Digital Brand Media and Marketing Group Inc (DBMM)

[Stock_Barber]

2. It can’t be legal to short 140% of the float!

No, it’s perfectly legal.

From Matt Levine at Bloomberg:

This does not necessarily mean a lot of people are doing evil illegal nefarious naked shorting! Really, I promise! There is no special limit on shorting at 100% of shares outstanding! Here is an explanation of how options market makers (discussed below) are allowed to short without a locate, but I want to offer an even simpler explanation. There are 100 shares. A owns 90 of them, B owns 10. A lends her 90 shares to C, who shorts them all to D. Now A owns 90 shares, B owns 10 and D owns 90—there are 100 shares outstanding, but 190 shares show up on ownership lists. (The accounts balance because C owes 90 shares to A, giving C, in a sense, negative 90 shares.) Short interest is 90 shares out of 100 outstanding. Now D lends her 90 shares to E, who shorts them all to F. Now A owns 90, B 10, D 90 and F 90, for a total of 280 shares. Short interest is 180 shares out of 100 outstanding. No problem! No big deal! You can just keep re-borrowing the shares. F can lend them to G! It’s fine.

A note: when A lends the shares to C, the technical ownership in the register will change, the register will still have only 100 shares. But C owes to A all material benefits of owning the share like dividends etc.. The only right lost is the right to vote the share, and most investors don’t do it anyways. For all terms and purposes, A still owns the share, and her broker treats her account as if she did.

If she decides to sell her shares, C is obliged to immediately return the shares.

https://www.nakedcapitalism.com/2021/02/more-on-the-gamestop-short-squeeze-gme-myths-busted.html