By Jack Burney
Published by OTCNN.com
09/27/2000 10:40 AM EST
One way to short any security in the world is to open an account in Canada. This is not as easily done as it used to be, because a lot of Canadian firms are cracking down on non-resident accounts, but even so, it can still be done.
The fact is that you can legally ride free in Canada, as I’ve learned from our reader-investors. You, as an individual – or an MM acting as an individual -- can buy and or sell whatever you want and as long as you close out the trade – buy if you're short, sell if you're long -- within 13 business days. If you're in the money, you never need to pay for the trade. If you end up with a loss you just pay that amount. This is commonly known as the “13 day credit rotation.”
First, you have to deposit something -- cash, bonds, stocks -- it doesn't matter what. It can even be other OTCBB securities. For example, say you deposit $500,000 worth of the fictitious Burney Corp. stock. You can then go out and sell up to $250,000 worth of whatever you want. Say you sell short another OTCBB stock. You now have 13 days to buy it back, and if you can buy it back cheaper, then you just keep the profits.
You can also buy using this same scenario. You can buy up to $250,000 worth of securities and as long as you sell either within 13 business days or before month’s end, whichever comes first. You keep the profits and never send in any more money.
How is this different from investing in the U.S.?
First, you cannot get credit in the U.S. for OTCBB securities or NASDAQ Small Cap securities, which are non-marginable stocks.
Second, in Canada, you have only 13 business days or till month’s end to play. In the U.S. if you have buying power from a marginable security you can carry that margin as long as you want.
Third, with a U.S. brokerage account, even if you buy and sell the same day, you still need to send in money to pay for the initial transaction in order to receive your profits from the subsequent sale. Not so in Canada.
But caution: The SEC is very aware of all of this and is trying to change things. The SEC does not have jurisdiction in Canada, and therefore can only recommend that the rules be the same on both sides of the border. That’s why it has become much more difficult for U.S. residents to open accounts in Canada.
Some of the Canadian firms have even made it an in-house policy not to allow naked shorting of U.S. securities, and are enforcing this through their clearing firms. But, bottom line, where there's a rule, there's a way around it, as the MMs know so well.
What is clear is that the short interest in OTCBB securities is so large that if enough OTCBB companies got together and organized the proper way to break it they could probably put some of the largest MMs out of business and possibly into bankruptcy. There was a move earlier this year to organize CEOs, but nothing has come of it, and that I feel is unfortunate.
(Please address your comments, with name, address and phone, to jburney@otcnn.com , or you can send them anonymously, but don’t expect them to be published.)
Disclaimer:
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