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This question does a nice job of answering what it takes for short position to exist in the first place, how that can result in "owning" >100% of a company and what happens when shorters try to cover their short position with limited liquidity (i.e. how a short squeeze develops).

What I'm wondering is the different question (which I tried to ask here, which was closed as a dupe of the first): what happens if short sellers are somehow required to cover their position (i.e. required to buy at any price) but where there are NO shares being offered regardless of what price is offered? Every single last share is held by someone either unwilling or unable to sell it.

The details of how to construct such situation are not very relevant so I'll try not go into them.

Note:

It's possible the answer to my question is, "it's never happened, the law and regulators never considered it and until/unless it does happen, there is no way of knowing what would be done." If that's the case, then "oh well, maybe it would be fun to write a fiction book around that". But I'm kind hoping that someone knows something more definitive.

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  • Came here to ask this. :) – Hack Saw Jan 29 at 23:12
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    Phil Falcone did roughly this in 2012, and was convicted of securities fraud as a result: en.wikipedia.org/wiki/… (cross-posted upon request) – Nick Alger Jan 29 at 23:41
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You've gone from A to Z, skipping all the letters in between.

In order for every single last share is held by someone either unwilling or unable to sell it, someone has to acquire a lot of shares. Shareholders who acquire more than 5% of the outstanding shares of a security must file a 13D or 13G form with the SEC. This is public information and the acquirer's intent is known. As the he acquires more, it becomes harder to borrow the stock for shorting, the borrow rate also increases and share price increases, all discouraging shorters and affecting their willingness to remain short. Some shorters close their positions. You don't go from a high number of short shares to no shares available to buy in one fell swoop.

And even if the acquirer buys enough shares to control enough shares to approach what you are describing, there are always some outsiders willing to sell their shares at a higher price.

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  • Interesting. But I'd think there are still ways it could happen: a collection of one, twenty one or many investors that go from willing to loan nearly all their shares, to not willing to loan anything for example (there's a vote coming up!). -- The question above specifically avoids referring to details to avoid responses of "that exact scenario can't happen". An answer of "the end condition can't happen via any scenario because ..." would be interesting, but it's not any particular way of getting there I'm asking about. – BCS Jan 29 at 23:56
  • So what if 50000 shareholders each hold 0.002%? – user253751 Jan 30 at 0:10
  • In order for one, twenty one or many investors that go from willing to loan nearly all their shares, to not willing to loan anything to happen all at once, there has to be collusion. And if one or twenty one investors own enough shares to control liquidity, there won't be any shorters. Your premise is far afield from reality. – Bob Baerker Jan 30 at 0:31
  • If each of those ~20 investors has loaned out most of their shares to shorters, then liquidity would be controlled by the people who bought from the shorts. -- IIUC when loaned out, voting right go with them. If a highly contest issue where scheduled to come up for a vote those same investors might each independently want to get back as many of those votes as they can. -- And even if that doesn't work, for you to say "short positions can always be covered at some price" puts the burden of proof on you, not me. Invalidating my specific cases doesn't prove your point. – BCS Feb 1 at 18:29
  • Voting rights and a highly contesteed issue has no relevance to shorting, the current percent of outstanding shares short, a short squeeze and what's going on with GameStop. It has always been the case that short positions can always be covered at some price. Your entire premise is farfetched. – Bob Baerker Feb 1 at 19:09

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