JJB
I will give a stab at trying to answer your questions. We are entering into the micro dynamics of how all of this is done. I still have a lot of questions myself that I need answers to. Hopefully there are others out there that can join in with knowledge and experience. I have my MBNA from the school of hard knocks. Every time I get knocked on my butt I always try and find out why. I always find answers but for every question there seems to be more than one answer and every answer leads to more questions. It is a very complex system and every firm has their own house rules and standards that they work by, so depending on the firm the answers may vary slightly.
Shares that are in non-marginable custodian accounts such as an IRA or 401K plan are in reality cash accounts. I am under the impression that shares are not allowed to be loaned out from cash accounts. However, Joan , in reply #3209, says that is a common misconception and that they can be loaned out. We need her or someone else to clarify that for us. I know that you can give permission to loan shares in your cash account and even are supposed to be told who the shares are being lent to. I have also read about firms getting fined for loaning out shares from a cash account. Joan may know of a rule change that has affected this.
Shares held by institutions, mutual funds, corporate capital etc. would or should be available to loan out. It would probably depend on which fund and their house rules etc. It only makes sense that if a fund is holding a million shares of XYZ corp why not lend out the shares and make an extra 3 or 4%, the interest rate depends upon the demand for the shares to short. The interest that they make on loaning out the stock can then be added to their bottom line, so it would make sense to me that the funds do loan out stock that they are holding long and in cash.
I believe the naked shorting on NASDAQ is without equal. Being electronic I am always amazed at how cleaver journal entries can make everything balance. I assume that NASDAQ Small Caps have the same rules.
Concerning the reporting of shares shorted, naked or borrowed, they are supposed to report everything. However, I have been told by people in the industry that they all put down whatever they want when they want without any fear of being caught because NASD just does not have the manpower to police the situation correctly. Even then can you believe that they give us information that is at least 2 weeks old . The Pony Express was able to get information from N.Y. To California faster.
I hope that I have helped answered your questions. Hopefully Joan explains what she meant about the cash accounts. If that is true than I have to go back and refigure a lot of things.
A question I have been calling around for years on and getting different answers all the time is voting of shares. I have had stock in margin accounts that I know have been lent out yet I received a proxy and I assume that the person that purchased the stock from the short also had a proxy and was able to vote. I was even at a AGM once where the CEO told us that they received more votes then the even had shares outstanding . Go figure!
As you can well see there is a lot of smoke and mirrors involved
with the stock market. That is probably why these member firms have armies of MBA's and Attorneys working for them so that they can navigate through the maze. Average people like you and myself are at a great disadvantage. It is kinda like my son's T-Ball team playing the Atlanta Braves. We can't beat them at their own game. In the future when I find a company that I really like for the long term I will only buy the stock with money I can afford to lose and I will only buy for cash and get delivery of the certificates, hold for the long term and hope for that my long term evaluation was correct.
I must also apologize to all on this thread for getting so far off the subject of SOLV. However, the short postion, seemed to be a hot subject concerning the thread and as JJB said understanding a factor concerning the trading of a stock is information investors sould be aware of.
Regards,
Dominic |
