

Cynk Makes the Case for Buying Friends, Naked Short Selling - apaprocki
http://www.bloombergview.com/articles/2014-07-11/cynk-makes-the-case-for-buying-friends-naked-short-selling

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bravura
There is one point I don't understand.

Naked short selling is illegal, so you have to borrow the stock in order to
sell it.

But if the lender decides to take their stock back from you the borrower, then
you are suddenly and unexpectedly in the position of naked short selling?

Aren't there some sorts of protections for the short seller, e.g. terms on the
borrow?

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n00b101
> But if the lender decides to take their stock back from you the borrower,
> then you are suddenly and unexpectedly in the position of naked short
> selling?

Yes, short sold shares can be recalled at any time. If the shares you short
sold are recalled by the lender, then your broker will attempt to find
replacement shares to borrow. If no replacement shares can be found, you will
be notified and can either buy the shares back yourself or your broker will
perform a "buy in" (i.e. force you to cover the loaned shares at the current
price). All of this happens within 3 business days, or less. This happens with
some regularity in "hard to borrow" stocks and is a substantive risk to short
sellers. The lender also has the option to "rerate" the loan instead of an
outright "recall" ... short sellers must pay interest to borrow shares and the
interest rate is set by the lender, which which can be very high in "hard to
borrow" stocks and can be increased at any time by the lender. In the case of
a rerate, the short seller must buy back the shares in order to avoid paying
the excess interest.

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conover
See the Porsche short squeeze involving Volkswagen some years back:
[http://www.nytimes.com/2008/10/30/business/worldbusiness/30i...](http://www.nytimes.com/2008/10/30/business/worldbusiness/30iht-
norris31.1.17372644.html?pagewanted=all)

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majormajor
Interesting to see that article from in the middle of it, which seems to be
before it completely blew up in Porsche's face:
[http://www.drive.com.au/motor-news/milestones-porsche-
tries-...](http://www.drive.com.au/motor-news/milestones-porsche-tries-to-buy-
vw-20140117-30y9i.html)

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tempestn
Wow. At one point years ago I did some testing to see if I could short any of
the stocks in those pump-n-dump email scams that were big circa 2005 or so.
Never did find one that was shortable... now I'm glad I didn't! Clever scam
though.

