Post by fastwalker on Aug 26, 2004 10:21:22 GMT -5
;DFYI / FWIW....
Question ...
If the broker lends my shares to someone for a "short sell" and I decide to sell the shares while they are loaned out .. what happens??[/QUOTE]
Answer...
Under normal circumstances a brokerage firm will not loan out more shares than it can rehypothecate. Thus a brokerage firm will not allow someone to be short a position if they cannot loan the shares. For example, if broker dealer A has 1,000,000 abc stock to loan, but their cusometers already have 1,000,000 of the stock short sold, a new investor will not be able to short the position.
Lets say in the above example there are only 800,000 shares loaned out. and you, the investor have a long position of 200 shares. You can sell your shares and the brokerage firm merely assigns a different lot of shares in the excess to cover the short sell.
Now lets say all available shares are loaned out, and you own 100 shares that you would like to sell. You can then sell those shares, however, the short seller will probably be sold out because the broker dealer no longer has the shares to sell.
That is how it traditionally works. In the case of CMKX the postulation is that the Market makers are shortselling, which is a different beast entirely.
;D
Question ...
If the broker lends my shares to someone for a "short sell" and I decide to sell the shares while they are loaned out .. what happens??[/QUOTE]
Answer...
Under normal circumstances a brokerage firm will not loan out more shares than it can rehypothecate. Thus a brokerage firm will not allow someone to be short a position if they cannot loan the shares. For example, if broker dealer A has 1,000,000 abc stock to loan, but their cusometers already have 1,000,000 of the stock short sold, a new investor will not be able to short the position.
Lets say in the above example there are only 800,000 shares loaned out. and you, the investor have a long position of 200 shares. You can sell your shares and the brokerage firm merely assigns a different lot of shares in the excess to cover the short sell.
Now lets say all available shares are loaned out, and you own 100 shares that you would like to sell. You can then sell those shares, however, the short seller will probably be sold out because the broker dealer no longer has the shares to sell.
That is how it traditionally works. In the case of CMKX the postulation is that the Market makers are shortselling, which is a different beast entirely.
;D