Thursday, September 05, 2013 12:44:00 PM
Locating shares is hard, but enough shares to effectively to do so that it makes you money while your out maintenance margin tied up in the position and you are paying fees plus interest on the position makes it not worthwhile. So who can effectively short an OTC? Financiers can short against their own position as a hedge or the same financiers will allow arranged borrows against their position. Rarely done though as to shorting against their own Block Position, although conversely that is where your locates are typically for OTC securities. I have seen billion share securities that only have 1,000,000 shares for borrowing. At a triple 0 what exactly are you going to make shorting a million shares?
A good example is 1 million shares at .0007, that will cost $700 for the principle and $2.5 million in maintenance margin, depending on the broker the interest and other fees will likely run 20% of your take home if you effectively short to .0001. The gain is capped at 99.9%, wow… so a whole $699 made off of that risk and all that money tied up for days and paying fees you end up with $550 or more…. Yeah shorting is quite the lucrative business in the OTC… NOT! Oh and did I mention the losses are not limited, they are infinite.
As far as Authors, who knows if they are telling the truth, or is just poor assumption that is it even a large position taken. Without the specifics involved one can guess as to what was happening really. I mean if the OTC security is over $5 a share then Maintenance Margin requirement of $2.50 per share is no longer applied. Depending on the broker however one may still not be able to short the security even above that level.
FINRA rule 4210:
http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=9383
THE REAL DTCC DISCUSSION
http://investorshub.advfn.com/boards/board.aspx?board_id=23867
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