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Strategies & Market Trends : From the Trading Desk -- Ignore unavailable to you. Want to Upgrade?

To: Jack Zahran who wrote (2888)	4/20/1998 8:52:00 PM
From: Ira Player	Read Replies (3) \| Respond to of 4969

Jack, Please explain any mechanism for preventing shorting "an infinite loop". I do not believe there is any method to prevent it. The short seller more than likely sells to a buyer at a different brokerage. Therefore, the receiving broker has no knowledge the sale was short. He will make those shares immediately available to anyone that wants to short them. Add the complete matrix of all available broker combinations and the situation becomes uncontrollable. (Unless all short sales were immediately registered to a central location) When the shorts need to cover, the inverse of the growth in apparent float would occur. A short covers, returning the shares to the loaner, making them available for sale (and therefore available for another short cover) This activity could be triggered by the loaner, if he/she decides to sell and the short is called back in. I believe it is exactly this process that makes shorting all the more dangerous. If 'every' short attempts to cover and 'more than the real float' buyers want to hold, the short folks get burned badly and the stock runs up hard. This is also why short interest is considered by many to be a good contrarian indicator. Steve, are you aware of any controls on the number of short shares that can be outstanding? Enjoy the ride, Ira