I think I'm reasonably knowledgeable about shorting,
and not only have I never heard of "on special" but I
don't think the concept as you've described it makes any
sense. First of all, shorts don't pay interest to borrow
stocks, rather, the brokerage firm splits the interest on
the short account (the money that results from selling the
stock). The short either get no interest on the short
account (if they're small) or some fraction (50-80%) of
interest the brokers would get (if they have a large, active
account). If a stock is hard to borrow, then usually the
broker has to pay the firm loaning the stock a higher % of
the interest and will thus reduce the amount they pay a short.
I have never heard - ever - of a broker firm paying *extra*
interest for "easy to borrow" stocks.
You are somewhat correct in stating that you can make it more
difficult for shorts if you remove stocks from your margin account.
This is because only stocks in margin accounts can be loaned out,
and if enough people do it, sometimes a short squeeze can be
organised. Notice this has nothing to do with the interest rate,
but rather the stock is called and people are forced for buy
it back.
Radisys has 1.34M shares short as of middle of April, out
of 7.9M shares total - a fairly high number. The number
went down from March to April. The shorts had nothing
to do the recent price decline - it was longs selling out
and shorts buying.
I've noticed the same refrain on quite a few message boards from
non-professional investors, who seem to blame "shorts" and
"market markers" for all of the price swings in a stock.
Sometime there's just more sellers than buyers...
Mike |
