janice; We disagree, as follows. In a normal short,
1] The client "ponys up" NO new cash,
but must have collateral with the Brokerage,
and it need NOT even be cash. It could be other stocks,
or Mutual Funds, or Bonds, but it can't be worthless stuff,
like other pinkys.
2] Typically, the Broker then actually sells the shares of
the shorted stock, from ANOTHER CLIENT, who has those
same shares in a margin account (which most do), so,
the shares are in "Street Name", and the Broker is
free to sell them.
3] The Broker then keeps the cash from the sale, and
loans it out, earning interest, that he keeps. But,
the Broker does NOT credit the cash to the shorter
who ordered the (short) sale, and the Broker
does NOT debit the sold shares from "The Other Client",
whose shares were actually sold.
4] If the Broker does not have enough clients who own
enough of the shorted shares, in Street Name, he just
"borrows" them (at a small rental fee, which offsets the
interest that he will earn), from another Broker
who has more than enough, in Street Name.
5] If the Broker takes too long to "borrow" the
shorted shares, or they are not available from any other
Broker, they will be "Naked" shorts, and the Broker is at
risk, if his shorting client loses, and does not have
enough collateral, and skips town.
It sounds complicated, but it really isn't,
because Brokers have been doing it for 100+ years,
with no problems, and it represents ~5% of the $ value,
of all trades, on all major exchanges. And, it is good.
Because it adds liquidity, and speeds the correction of
share prices that are "pumped out of whack",
or were always worthless.
And, shorting is the mathematical basis of all options,
and futures, and commodities, and foreign exchange markets.
Without shorting, all financial + commodities markets
would grind to a halt, and scammers + diluters would boom.
And, if you read your history, the origin of all financial
markets, was the short-selling of agricultural futures,
in Chicago, to hedge the risks to small farmers, due to
unusual weather or other crop failures, or overproduction,
that would otherwise drive them BK, in only1 growing season.
That is the real reason why 70-year-old "Up-Tick Rule" ,
which was an anti-capitalist impediment to all "Free Markets",
was eliminated last month, in a "political trade" , that
backfired on those money-losing CEOs, and scammers,
who keep trying to blame their own company failures,
on naked grandfathers, so they can keep dumping worthless shares.
In the next year, pinky scams will be shorted to BK,
faster than ever, and to try to delay the inevitable,
and to squeeze out the very last penny, from the least
knowledgeable pinky investers, there will be a boom in
reverse-splits.
paim is the world's expert in 'creative' pinky reverse-splits.
They have done 2 in the last week, 3 in the last month,
and 4 in the last quarter. And the next one is overdue.
And the cheerleaders at RB are begging for more.
