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Strategies & Market Trends : From the Trading Desk

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To: Jack Zahran who wrote (2894)	4/20/1998 11:20:00 PM
From: Brendan W	Read Replies (1) of 4969

Jack and Ira, I am not an expert but here is my understanding of how the short positions are kept in line ... a brokerage firm may only sell short those shares it can borrow (usually they only borrow within the firm ... sometimes they borrow from other firms) from account holders who hold the stock long in a margin account. This is a matter of law (which has been broken before). Systemwide this has the effect of limiting the shares to the float that is in margin accounts. If a brokerage has more short positions in an issue than longs it has to force its customers to cover... a nasty situation which occurs occasionally. This explains Jack's example of people moving large positions from the margin to the cash side of an account and squeezing (popping?) the shorts. It also explains why one usually has difficulty shorting the stocks you want to short ... too many shorts have gotten in ahead of you and there is no supply left.

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