I don't pretend to be an expert in this, blash, but nobody else seems to be answering your question, so....
Previous discussion here suggests that an investor with a USA-based brokerage will not be the one left holding the bag. If the investor took physical delivery of his share certificates, there seems to be no problem. But most investors leave their shares with their brokerage house. In that case, the brokerage house would make sure the investor eventually got his shares, backed up by the SIPC insurance in the worst case situation (brokerage goes into bankruptcy).
In between those two extremes, it appears that what happens is a classic "short squeeze" (although the precise timing of all this action is still in debate). Investor owns shares bought in good faith. Delivery date comes (whenever that is). Naked shorter is forced to buy back shares, which he delivers. Price goes up. Now, in our case, where some believe that there are more naked shorts than real shares in existence, at some point there will physically be no more shares available to be bought ... no matter the price ... which causes the crunch which is the crux of your question as I see it.
Crunch is that there are investors who think that their account should hold some new shares. Nobody here seems to be sure yet, but I *surmise* that a naked shorter ... instead of delivering old shares to be delivered and converted ... *might* be able to get off the hook by providing new shares in the proper numbers. If so, this means that the naked shorter will have to go out into the market to buy sufficient new shares at the market rate in order to deliver them to your broker for your account. If so, this could continue to put additional price increase pressure on the new shares as well immediately following the conversion, because the naked shorters will be out there buying up every new share in sight just in order to cover their naked shorts in the old shares.
It's nice to dream about this happening, and the effect could be *bodacious* if I have pegged it correctly.
But the facts of the matter seem to be two: (1) the individual investor who bought these created shares of old stock will eventually get his new shares, and (2) members of this thread are in discussion with the SEC on a continuing basis to try to determine *how* the naked shorters will be able to cover their positions if indeed the naked short position surpasses the number of existing shares.
It should prove interesting. I am holding onto my small position and watching to see this drama play out. Figure I'll learn something even if I don't get rich. (My position is tiny!).
Hope this helps.
JSb. |
