Peabody Energy Corporation (BTU)

[Michael-Goode]

I appreciate the reply but that is how it should work, not how it does work. In practice, the company needs to instruct its transfer agent to instruct the DTC to delete the old stock. If they fail to do that or are slow to do that, as a short seller I will be stuck with that position in my account for which I am paying a borrow cost and which is using up my margin (because to short a stock under $2.50 per share requires $2.50 per share in cash that can't be used for other trades). Energy XXI (EXXIQ) for example, had its bankruptcy plan go effective on December 31st, 2016, and it is still sitting there in my account (costing me borrow fees and preventing me from using the money for other trades).

Best-case scenario is the stock gets deleted by DTC in two weeks. Because BTUUQ has a very high borrow cost it is cheaper for me pay someone to transfer their shares to me immediately than to pay that borrow cost for two weeks. I am not even sure that would work because I haven't done it before but even though the stock has been cancelled in bankruptcy it still exists in DTC so should be transferable.

See for example: http://www.cablecarcapital.com/what-happens-when-you-short-a-stock-to-zero/