David, you ask:
"Am I correct to say that a person/company/Fahn can only short a stock if they have borrowed stock, so that the limit for any short position is the number of shares held in margin accounts at any one time ...?"
This does accord with my understanding also, aside from the MM who short "naked". But I thought this naked shorting was limited and temporary in nature.
But in thinking about this, your question raises another one: Doesn't shorting in effect raise the total number of shares in the float? Suppose a company had a total of 1 million shares outstanding, all of which were in margin accounts. Suppose then the short sellers managed to borrow all of these 1 million shares, and sell them short. Of course, they would have to sell them to other investors buying them. So then there would be 2 million shares held long, and 1 million shares held short. Of the 2 million shares held long, only 1 million would have been already borrowed, leaving another 1 million still available for borrowing and short sale. If the shorts were to then borrow this 1 million additional shares, and sell them short, we would have 3 million shares held long, and 2 million held short. And the process could be continued. So, as I see it, there is no theoretical reason why the short interest is limited by the number of shares outstanding. Even though it is limited by the number of shares held long in margin accounts.
Maybe I am missing something here, but it seems to me that shorting does increase the float of a stock. In a way it seems to do so artificially, but also in a way that cancels itself out.
RR |
