Our markets are much more resilient by design compared to US - Thoughts

[kj_oregon]

Unless you've been living under a rock, you're probably aware of GME and how Melvin Capital got short-squeezed out of their positions. More details on the pinned post by mod :

https://www.reddit.com/r/IndiaInvestments/comments/l6w68q

I am now appreciating how well designed our markets are. We are following some of the best design practices from long time :

SLB :
Stocks lending and borrowing is the only way you can borrow stocks for short time. This is highly regulated and the only viable usage of this is for arbitration by certain mutual funds/individuals. No one can think of using SLB to short the markets !

Circuits / Different Tiers:
Whenever SEBI / Exchanges becomes aware of stock manipulation , they will change the stock category or worst case bring the stock to T2T mode where you need to have shares to sell the stock ( no intraday trading allowed ) . We even have lower circuit limits like 5% for certain category. Massive Surveillance is also done for these manipulated stocks and SEBI/Exchanges will try there level best to bring into justice folks behind the manipulation. ( Not so easy task as many would use stolen or forged demat/trading accounts ). To go to say 2000%+ which GME is easily breaching , one needs to wait for months and by that time SEBI will swing into action

Strict F&O limits:
We have strict limits when it comes to Open Interest of derivates. One cannot have OI more than the free floating capital. Not just that there are individual member limit, max trading member limit( you cannot buy/sell certain call option strike price in zerodha because of this ) , Increased VAR+EL margins for risky stocks etc., + we have F&O only for major stocks which is tough to manipulate. Stock options are settled during expiry and cannot be exercised at will like US.

I am not saying there are no manipulation of stock price in India - We get those nasty SMS of penny stocks often but what I am saying is Indian stock exchange follows the best designs and practices so that there are no systematic abuse / failures.

Only concern :
We recently introduced physical settlement of stock options. I firmly believe we should have retained our old way of cash settlement. Physical delivery will case impact in stock price as suddenly huge quantity of stock needs to be brought/sold in open market

Please note : Kindly do not try to pump money into GME/Discuss how to buy GME etc., here - Else this thread will be removed by mod. SEC is on it and will probably halt the trading or introduce some new law to prevent this abuse. One cannot openly abuse/manipulate the prices . So warning to those who are planning to ride this wave - you will be crushed sooner or later.

Update : Zerodha has come up with an excellent article for the points mentioned above - A must read :
https://zerodha.com/z-connect/trending/shorting-and-indian-capital-markets

 

[jenib]

@kj_oregon Just to be clear: The so called 'gamma' short squeeze hasn't happened yet. Open interest in short positions are still above 135%.

 

[darlingdar]

@jenib How did you check that?

 

[kittyc]

@kj_oregon Are you suggesting that it’s a good idea that the hedge fund companies have the final say on what goes? Because that’s how it has been going on in the US up until now. But now, the financial french revolution has begun there.

It’s only sad that the big bulls in India have their hands so deep inside SEBI and overall market’s pockets, that such a thing will never happen here, and we’ll always be below them.

 

[heliumskylark]

@kittyc It's amazing how short sighted some people are. There are celebrating the fact that little guys have no say or control over the market in India. The fact that retail traders could do something like this in the US is a massive victory for the common man if you ask me. It shows that they still have a somewhat free market and SEC has not been completely bought by the large hedge funds yet.

 

[kittyc]

@heliumskylark Don’t mistake r/indiainvestments for wsb. Here most people themselves have their heads dug inside the asses of IB/hedge fund companies. They don’t want the change that’s happening in the US.

Us Indians have always run towards stability in life, and that is the very weakness of us that big players have been capitalizing out of. Our servant mentality will take all of us down.

 

[path89]

@heliumskylark

There are celebrating the fact that little guys have no say or control over the market in India.

Not really, I'm ok that we can't short something over 100% of the float. We can actually go ahead and buy whatever we want. I'm not sure how the little guys have less control. WSB was only able to do it because of their size, retail investors in India are very few.

 

[lovebunny]

@kj_oregon The circuits are a no brainer. If I want to dump a stock like yesbank and its in lower circuit means I have no way of dumping it unless I am one of the big guys.

This not a principle of free market.

 

[earthmover]

@lovebunny Even if you're a big guy there's no way to dump a stock on a lower circuit. Circuit doesn't halts trading. It just ensures the level aren't breached for the stocks that are not in FnOs. You can buy at a lower circuit and sell on a higher circuit.

 

[kj_oregon]

Update : Zerodha has come up with an excellent article for the points mentioned above - A must read :
https://zerodha.com/z-connect/trending/shorting-and-indian-capital-markets

 

[cookie34ss6]

@kj_oregon I am finding the FOMO and resilient design discussion quite hilarious. It is as if the amount of complaining about the margin change done under the explanation of "resilient and robust markets" never happened.

At any other point in time, people would praise the maturity of US markets which allows the market participant to hammer stocks of "obviously" flawed business model in today's digital downloads world.

One thing people should take away from this is that rules or markets are not inherently good or bad. Things develop based on demand from participants. We are not resilient because of our rules, we are resilient because there is not much demand for the stock lending platform. We don't have the culture of people doggedly pursuing a business with obvious flaws or scam. We rather have a culture of suing for reputation damage if and when someone does point out the flaws. Just look at the Veritas vs IndiaBulls. At any given point it wouldn't matter if IndiaBulls was a scam or not but then why let someone "discredit" you.

 

[momof2labs]

@kj_oregon Is there any video or site that can explain in detail what you can & cannot do in Indian markets vs US markets?

Also does anyone how to find out if people responsible for buying and holding are retail investors or big players? Reddit wants us to believe it is retail investors who are responsible for this but I like to believe otherwise.

Also brokerages not allowing buying of some stocks is unprecedented move. I think SEBI can easily do the same if they want to and infact many shares are not intraday tradable on day to day basis here also. I would assume this is based on strict rules and regulations.

Lot of people from other parts of the world are trying to help in this regard by trying to buy whatever they can of gamestop shares.

 

[resjudicata]

@kj_oregon If you think as an US/ WSB Investor, this is a big chance to cash in the profits. Also, will this be a short lived bubble? Can anyone answer this?

 

[courtneye92]

@resjudicata

will this be a short lived bubble? Can anyone answer this?

Your guess is as good as mine. The bubble will live on as long as noobs keep buying the stock.

 

[chianna]

@resjudicata There will definitely be many bag holders. Most people in WSB don't have an exit strategy.

 

[denisovic]

@chianna Short interest is over 130%

They'll be fine unless they hold for days after the squeeze

 

[earthmover]

@kj_oregon Credit where it is due. I think over the years Sebi has done a fantastic job. I agree there's still tons more it can do but overall we have a pretty good equity system and exchanges.

 

[obarion]

@kj_oregon

I am now appreciating how well designed our markets are.

Amen!

It's quite ironic that people tout the US stock market as 'more mature' and claim that the Indian stock market is 'not yet developed'. Yet, such shenanigans happen in the US market.

 

[timsim373]

@obarion

people tout the US stock market as 'more mature'

They mean the companies that constitute the market are mature, not the market regulator.

 

[nartynart]

@obarion There are the epitome of greed !
They shorted a company at 140 percentage of its stock for one and few others at 80 percentage.

Now people became aware of it and brought it to drove the price up. Now they are restricting trading on those stocks and it doesn't look good when it comes to perception. It looks like they're saving the big boys at the expense of the little ones.
No way it ends well for the whole US stock exchange, confidence and trust in them will be taking a huge plummet in a few more days