If the company that promised to sell a stock at a certain price (i.e. shorted it) goes bankrupt, who’s liable for the matched orders from the past? The market? The trading platform? If it’s the latter, how do they avoid going bankrupt themselves once shit hits the fan?

Jan 28, 2021 · 7:32 PM UTC

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Replying to @stilkov
the trading platform "should" be liable for any losses if they let hedge funds gamble around without enough collateral
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How do they know there’s enough collateral?
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more replies
Replying to @stilkov
If a company shorted the stock, they not just promised to sell it, but have already sold it - by borrowing the stock from someone else. If they go bankrupt, that someone else is like any other creditor, i.e. probably will lose at least part of what they're owed
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So it’s that someone else who will have the problem. That makes a lot of sense, thanks
Replying to @stilkov
Sounds like counterparty risk. None of the players in the middle will be liable. The markets run on trust. When trust dries up, they stop trading. Just like 2008.
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Replying to @stilkov
Um etwas zu Shorten muss man eine Deckung hinterlegen, die am Risiko bemessen wird.
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Replying to @stilkov
I would expect the same happens when you buy something from a company that goes bankrupt before you get your stuff: You don't get your stuff.
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Replying to @stilkov
Btw, if you are even remotely interested in that kind of thing, you should really read @matt_levine 's free newsletter. he knows his stuff, and boy can he write - have no particular interest in banking myself, but read him just for tickling my nerdy bones
Replying to @stilkov
Most (all?) platforms require some form of deposit for transactions incurring loss risk - e.g. block cash or some stocks.
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