Pejani, this is what I think it means. When shares are short sold, these shares have to be bought back because they were borrowed form a brokerage. When shorts buy back these shares, they would have to buy them at the already high price. shorts make money only if the stock keeps going down from the day they sold, but if the Price goes up beyond their selling price the higher price they pay it be considered a loss because they can only make money when it stays lower the price they sold it at. Now, if shorts cannot afford to buy these stocks within the specified period, them the broker is required to buy them back on their behalf. The broker would then cash out the entire portfolio (does not matter what kind of stocks they have) of the short seller in order to recover the money that the broker spend to buy back the borrowed share. Now, if the short sellers do not have any other stocks for the broker to buy the shorted shares, the brokerage will have to spend its own money and assume that it will never get back that money from the defaulting short seller. Thus, broker takes the loss. Of course you know what happens if a creditor cannot collect from you. They report to the credit bureau and thus ruin your credit. Either way, someone has to buy those billions of shares, either the short sellers or the brokerage. Even though these shares were really not borrowed in the normal manner for short selling, but were supposed to be tagged as restricted, which the broker was responsible for, but did not, I think the sellers would have a strong case infront of the SEC and force the Brokerage to buy these shares, thus a loss for the broker.
Emulwa, can you please explain to me the following sentence of the article:
"There is no official indication whether TD Ameritrade will repurchase potentially billions of shorted shares on their own, or force their customers to bear the brunt of the loss. With primary blame for this incident not yet assigned, it's anyone's guess."
Are they saying that it is possible that the customers would not receive their shares and loose those shares? Can you please clarify this?
