When you sign a margin agreement, you sign a hypothecation statement which basically says you give the firm the right to borrow those shares. Now, they can use those shares to deposit for equity requirements or they can lend those shares out to someone else for short sale purposes, thus NOT paying you interest on your fully paid for securities, infact charging you for the debit you probably incurred in using the shares as leverage and then as well, collecting margin on the value of the shares lent to the other party.
The clearing firm is typically responsible for maintaining accurate inventory and determining whether they have stock in a particular company to lend out.
When a client of mine wants shares, they usually email or call me in the morning. I make a 5 sec. phone call and say to someone at Pershing, "steve at yamner, abcd, I need 20k, xyz, I need 3k," etc. They then have a blotter that they try to reconcile.
Mechanics...theres not much to it....you buy stock long...its in your account, your margin agreement lets the firm loan it to someone else. when that someone else wants stock, they must call THEIR brokerage firm which has inventory from other customer or in the case of a large clearing firm like Pershing (div of DLJ), they have lots of broker deals (lots of yamners) allunder the same umbrella for borrowing stock. You borrow it, you have it for the day to short or not short.
I tell most clients, ifyou are even marginally THINKING about shorting it, ask me, i'll reserve it, its yours for the day. Dont wait till its up 15 on 20k shares, everyone wants it and nothing will be avail. I dont know how the online firms do this but someone could let us know, that'd be great.
-Steve@yamner.com |
