Bob,
Every broker-dealer - or, in the event of an introducing broker dealer, their clearing firm - keeps a list of the securities they find easily borrowed (and therefore, 'shortable'): you guessed it, the "Short List." As you'd imagine, these tend to be generally the more liquid, active stocks out there.
Any stock not on that list usually requires that the firm call its' clearing firms' (or contacts it's own) Stock Loan and Borrow Dept. to be sure that shares are available BEFORE a trader or customer goes short. This is called the 'affirmative determination,' and is required to make sure that stock can in fact be borrowed and proper hypothecation verified before it can be shorted. If you use an internet/online broker, they usually have their short list digitally updated daily and referenced as you put in short sale orders, etc, making the process seamless and nearly invisible (until they tell you you can't short sell some obscure stock!).
I'd never say the risk of a short squeeze is "negligible," but it's obviously far more likely with an issue that has a smaller float and suddenly finds itself "in play," for example, some Nasdaq Small Cap stock that puts a .com at the end of it's name or is taken over by a more well known competitor - suddenly subject to massive changes in volume and short interest, etc.
If it's your thing, you can always check to see how the ratio of borrowable shares, average daily/weekly overall trading volume, and short interest changes with regard to the entire float on a week-by-week basis. There will likely be some noticeable relationships between these three items and the price of the issue in question over time. You can get this information off the internet, from SEC filings, and from the Short Interest pages of Barron's.
Steve - anything else to add? Happy trading,
LPS5 |
