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

To: Jack Zahran who wrote (2894)	4/20/1998 11:20:00 PM
From: Brendan W	Read Replies (1) \| Respond to of 4969

Jack and Ira, I am not an expert but here is my understanding of how the short positions are kept in line ... a brokerage firm may only sell short those shares it can borrow (usually they only borrow within the firm ... sometimes they borrow from other firms) from account holders who hold the stock long in a margin account. This is a matter of law (which has been broken before). Systemwide this has the effect of limiting the shares to the float that is in margin accounts. If a brokerage has more short positions in an issue than longs it has to force its customers to cover... a nasty situation which occurs occasionally. This explains Jack's example of people moving large positions from the margin to the cash side of an account and squeezing (popping?) the shorts. It also explains why one usually has difficulty shorting the stocks you want to short ... too many shorts have gotten in ahead of you and there is no supply left.

To: Jack Zahran who wrote (2894)	4/21/1998 7:34:00 AM
From: steve goldman	Respond to of 4969

This who infinite loop idea on borrowing stock to short just seems wrong. I gotta tell ya, i dont know the answer definatively off hand, but I would assume that only shareholders of record on record date have the right to vote. Thus even though someone hypothecates the stock (term used to describe placing stock in street name so you can borrow against it), they are still shareholder of record. I think when you are borrowing stock, the "borrower" under no circumstances becomes the shareholder of record. Yet, it seems like you could conceivably develop a loop scenario if tracking of short availabilities wasnt done wholeheartedly. Regards, Steve@yamner.com