America's No. 1 financial conglomerate

Chapter 567 Understanding the Whole Situation

A delicate body, a slightly tipsy girl—this night was destined to be enchanting and long.

"You have a boyfriend?" Ernst asked out of the blue from the large bed in the master bedroom.

Paris ran her right hand through a strand of hair behind her ear and shook her head. "No, why do you ask?"

There's none?

I never expected that.

Although she is still a quarter behind Monica or Connery, she has already surpassed Jessica and Theron.

In response to Ernst's question, Paris blushed and wore a boastful expression, "Didn't you like it? I practiced for a long time."

That's good; they do their homework after class.

However, even with after-school practice, reaching this level must be due to talent; such a person is a promising learner.

It's a good thing that she's hardworking, so Ernst decided to reward her and encourage her to keep up the good work.

So two hours later, Ernst covered her with a blanket and turned to go into the bathroom.

After taking a quick shower, I came to the study, where the clock on the wall was pointing to 11 o'clock.

Ernst picked up the phone and called Perkin Houston.

Almost the instant the number was dialed, the other party's voice came through the receiver: "This is Parker Houston."

"It's me." Ernst's voice was slightly hoarse, then he asked, "Are you still at the company?"

"What else?" The expected answer.

The recent volatility in global financial markets has exceeded expectations, and the heads of all departments at Ernst Asset Management are practically treating the company as their home, often not returning home until late at night.

Especially for departments, which were newly established this year, they must prove their value if they want to get better resources within the company.

The volatility of financial markets presents them with an opportunity to showcase their abilities.

I've heard that many of the department's managers even sleep at the company to be ready to respond to any unexpected situations in the market and make decisions.

As the temporary head of this department, Pervin Houston naturally couldn't relax either.

Knowing the other person was busy, he didn't waste any more words and told them the information he had obtained from Paris. This information was crucial to the battle between bulls and bears in the short-selling of Leap Games. By understanding these companies, they could more accurately calculate the number of shares available for trading in the market, thus making better judgments and formulating corresponding plans.

Just because these securities firms didn't acquire the original shares of YueDong Games doesn't mean they don't own any shares of YueDong Games.

Every financial company with brokerage business will have a fixed income department.

First, strategically allocate funds to stocks with long-term investment value in the market, and achieve stable profits through dividends and long-term appreciation.

Secondly, it provides services such as stock lending and margin trading to institutional clients, earning commission and interest income.

As a rising leader in the gaming industry, YueDong Games has seen its stock price continue to rise, riding the wave of the internet concept, and has naturally become a target for many securities firms' fixed income departments.

A large portion of the YueDong Games shares acquired by these securities firms in the secondary market will become the targets for borrowing and lending in this battle between bulls and bears.

This is something no one can stop, because for these securities firms, interbank lending has no volatility risk, and they can steadily earn interbank lending fees, making it a sure-fire business.

While Goldman Sachs may not know how much capital Ernst Asset Management holds, it's relatively easy to find out how many shares of YueDong Games these brokerages possess.

Knowing which brokerages Goldman Sachs contacted, we can know how many stocks Goldman Sachs borrowed, and thus calculate Goldman Sachs's available funds more accurately.

"I have a feeling that Goldman Sachs isn't putting in enough effort. Today, YueDong Games' stock price dropped significantly, and the trading volume was more than eight times the average, which is too low." This is what puzzled Ernst.

Normally, a surge in trading volume eightfold is highly unusual. However, it depends on the company.

Yuedong Games has not been listed for long, has raised funds in few times, and has a relatively small number of shares in circulation.

Furthermore, with the internet concept remaining highly popular, YueDong Games, as a leading company in the gaming industry, has naturally benefited greatly.

This situation has made the transaction volume of YueDong Games even scarcer.

While the trading volume appears to be more than eight times the average daily volume, the total number of transactions is actually not that high.

Today, YueDong Games closed at $259.2, with its market capitalization falling to $388 billion. This is not the kind of drop a stock should experience after being dumped.

Parker Houston didn't seem to care much. His voice rang out again, explaining logically, "This is mainly due to the constraints of the NAS RL 3350 rule, coupled with the fact that there hasn't been any negative public opinion about Jump Games in the market yet, so it hasn't triggered panic selling by retail investors."

Ernst certainly knows about NAS LE 3350, which is a price limit rule set by the National Association of Securities Dealers (NASD) for short selling in the Nasdaq market. Its core principle is that short selling is prohibited under the NASD.

Simply put, when the current lowest bid price in the market is $100, the seller cannot sell the stock at a price lower than that.

Even in short selling, the order price must be higher than the current market's lowest bid price, which is generally 1 cent higher.

The original intention of this rule was to curb short-selling panic selling during a bear market, slow down the rate of stock price decline, and protect market stability.

Under this rule, even if Goldman Sachs wanted to dump shares on a large scale, it couldn't quickly suppress the stock price by selling at low prices. "You mean, Goldman Sachs was testing the waters today?" Ernst understood somewhat.

"That's right." Perkin Houston's tone carried a hint of certainty. "The logic behind short selling on Wall Street is essentially the same three tricks."

"Public opinion campaign, short selling of stocks, and credit downgrade."

"First, quietly build up positions. Once the setup is complete, then release negative public opinion and push for credit rating downgrades to trigger market panic, and then reap profits by short selling stocks and putting options."

"But this time, Goldman Sachs' core objective in shorting Leap Games is to be quick, accurate, and ruthless. They don't have enough time to slowly lay out put options to maximize profits, so they have to handle this as a special case."

"The core issue is still liquidity," Ernst replied, his tone revealing a hint of understanding.

"It's liquidity," said Parker Houston with a smile. "Dynamics' stock itself isn't very liquid. If Goldman Sachs buys a large number of put options, it will inevitably cause abnormal fluctuations in the stock price, which will further reduce the stock's liquidity."

"The worse the liquidity, the greater the slippage in transactions, and Goldman Sachs' transaction costs will rise sharply."

"More importantly, the market is two-way; for every bear, there is a bull. With such volatile stock prices, without sufficiently attractive returns, other institutions will obviously not be willing to engage in counterparty transactions with Goldman Sachs, which will make it difficult for Goldman Sachs to advance its options strategy."

He paused for a moment, and Ernst heard the sound of a cup clattering against the table.

"In addition, regulatory disclosure requirements are also an important factor that Goldman Sachs has to consider. Goldman Sachs' large short position in Jump Game will inevitably trigger the U.S. Securities and Exchange Commission's large transaction disclosure rules."

"According to Rules 13 and 13 of the Securities Exchange Act, any investor or institution holding 5% or more of a company's outstanding shares, or whose trading volume reaches a certain threshold within a short period, must submit a disclosure report to the SEC, disclosing key information such as changes in holdings, trading intentions, and sources of funds." "If Goldman Sachs directly lists a large number of put options for YueDong Games on the exchange, the trading volume will inevitably trigger the SEC's disclosure requirements."

"Once the news of Goldman Sachs' major bearish outlook on YueDong Games is made public, it will inevitably trigger a panic sell-off in the market, causing YueDong Games' stock price to plummet. This seems to fit Goldman Sachs' short-selling logic, but in reality, if the stock price falls too quickly, Goldman Sachs may not be able to complete its large-scale position building for put options, which will cause the strike price of the option contracts to fall rapidly below the target price."

Ernst knew that Goldman Sachs would be caught in the middle, offending both Ernst and Leap Games, not only failing to gain any benefits but also being seen as a clown by its peers.

After all, in the rules of Wall Street, making money is always the primary goal. Even if this short selling was intended to suppress China Telecom and force them to comply, they would never do a losing business.

Ernst leaned back in his chair, his fingers tapping lightly on the armrest, his mind rapidly processing Bai Wen's analysis.

Suddenly, a gray area flashed into his mind.

"Over-the-counter trading," he blurted out almost immediately.

"That's right," Parker Houston's voice came again. "That's also our prediction."

"Only by placing the bulk of its profits in the over-the-counter market can Goldman Sachs avoid regulatory disclosure requirements and liquidity constraints, and quickly complete its strategic deployment."

"So Goldman Sachs first tested the waters, creating the illusion that the decline in YueDong Games' stock price was due to some internal reasons. Wall Street institutions did not short the company at all."

"If this situation continues for a few days, and Goldman Sachs completes its deployment in the over-the-counter market, then their propaganda offensive will come at you, and all sorts of false information negative about YueDong Games will be flying around."

Ernst had considered this, which is why he said Goldman Sachs was testing the waters. What he didn't expect was that Wall Street would be so greedy.

While teaching him a lesson, we should also think about maximizing our own interests.

As for the subsequent outcome, Ernst was well aware that "as a result, shareholders would think of the inexplicable drop in YueDong Games' stock price a few days ago, believe it to be true, and start selling their YueDong Games shares."

"At that time, various credit ratings will be downgraded again, and even greater panic will spread, causing all investors holding shares in YueDong Games to sell off their shares."

"At that time, Goldman Sachs mobilized all the available shares in the market, plus the shares held by Wall Street institutions, to create a huge trough in YueDong Games' stock price."