna said the rule proposal was “OvErLy ReStRiCtIvE” and asked for exceptions to options swapping off auction for Separate Market-Makers with “closely managed together risk”
If it’s a pre-arranged swap… it can’t really go through an auction process, now can it? And if the swap of options and shares is a set up between two market makers in a pre-arranged trade, the risk involved with the trade would be “ClOsElY mAnAgEd ToGeThEr”, wouldn’t it? And as a reset-transaction is a multi-leg trade involving naked short-selling a stock, a pre-arranged swap of options and shares between two options MMs, and then a subsequent reversal trade, why would Simplex tell ABN Amro (their Sponsored User and stonks prime broker ONLY) about their trading strategy?
Ces’t en retard, retards. A Final Few Words
To the OGs: the dreamers and believers. To the memers. To the grinders and diamond handers. To those who’ve risked EVERYTHING for the chance at a better life and the opportunity, AND RESPONSIBILITY, to build a better future.
power to the players
To Jeff Yass and Simplex Trading. To Kenny Griffen and the human toe-thumb Stevie Cohen. To all the hedge funds and banks who’ve lied and cheated and rigged the rules and stolen the world’s wealth, and ruined billions of people’s lives in the process, just to play a GAME.
times almost up