Everyone should Read up on Knight Capital Group or KCP
KCP was Citadel before Citadel was a thing
Founded in 1996, it became a leading Market Maker and its Electronic Trading group handled a fair amount of the US market by 2012.
Along the way they were fined for various violations, just like Citadel.
They are known for the Stock Market disruption in 2012 that caused them to loose over 440 million dollars.
They were also Citadel and Susquehanna before they were Cool
They literally blew up because of a Failure of their computer system (read about it ) but they were also net short at the time in 74 companies to the tune of 3.15 Billion. They ended up blowing up and eventually bought by Virtue Capital.
They also had multiple short selling violations where they never actually bought the underlying securities and had to pay fines to the tune of 12million back in 2012.
This article lays out how one small companies thought that they were being Naked shorted by KCG but couldn’t prove it because there is no accounting of the short position.
FROM THE ARTICLE
“DiIorio believed Knight accounted for its aged fails in the “sold not yet purchased” liability on its balance sheet. That’s supposed to be an inventory of stocks for use in future market making, which goes up and down as orders are filled. But DiIorio says it was a hiding place for a billowing structural liability.
And consider this: According to its own financial reports, Knight’s “sold not yet purchased” liability jumped from $385 million at the beginning of 2008 to $1.9 billion by mid-2011.
Jim Angel, the business professor, said there could be other explanations — such as Knight’s growth as a company during that period — for why the “sold not yet purchased” liability ballooned. But, he said, market makers are typically “in the moving, not storing, business, and like to keep their inventories as small as possible.”
DiIorio had no such doubts. He saw the fact that Knight was blowing a hole in its own balance sheet as undeniable evidence of the naked shorting play.”
RECAP
Ok so a company thought they were being Naked shorted….they looked at the MM balance sheet and say that their “Sold not yet Purchased” skyrocked…..
Present Day
lets look at some balance sheets!
Sold Not Yet Purchased
Ok we expect these to be increasing as there is more money in the market.
Ok Virtue learned their lesson from the KCP days, Jane Streets are increasing but not going crazy…..
HOLLY SHIT SUS AND CITADEL ARE HAVING A FIELD DAY WITH SOLD NOT YET PURCHASED.
Citadels doubled…….but SUS said hold my Beer
ok lets break them down
SUS first
Sus Sold not yet purchased end of 2020
SUS Sold Not yet purchased end of 2019
Large increase of selling options without purchasing them
Now Citadel
Sold Not yet Purchased end of 2020
Sold not yet Purchased 2019
Large increase in US government securities being sold and not paid for….I believe others have covered this. Most of the increase(over 20B) is in selling options and not purchasing them.
Oh So Naked
Between SUS and Citadel they have a combined 138 Billion Sold not yet purchased on the books as of 12/31/2020
Citadel had an increase of 125% while Sus increased 151%
DISCLAIMER- balance sheets are a snapshot in time
given that this is still a large increase, even though these line items are part of doing business as a market maker we do have evidence that points to this line item being used to hide NAKED SHORTING.
I think given this data that it is reasonable to assume they were NAKED SHORTING many stocks on January 1
as the article points out Market Makers are in the moving not storage business…..both of these companies Liabilities have BALLONED and everybody is looking the other way because they are making money……but once they music stops
EDIT#1 adding Citadels balance sheet from 2020 and 2021
Part TWo…….