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Non-Tech : Shorting with Offshore Accounts
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To: peter michaelson who wrote (52)2/17/1999 11:06:00 AM
From: Daniel Chisholm  Read Replies (2) of 127
 
Hi Peter,

Yup, I'm familiar with the situation you describe. I was challenging the statement that one is actually *charged* interest for shorting stock. I agree that maintaining 100% or 150% of the mark-to-market value of the short position as cash in a non interest bearing account is a bummer ;-)

Interestingly, the Motely Fools Investment Guide chapter on short selling implies that one is charged interest on borrowing shares to short. I've always meant to query them on this, but haven't got around to it since 1996 (!).

My understanding is that if the stock is not available in-house and must be borrowed from outside, there is a market-determined rate of interest is paid to the stock lender by the broker, however this rate is typically very small (1/8% to 1/4% per annum), and it is exceedingly rare for the lease rate for a particular stock to exceed the risk free interest rate (though it does happen).

I have heard that brokerages do very well on keeping the short proceeds interest, someday I oughta read a brokerage 10-K and see it for myself - have you any suggestions? I recently looked at an insurer's financials (first time I've looked at one) and it was very shocking to someone who is used to reading the balance sheets of industrial companies and frauds. If I didn't "know" that one is supposed to consider financial companies differently, I would have been calling to find out if I could borrow shares....

- Daniel

P.S. Yup, I probably am "the" person living in New Brunswick, even though there are a coupla hundred thousand others.... ;-)
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