Shorting stocks: Mechanical aspects Message Board

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Strategies & Market Trends : Shorting stocks: Mechanical aspects

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To: Ken Brown who wrote (71)	8/1/1998 1:09:00 AM
From: chester lee	Read Replies (1) of 172

Ken wrote: <<"SIEB shareholders will receive the right to purchase one share of Siebert Financial Corp. common stock at $7.50 for each share that they own as of the record date(7/29/98). The rights will become tradable on August 3, 1998 on the Nasdaq Small Cap market and will expire on August 31, 1998." How does this effect me (besides the obvious dilution of the stock at a lower price, which is good)? Am I responsible in some fashion for the extra shares?>> Ken, I am assuming you are short SIEB. If that is the case, you are liable for any dividends or spinoffs as a result of being short. Let's think through the mechanics here. For every buyer, there is a seller. For every share short, there is a long who lent the shares. Because of the ability to short, the float is actually larger than the number of issued shares. If you agree w/ me so far, then let's go through an example. SIEB shares outstanding = 100. FLoat = 100. All shares are held by longs in street name. You call your broker who borrow the shares and allows you to short them. You sell them (short 20 shares) to another long (not a person covering a short... I keeping this simple). The effective float is now 120 shares. News flash. SIEB declares a dividend of 5 cents a share. SIEB CORP send checks to the 100 shareholders on record. 20 share holders will be left without a dividend check. To make this equitable, your broker (the broker who allowed you to sell short) will pay the dividends for the other 20 shares and charge it to your account. As to the spinoff of additional shares of another company, you are still liable. What I don't know is weather or not your broker will short them for you at the effective date of the spinoff. I suggest you call your broker. Their reorg dept must know. chester

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