1/10 Thank you @denniskneale for your timely article backed by the March 2025 research working paper "Reg SHO at Twenty". I read the 81-page paper by John W. Welborn, PhD in Economics, who works at Dartmouth University. He is a well-published academic with a proven track record in financial markets research, particularly on short selling and Regulation SHO (Welborn's other research is available here: faculty-directory.dartmouth.edu/john-w-welborn) . There is a two-decade failure to enforce fair market rules, failures that mirror and explain the unresolved issues behind a number of stocks, including $TSLA $DJT $MMAT $MMTLP and many, many more. Here is my take and opinion...
2/10 The Never-Ending (Naked) Short - How Reg SHO’s Farce Fuels Trainwrecks [opinion]:
ETFs like $XRT saw FTDs peak at $418M and short interest as high as 699% of float, yet the SEC seems to have taken no action for years (Welborn, 2025, p. 27)...
If British bureaucracy is a masterclass in delayed gratification, America’s Regulation SHO is a Kafkaesque circus where the clowns run the show.🤡
Welborn’s damning paper, exposes two decades of regulatory theater...a saga of loopholes wider than the Atlantic, “reforms” that reformed nothing, and settlement failures so brazen they’d make a loan shark blush.
ETFs like $XRT saw FTDs peak at $418M and short interest as high as 699% of float, yet the SEC seems to have taken no action for years (Welborn, 2025, p. 27)...
If British bureaucracy is a masterclass in delayed gratification, America’s Regulation SHO is a Kafkaesque circus where the clowns run the show.🤡
Welborn’s damning paper, exposes two decades of regulatory theater...a saga of loopholes wider than the Atlantic, “reforms” that reformed nothing, and settlement failures so brazen they’d make a loan shark blush.
3/10 Regulatory Farce: A Masterclass in Ineptitude
Reg SHO was sold as the sheriff to tame Wall Street’s naked shorting outlaws. Instead, it looks like it has become their enabler.
Welborn’s data reveals a $3 BILLION daily FTD habit...UNCHANGED since 2005 (Welborn, 2025, p. 3)... proving regulators might as well have handed market makers such as @Citadel, @VirtuFinancial, and the like... a “Get Out of Jail Free” card.
ETFs like $XRT, aren’t anomalies; they’re the system working as designed!
The SEC’s response? A shrug and a mumbled “we’ll fix it next time.” 🤣
Spoiler alert🚨: There is no next time.
Lets look at some examples and.. crank up the volume so we can call this what it is: a regulatory pantomime where every ticker gets to play the fool.
Reg SHO was sold as the sheriff to tame Wall Street’s naked shorting outlaws. Instead, it looks like it has become their enabler.
Welborn’s data reveals a $3 BILLION daily FTD habit...UNCHANGED since 2005 (Welborn, 2025, p. 3)... proving regulators might as well have handed market makers such as @Citadel, @VirtuFinancial, and the like... a “Get Out of Jail Free” card.
ETFs like $XRT, aren’t anomalies; they’re the system working as designed!
The SEC’s response? A shrug and a mumbled “we’ll fix it next time.” 🤣
Spoiler alert🚨: There is no next time.
Lets look at some examples and.. crank up the volume so we can call this what it is: a regulatory pantomime where every ticker gets to play the fool.
4/10 $XRT: The ETF That Broke Reality
XRT isn’t just the king of the Threshold List, it’s the sovereign of financial absurdity (Or as we say back in the UK... the dog's bollocks)
Imagine shorting a stock until you owe more than exists, and then shorting it again for good measure.
That’s XRT: 1,691 DAYS ON THE LIST!!!, short interest at 699%, and fails-to-deliver stacking up like empty pint glasses after last call.
There is no official, globally recognized record-keeping body for "most consecutive days on the Regulation SHO threshold list." and so...1,691 days... has anyone called the Guiness World Records Ltd yet?
The SEC’s reaction? “Splendid, carry on!” If XRT were a 🇬🇧pub, it’d be serving pints it never had, and nobody would mind so long as the till kept ringing...
XRT isn’t just the king of the Threshold List, it’s the sovereign of financial absurdity (Or as we say back in the UK... the dog's bollocks)
Imagine shorting a stock until you owe more than exists, and then shorting it again for good measure.
That’s XRT: 1,691 DAYS ON THE LIST!!!, short interest at 699%, and fails-to-deliver stacking up like empty pint glasses after last call.
There is no official, globally recognized record-keeping body for "most consecutive days on the Regulation SHO threshold list." and so...1,691 days... has anyone called the Guiness World Records Ltd yet?
The SEC’s reaction? “Splendid, carry on!” If XRT were a 🇬🇧pub, it’d be serving pints it never had, and nobody would mind so long as the till kept ringing...
5/10 $GME: The Meme Stock That Refused to Die Quietly
GameStop is the unruly guest who, after being asked to leave, climbs back in through the window.
FTDs? Through the roof. Short interest? Off the charts. Short interest in GameStop famously reached over 100% of the float in January 2021...
Market makers, armed with Reg SHO’s “guidelines,” orchestrated a short squeeze for the ages, while the SEC played the world’s smallest violin.
Conflict of Interest: MMs profit from both sides, collecting premiums on options while influencing stock liquidity to trigger squeezes...
If this is market integrity, then I’m the King of England #KingJames
GameStop is the unruly guest who, after being asked to leave, climbs back in through the window.
FTDs? Through the roof. Short interest? Off the charts. Short interest in GameStop famously reached over 100% of the float in January 2021...
Market makers, armed with Reg SHO’s “guidelines,” orchestrated a short squeeze for the ages, while the SEC played the world’s smallest violin.
Conflict of Interest: MMs profit from both sides, collecting premiums on options while influencing stock liquidity to trigger squeezes...
If this is market integrity, then I’m the King of England #KingJames
6/10 $TSLA: The Tech Darling Perpetually Under Siege
Tesla: loved by retail, loathed by shorts, and stalked by FTDs like a persistent ex. Every time @elonmusk tweets, the shorts pile in, and the fails to deliver pile up...
$TSLA was, until recently, the most shorted stock in the United States, with billions of dollars bet against it by short sellers...
Settlement? Optional. Reality? Flexible. In Welborn’s world, even the mighty TSLA is just another pawn in the game of “Let’s pretend we have the shares.”
There is a historical pattern of increased short interest or trading activity following high-profile tweets or announcements from Elon.
The only thing more relentless than TSLA’s FTDs is Elon Musk’s drive. One of them disrupts markets. The other disruts industries...
Tesla: loved by retail, loathed by shorts, and stalked by FTDs like a persistent ex. Every time @elonmusk tweets, the shorts pile in, and the fails to deliver pile up...
$TSLA was, until recently, the most shorted stock in the United States, with billions of dollars bet against it by short sellers...
Settlement? Optional. Reality? Flexible. In Welborn’s world, even the mighty TSLA is just another pawn in the game of “Let’s pretend we have the shares.”
There is a historical pattern of increased short interest or trading activity following high-profile tweets or announcements from Elon.
The only thing more relentless than TSLA’s FTDs is Elon Musk’s drive. One of them disrupts markets. The other disruts industries...
7/10 $DJT: The Latest Headliner in Wall Street’s Regulatory Circus
Trump Media (@realDonaldTrump) didn’t just debut, it crash-landed in the markets like a marching band in a minefield. Volatility? Off the charts. FTDs? Piling up. Naked short whispers? Louder by the hour.
Since Inauguration Day, the stock has tumbled approximately 44.9%...DJT has appeared on Nasdaq’s Regulation SHO list, which tracks stocks with persistent settlement failures.
It’s as if Wall Street looked at $MMTLP and said, “Watch this.”
Reg SHO loopholes? Still wide open. Enforcement? Still out to lunch. $DJT is just the latest proof that if you leave the door unlocked, someone will barrel through it in a stretch limo and regulators blinking in disbelief.
Trump Media (@realDonaldTrump) didn’t just debut, it crash-landed in the markets like a marching band in a minefield. Volatility? Off the charts. FTDs? Piling up. Naked short whispers? Louder by the hour.
Since Inauguration Day, the stock has tumbled approximately 44.9%...DJT has appeared on Nasdaq’s Regulation SHO list, which tracks stocks with persistent settlement failures.
It’s as if Wall Street looked at $MMTLP and said, “Watch this.”
Reg SHO loopholes? Still wide open. Enforcement? Still out to lunch. $DJT is just the latest proof that if you leave the door unlocked, someone will barrel through it in a stretch limo and regulators blinking in disbelief.
8/10 $MMAT and $MMTLP: Lambs to the Slaughter? Not Anymore...
The U3 halt wasn’t a glitch. It was structured negligence in my humble opinion.
Retail watched as phantom shares flooded the system, FTDs and short interest outpaced the laws of physics.
Dartmouth’s Reg SHO at Twenty confirms in p. 29:
"The highest FTD level was $20.3 billion on 23 September 2008. Notably, the second highest FTD level was $19.8 billion on 23 September 2024. Median FTDs were $2.26 billion for this period."
Loopholes designed, not accidental...
(Source: papers.ssrn.com/sol3/papers.cf…)
🧾 And the FOIA docs?
They expose coordination between FINRA, OTC, DTCC & SEC, timelines, names, silence.
No one blinked when $MMTLP got halted.
They knew. They went silent for months until they could put together a story which was revised at least once almost a year after the halt: finra.org/investors/insi…)
But here’s what they didn’t plan for:
✅ 65,000 relentless/retail shareholders.
✅ A court-appointed Trustee following the paper trail.
✅ Two management teams flagging misconduct, and legal and financial teams, collecting all available trading data to understand the size of the problem.
✅ And a small group of quiet allies in Congress—watching, building the record, preparing the next move.
They thought we’d fold.
They miscalculated.
Welborn’s paper confirms what we all have come to know: Market makers exploited Reg SHO’s “bona fide” exceptions to naked short with impunity.
MMTLP’s over a month on the Threshold List wasn’t a glitch, it was a feature. The SEC’s inaction? A neon sign reading “Come manipulate here!”
The U3 halt wasn’t a glitch. It was structured negligence in my humble opinion.
Retail watched as phantom shares flooded the system, FTDs and short interest outpaced the laws of physics.
Dartmouth’s Reg SHO at Twenty confirms in p. 29:
"The highest FTD level was $20.3 billion on 23 September 2008. Notably, the second highest FTD level was $19.8 billion on 23 September 2024. Median FTDs were $2.26 billion for this period."
Loopholes designed, not accidental...
(Source: papers.ssrn.com/sol3/papers.cf…)
🧾 And the FOIA docs?
They expose coordination between FINRA, OTC, DTCC & SEC, timelines, names, silence.
No one blinked when $MMTLP got halted.
They knew. They went silent for months until they could put together a story which was revised at least once almost a year after the halt: finra.org/investors/insi…)
But here’s what they didn’t plan for:
✅ 65,000 relentless/retail shareholders.
✅ A court-appointed Trustee following the paper trail.
✅ Two management teams flagging misconduct, and legal and financial teams, collecting all available trading data to understand the size of the problem.
✅ And a small group of quiet allies in Congress—watching, building the record, preparing the next move.
They thought we’d fold.
They miscalculated.
Welborn’s paper confirms what we all have come to know: Market makers exploited Reg SHO’s “bona fide” exceptions to naked short with impunity.
MMTLP’s over a month on the Threshold List wasn’t a glitch, it was a feature. The SEC’s inaction? A neon sign reading “Come manipulate here!”
9/10 Loopholes (aka Black Holes): Wall Street’s Favorite Parlor Trick
The OMM exception isn't just a loophole, it is a black hole! Firms like Citadel and Virtu turn “market making” into a shell game, resetting FTDs via options shenanigans while regulators nap...
$XRT's 1,691 Threshold days (as of 2023 SEC data)? A badge of honor (anyone, is that a current Guinness world record?) in a system that rewards financial arson. It demonstrates SYSTEMIC settlement failures. Threshold securities require special monitoring under Regulation SHO, but we haven't seen any meaningful enforcement to date.
Did you know⁉️ Regulation SHO's "Bona Fide Market Making" exception does allow market makers to short without pre-borrowing shares. Critics argue this creates a loophole for perpetual failure-to-deliver (FTD) cycles via options strategies like "deep in-the-money" puts...
While Citadel and Virtu haven't been formally charged with this specific abuse, academic studies like Welborn's confirm options markets can mask FTDs.
Chained Lending & Synthetic Shares?
Rehypothecation chains (reusing collateral across multiple transactions) can theoretically create infinite synthetic positions. The $MMAT and $MMTLP stock situations highlighted this risk... these “synthetic shares” weren’t a bug; they were the system’s pièce de résistance.
Regulatory Reforms?
Can the new administration and @DOGE make a difference?
Did you know⁉️ The SEC's 2023 proposed Regulation SHO amendments would require pre-borrows for certain positions, but implementation remains pending. WHY???
Did you know⁉️ After the SEC eliminated the OMM exception in 2008:
- Overall FTDs fell 37.6%
- Threshold stock FTDs dropped 52.8%
- Persistent FTDs (aged 17+ days) in optionable stocks declined 62.9% vs. 41.4% for non-optionable stocks
- The 2008 emergency order temporarily reduced FTDs in financial stocks by 90% through pre-borrow mandates, but wasn't made permanent. WHY???
- The 2008 emergency order set a precedent... it demonstrated the exception's role in enabling fails rather than legitimate hedging!
(SEC's own source: sec.gov/files/s73008-3…)
This disproportional impact on option-linked securities suggests the exception enabled cyclical FTD resets through options strategies.
Documented Abuse Mechanisms
The exception allowed OMMs to:
- Execute reverse conversions (simultaneous put sales and short positions) without pre-borrowing
- Create synthetic share inventory for prime brokers through unreported fails
- Avoid stock loan costs indefinitely by rolling options positions (Source - We the Investors SEC petition: sec.gov/files/rules/pe…)
Enforcement Patterns
Multiple SEC/FINRA cases revealed OMMs:
- Used the exception for speculative shorting rather than bona fide market making
- Created "stock loan arbitrage" schemes benefiting prime brokers
- Maintained perpetual fails through options expiration cycling
The OMM exception isn't just a loophole, it is a black hole! Firms like Citadel and Virtu turn “market making” into a shell game, resetting FTDs via options shenanigans while regulators nap...
$XRT's 1,691 Threshold days (as of 2023 SEC data)? A badge of honor (anyone, is that a current Guinness world record?) in a system that rewards financial arson. It demonstrates SYSTEMIC settlement failures. Threshold securities require special monitoring under Regulation SHO, but we haven't seen any meaningful enforcement to date.
Did you know⁉️ Regulation SHO's "Bona Fide Market Making" exception does allow market makers to short without pre-borrowing shares. Critics argue this creates a loophole for perpetual failure-to-deliver (FTD) cycles via options strategies like "deep in-the-money" puts...
While Citadel and Virtu haven't been formally charged with this specific abuse, academic studies like Welborn's confirm options markets can mask FTDs.
Chained Lending & Synthetic Shares?
Rehypothecation chains (reusing collateral across multiple transactions) can theoretically create infinite synthetic positions. The $MMAT and $MMTLP stock situations highlighted this risk... these “synthetic shares” weren’t a bug; they were the system’s pièce de résistance.
Regulatory Reforms?
Can the new administration and @DOGE make a difference?
Did you know⁉️ The SEC's 2023 proposed Regulation SHO amendments would require pre-borrows for certain positions, but implementation remains pending. WHY???
Did you know⁉️ After the SEC eliminated the OMM exception in 2008:
- Overall FTDs fell 37.6%
- Threshold stock FTDs dropped 52.8%
- Persistent FTDs (aged 17+ days) in optionable stocks declined 62.9% vs. 41.4% for non-optionable stocks
- The 2008 emergency order temporarily reduced FTDs in financial stocks by 90% through pre-borrow mandates, but wasn't made permanent. WHY???
- The 2008 emergency order set a precedent... it demonstrated the exception's role in enabling fails rather than legitimate hedging!
(SEC's own source: sec.gov/files/s73008-3…)
This disproportional impact on option-linked securities suggests the exception enabled cyclical FTD resets through options strategies.
Documented Abuse Mechanisms
The exception allowed OMMs to:
- Execute reverse conversions (simultaneous put sales and short positions) without pre-borrowing
- Create synthetic share inventory for prime brokers through unreported fails
- Avoid stock loan costs indefinitely by rolling options positions (Source - We the Investors SEC petition: sec.gov/files/rules/pe…)
Enforcement Patterns
Multiple SEC/FINRA cases revealed OMMs:
- Used the exception for speculative shorting rather than bona fide market making
- Created "stock loan arbitrage" schemes benefiting prime brokers
- Maintained perpetual fails through options expiration cycling
10/10 Takeaway: A Rigged Game?
All the above reinforces my opinion that there is currently a BLACK HOLE in the markets, a systemic vulnerability... it is NOT another benign loophole... The brain hurts anyone reading up on all the available information, policies and cases.
Welborn’s fixes, pre-borrow mandates, fines, closing loopholes (black holes), are logical. I am afraid, that’s why they’ll never happen...
The SEC had 20 years to act but penalties would hurt Wall Street’s feelings, and their profit margins...
The 2008 emergency order proved pre-borrows work! The SEC’s response? “Let’s never speak of this again.”
$DJT, $TSLA, $GME, $XRT, $MMAT and $MMTLP aren’t outliers, they’re case studies in regulatory capture.
Retail investors and issuers/management are the marks in a Ponzi scheme sanctioned by FINRA and the SEC. Reg SHO’s legacy? A market where “settlement” is a punchline, and the house always wins.
So when the next issuer/stock explodes, remember: The regulators aren’t asleep. They’re complicit. “Nothing to see here!”...said someone at FINRA, probably.
Final thought:
Here is an idea, dear FINRA and dear SEC: At this point, you may as well declare a National Naked Shorting Day. How about December 9th?
All the above reinforces my opinion that there is currently a BLACK HOLE in the markets, a systemic vulnerability... it is NOT another benign loophole... The brain hurts anyone reading up on all the available information, policies and cases.
Welborn’s fixes, pre-borrow mandates, fines, closing loopholes (black holes), are logical. I am afraid, that’s why they’ll never happen...
The SEC had 20 years to act but penalties would hurt Wall Street’s feelings, and their profit margins...
The 2008 emergency order proved pre-borrows work! The SEC’s response? “Let’s never speak of this again.”
$DJT, $TSLA, $GME, $XRT, $MMAT and $MMTLP aren’t outliers, they’re case studies in regulatory capture.
Retail investors and issuers/management are the marks in a Ponzi scheme sanctioned by FINRA and the SEC. Reg SHO’s legacy? A market where “settlement” is a punchline, and the house always wins.
So when the next issuer/stock explodes, remember: The regulators aren’t asleep. They’re complicit. “Nothing to see here!”...said someone at FINRA, probably.
Final thought:
Here is an idea, dear FINRA and dear SEC: At this point, you may as well declare a National Naked Shorting Day. How about December 9th?
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