Schwab said they would switch all my stock to cash side. It will take 4 days (borrower has 3 days to cover). There is nothing wrong with them lending out stock in a margin account but since I get no benefit (I can't margin my VSNR holdings because the stock price is too low for Schwab's standards) there is no value for me as a long to hold VSNRin a margin account. I recommend anyone who does not actually have VSNR margined to do the same.
Here is a fair use excerpt from a great FORBES article outlining the slimyness of NASDAQ:
FORBES July 29, 1996
One day soon the music's going to stop
By Gretchen Morgenson
[...]
Nasdaq is especially dangerous for short-sellers. Talk
to people in stock loan departments on Wall Street,
the back-office folks who must locate shares to cover
short positions. If they are frank, they will tell
tales of tricks used by professional investors,
marketmakers and even company managements to juice a
stock and massacre short-sellers.
When an investor shorts a stock, he must borrow the
shares from his broker. In large, widely traded
stocks, this is usually a cinch. But in stocks with
relatively thin floats, it can be a problem. Why?
Because according to stock loan sources, mutual
funds--with their massive stockholdings--are not big
lenders of equities today. Bank trust departments lend
securities, mutual funds generally do not.
There could be several reasons for this. One, it's
just not that lucrative. A fund might earn 12.5 basis
points--$1.25 million on a billion-dollar stock
position--lending AT&T stock to a U.S. borrower.
Hardly worth the trouble. Then, too, short-selling is
considered un-American in some circles. But there's a
more devious explanation for this reluctance to lend
stock for long periods to short-sellers: rich pickings
to be made by squeezing shorts. Call in their borrowed
stock, and you force them to go into the open market
to cover--at whatever price the market demands.
A lender of a stock holds all the cards. At any time
after he has lent the stock, he can call it back in;
the borrower has three days to return it. Marketmakers
who carry positions overnight in the stocks they
"make" have been known to pull back their stock and
force buy-ins. The occasional mutual fund that lends
shares temporarily does this as well.
The short-seller isn't the only victim here. Squeezing
the short drives up prices, creating volume and upward
action that can attract momentum players. But once the
squeeze is over, there's nothing to hold up the price.
Moreover, eliminating short-sellers makes it easier to
drive up the price of an already overvalued stock.
Corporate executives of heavily shorted stocks also
play this game. First they put their considerable
insider holdings into their margin accounts, making
them available for lending by the firm's stock loan
department. Shortly after these executives make their
stock available for lending, it often happens that
they remove their holdings from the brokerage firm. Or
they move the position into the cash account. Both
actions force buy-ins. Result: more volatility,
volatility that has absolutely nothing to do with
fundamentals.
Although no one maintains records of how many buy-ins
take place on a given day, traders say they are
happening much more frequently today, especially in
the past year or so. One professional who has been
buying and shorting stocks for 25 years had
experienced one buy-in during the previous 24 years of
doing business. In the past year, he's been on the
receiving end of three.
From where they sit, marketmakers can often see where
a buy-in is taking place and rush in buy orders ahead
of the squeezed short, further squeezing him. Shooting
fish in a barrel.
[...]
Issue Date July 29, 1996 Copyright Forbes Inc. 1996 (c) |
