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Technology Stocks : VALENCE TECHNOLOGY (VLNC) -- Ignore unavailable to you. Want to Upgrade?

To: Chisy who wrote (14655)	9/18/1999 4:50:00 PM
From: Zeev Hed	Respond to of 27311

Chisy, I think that the only advantage of shorting against the block that was eliminated is the transfer between years of capital gains, or the creation of long tern capital gains. It is an IRS regulation, not SEC, it also eliminated the practice of shorting companies to death and never covering (thus never paying capital gains). Now, shorts must be marked to market at the end of the year and taxes be paid on that position, and when shorting against a long position, the holding time on the long position restart from the closing the "against the box" shorting. I do not know what are the rules when shorting against a box created from the future convertibility of a security. However, there the shorting is driven by the declining conversion rate, not tax considerations. Zeev

To: Chisy who wrote (14655)	9/18/1999 8:21:00 PM
From: kolo55	Respond to of 27311

You can still short against the box. However the holding period starts anew from the date the short is covered. But because you still have the original cost basis on the long shares, it can still make sense to short against the box. If you own some shares with a very low cost basis, say 10 with the stock at 50, and you like the company and intend to hold the stock for a long long time, then you may not care if the holding period starts anew. In that case, you can short against the box to raise cash and increase buying power. I use this technique in my taxable account as a last ditch measure to protect against margin calls, or in some sort of arbitrage or pair trade situation. I have over half that account in stocks where my basis is less than 20% of the current stock price. If I had margin problems, I could short against those positions to raise cash... I don't recommend this technique for neophytes though. The tax consequences on the short position can be pretty complicated. I have a professional accountant to consult in these cases. But I don't know of any SEC restrictions against shorting against the box, except for the normal uptick rule. As usual, I recommend consulting an expert in this area if you plan to use this technique in a significant way. Paul