Shorting stocks: Mechanical aspects Message Board

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Strategies & Market Trends : Shorting stocks: Mechanical aspects

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To: RobbRacer who wrote (168)	2/22/1999 9:44:00 PM
From: Daniel Chisholm	Read Replies (2) of 172

Hi RobbRacer, Thanks for the description of naked shorting. Your description, as I understand it, would require that the brokerage you deal with happens to have some other customer(s) with a long position big enough to offset your short sale. But then is this really a "naked" short, hasn't your broker simply borrowed shares from Jane so that Bill can short? (There are other issue than the simple existence of shares, e.g., are the shares segregated, in a cash account, not fully paid up, etc -- these issues would determine whether or not the broker is right or wrong in loaning Jane's shares to Bob). Perhaps I don't actually understand what you're saying: So technically, there is a deficit of shares at the clearinghouse but nobody knows that except the clearinghouse. Why would the clearinghouse know this? Wouldn't it only be Jane's and Bill's broker who would be aware of this? In the event of a very thinly traded security their deficit was about to become actual I must admit I don't understand the scenario you're describing here. Could you elaborate a bit? What do you mean by "...about to become actual"? Thanks, - Daniel

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