> With normal shorting the number of shares being traded is no greater than the float. Only with naked shorting can there be more shares traded than float, as in the parent's example. Interestingly, in both cases the short interest can be greater than 100%.

Why?

A owns a share, loans it to short seller B. B sells the loaned share back to A. Then A loans the share again to B, B sells it back to A. Now repeat the process a million times.

You can get arbitrarily high amounts of shorting without any naked shorts. (And usually, A and B don't know each other. It's all done via exchanges and clearing houses etc.)

> You can get arbitrarily high amounts of shorting without any naked shorts.

That's why I said "Interestingly, in both cases the short interest can be greater than 100%"

But in the situation you're describing the total number of shares on the market is still equal to float.

If we altered your example to have naked shorting it would be: B sells a share it hasn't borrowed to C, A sells a share it hasn't borrowed to D. The total number of shares that can now be traded is equal to the float + 2. Hence the claims of 'counterfeit shares' which is not a great description.

Naked shorting can only be done by market makers. The argument is that it helps to create liquidity and that these actors will have the ability to later borrow the shares without issue. The problem is that, as I understand it, there are not strict rules dictating when they must actually borrow the shares to back the shares that they sold short.

There are some indications that this has happened with GME. For example Michael Burry said in a now deleted tweet[0]:

"May 2020, relatively sane times for $GME, I called in my lent-out GME shares. It took my brokers WEEKS to find my shares. I cannot even imagine the sh*tstorm in settlement now. They may have to extend delivery timelines. #pigsgetslaughtered #nakedshorts"

[0] https://web.archive.org/web/20210130030954/https://twitter.c...

I somewhat follow, but it seems shares have privileges that cannot be synthesized in the same way that dividends and value can. For example, if the firm votes for a new CEO, these shares should have voting power, but B cannot fulfill this obligation to A, so how can these shares be resold to multiple buyers?

When A loans out her shares, she accepts the loss of voting rights as part of the deal. If she cares more about voting her shares than about the income from lending, she will simply direct her broker not to loan out her shares.

In the “A loans to B who sells to C” scenario, C is the one who gets to vote.

> Only with naked shorting can there be more shares traded than float

Why? Imagine there exists one share of GME, owned by Alice. Bob borrows it from Alice and sells it to Charlie. Now both Alice and Charlie own one share, and no naked short sale ever happened, as far as I understand that term.

I don't know if there's a name for it, but while not naked, it's still a dubious situation unless Bob has secured some way to get the share back to Alice when Alice wants it back. Say Charlie has decided to go hold that share forever; how is Alice ever made whole?

In the only-one-share-exists situation, there's no real way out of that. In a situation where more than one share exists, Bob could, say, obtain a call option so that he at least has a plausible way to acquire a share in the future to make Alice whole.

This results in a similar situation to GME where the short interest is > 100%. WSB wants to be Charlie. They want to hold the share that Bob is legally obligated to buy and can't purchase anywhere else. They can then demand whatever price they want for it.

My understanding is that this leads to short interest greater than 100% but not more shares traded than float as there is still just one share.

In your example Alice doesn't own the share at this point, she owns an agreement that says she will be returned a share in the future and is paid interest on it in the meantime.

Both naked shorting and regular shorting reduce the price of the stock. In the case of regular shorting, there is a sale offer that wouldn't have been and was, and in the case of naked shorting, there is a buy offer that would have been and wasn't.

True, but in the case of naked shorting there is now (for some period of time) another share being traded in addition to the shares issued by the company. In the case of regular shorting the float remains the same.