2016-09-25theintercept.com

And even with its market-maker exemption, Knight is required by SEC rules to eventually deliver the shares in a naked short transaction to the buyer and close out the trade... Instead of complying with the rule, however, DiIorio alleges that Knight circumvented it by manipulating an obscure process within the machinery of the nation's clearing system known as the "Obligation Warehouse.".. "They set up a shadow clearing system," DiIorio said.

...

Time after time, DiIorio would isolate individual penny stocks and find UBS and Knight as major traders in them. While it wasn't possible to know for sure, the correlation suggested that UBS was repeatedly on the other side of Knight's trades; its clients would go long while Knight's would go short. If true, that meant UBS, or its clients, were taking on multitudes of losses by design.

Why was UBS so involved with penny stocks, which had little upside potential for a global megabank? Why was it so intertwined with Knight? Who was it purchasing these penny stocks for?



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