When you look into how "Short Selling" actually works, and the laws and selective enforcement around them, you understand that the entire market is completely rigged by design.
However, the most important point is that the "rigging" isn't random.
If you understand how this works, you exploit it, and if you don't understand how it works, you get wrecked. Just ask the Bitcoin miners MARA and Cleanspark (more context below).
How price is suppressed in practice (legal/grey mechanics):
- Locate, not pre-borrow: Broker attests shares are "available"; in practice, this allows aggressive entry before borrow is secured.
* A "locate" is just your broker saying shares should be borrowable, so you can place the short immediately - even though the borrow isnβt locked - which speeds entry but may risk a forced buy-in if the shares canβt be secured later (depending on who you are).
- Market-maker exemptions: Hedging and "bona fide" market-making carve-outs tolerate temporary FTDs (Failure to Deliver); penalties are modest vs. profits.
* Failure to deliver (FTD) refers to a situation where one party in a trading contract doesn't deliver on their obligation.
* E.g. the seller (the party with a short position) does not own all or any of the underlying assets required at settlement, and so cannot make the delivery.
- Rehypothecation & reuse: The same share supports multiple economic shorts through chains of lending; beneficial owners are paid, but float is effectively multiplied.
- Derivatives "synthetics": Puts + short calls (reverse conversions), total-return swaps, and forwards create short exposure without printed short interest; can also manage FTD optics.
* You can get the same payoff as being short - without borrowing shares or showing up in reported short interest - by using "synthetics" like buying puts + selling calls (reverse conversion), total-return swaps, or forwards, which also helps sidestep ugly FTD (failure to deliver) optics.
- Internalization/dark pools: A large fraction of retail buy flow never hits lit books; price discovery blunts, capping momentum.
* When retail buy orders get filled off-exchange (internalizers/dark pools), they donβt lift the public order book, so the visible price doesnβt pop as much - blunting rallies and capping momentum, which helps shorts hold their ground.
- Ex-clearing netting: Bilateral/prime-to-prime arrangements can delay visibility of genuine settlement stress.
* When prime brokers net trades bilaterally outside the central clearinghouse, fails and margin holes can be masked or delayed, so real settlement stress doesn't show up on the public tape until later.
So why did I say that the market is "rigged by design"? Well because the scams around Short-Selling would be very easy to fix with:
- True pre-borrow regime with real-time public borrowing tape; FTDs (failure to deliver) collapse and short interest tracks borrow one-for-one.
- Kill of market-maker FTD exemptions and options-based "stock substitute" carve-outs then reverse-conversion volumes plunge.
- Centralized securities-lending CCP with public transparency on lendable, on-loan, and reuse - and enforcement with teeth.
- Lit-market share dominance (far less internalization) with narrow spreads still intact.
The architecture isn't "broken", it's tuned.
Elastic short supply and selective enforcement are features that let the Controllers stabilize optics, steer capital, and discipline outliers - without overt bans.
Price can rise in spite of that, but you should assume the default is containment, and plan your instruments and timing accordingly.
So the main investment implication is:
Prefer state-embedded companies - they're policy-aligned and rarely targeted by suppression; their demand is programmatic.
If a company threatens policy levers, index optics, or core rent streams, the Controllers (and their market-making/plumbing partners) have incentives to keep its equity "orderly" - i.e., downward-elastic via abundant, cheap short supply and opaque synthetics.
If a company is state-embedded (defense primes, identity/cloud rails, compliance vendors), persistent suppression is unlikely; those names are buffered because they are the rails.
So let's follow the suppression incentives by creating a scorecard where each company is scored 0β5 unless noted. Then sum 0β30.
- Policy friction (0β5): Does the business undermine monetary/identity/sanctions levers or embarrass policy? (Crypto rails, hard privacy, de-SWIFT, "shadow banking").
- Index optics risk (0β5): Would big inclusion (or relentless rallies) distort core benchmarks or "widows & orphans" products? My guess is MicroStrategy isn't getting into the S&P 500 index.
- Rail threat (0β5): Does adoption route around bank/KYC/app-store/payments choke-points?
- Retail mania sensitivity (0β5): Is it meme-prone (squeezes that stress clearing/settlement)?
- Clearinghouse/systemic risk (0β5): Could squeezes or gap moves threaten brokers/central counter-parties (high utilization, tight float, option crowding)?
- Data opacity & MM carve-outs (0β3): Is the name easy to short synthetically, with market-maker locate exemptions protecting "temporary" FTDs (Failures to Deliver)?
- Prime-broker rent (0β2): Is there rich, durable lending revenue (high borrow churn, reuse chains)?
Suppression Incentive Score (SIS) = sum of the 7 factors (0β30).
Here are some examples: (SIS = Suppression Incentive Score)
1) MicroStrategy (MSTR) - Bitcoin proxy.
- SIS: High (Policy 5, Index 5, Rail 3, Mania 3, Clearing 3, Opacity 2, PB rent 2 β 23/30).
- Rationale: Bitcoin leverage on a corporate wrapper; explicit index-optics issue; easy to short synthetically through options/swaps.
π¨ REMINDER to self: Write specific post for MicroStrategy.
2) Chinese ADRs in sensitive tech (e.g., BABA, BIDU, BILI) - geo/NS risk.
- SIS: High (4/4/3/2/3/2/2 β 20).
- Rationale: Policy headwinds both sides; recurring enforcement narratives; benchmark optics matter.
3) Highly speculative meme-beta names (e.g., GME/AMC during mania).
- SIS: High (2/5/1/5/5/2/2 β 22).
- Rationale: Clearinghouse risk + retail mania; the Controllers prefer abundant short elasticity to keep order.
4) Fintechs that stress KYC rails (e.g., BKKT, MARA/CLSK Bitcoin miners when narrative runs).
- SIS: Medium-High (3/3/3/3/3/2/2 β 19).
- Rationale: Policy narratives, energy scrutiny, and easy option synthetics.
If you look into Bitcoin mining stocks, you will see that while MARA/CLSK have been heavily suppressed by relentless shorting, the other mining companies who leaned into AI/HPC (aligned themselves with the government) have been allowed to run.
So basically everybody got the memo, other than MARA's CEO and Cleanspark's CEO.
And MARA's CEO Fred Thiel is the biggest kiss-ass when it comes to politicians, so how he didn't get the memo, I don't know π
Now, let's look at some examples of stocks are that unlikely to be suppressed with short-selling: (SIS = Suppression Incentive Score)
1) Defense primes: LMT, NOC, RTX, GD.
- SIS: Low (0/1/0/0/1/1/1 β 4).
- Rationale: Budget-backed, procurement-entrenched; equities are policy instruments themselves.
2) Decision/identity/cloud rails: MSFT, ORCL, AMZN (AWS), GOOGL (Cloud).
- SIS: Low (0β1/1/1/0/1/2/1 β 5β7).
- Rationale: Identity, compliance, and AI distribution; frequent buyers = governments & regulated enterprises.
3) Gov/defense IT & cyber integrators: PLTR, BAH, LDOS, ACN, PANW.
- SIS: Low-Medium (1/1/1/1/1/2/1 β 8).
- Rationale: Valuation can draw shorts, but sustained suppression works against program outcomes.
4) Core rails in finance & payments: JPM, V, MA.
- SIS: Low (0/1/0/0/1/1/1 β 4).
- Rationale: They are the choke-points; policy-aligned.
So, in summary - Quick red flags:
- Index gateway risk (S&P 500 committee optics).
- Bitcoin/crypto as core economic exposure.
- Prior meme history + thin float + high options participation.
- Sensitive geo/policy vectors (China tech, sanctions-adjacent).
- Anything that directly routes around ID/KYC choke-points.
If a company empowers parallel rails or embarrasses policy, the Controllers prefer abundant short elasticity so that the price remains "orderly".
If a company is a rail, it's the opposite - suppression is counterproductive.
This reinforces my State-embedded portfolio thesis from below.
The thesis concluded that owning Palantir and Microsoft is the closest you can get to owning a piece of the State.
Not investment advice. Just taking notes.
