RCC Holdings Corp fka RCCH

[Jim Bishop]

Could probably find dozens of links just by Googling "mechanics of short selling stock".


Here's one.


http://www.thestreet.com/story/10383365/1/how-short-selling-works.html

Since the stock lender has lent out securities, it will require that the borrower (the short seller) post collateral to secure the loan . This collateral is derived from the short sale proceeds, which the short seller receives from the buyer. However, the selling broker will actually receive the cash from the buyer and will not disburse it to the seller. Instead, the selling broker will withhold those short sale proceeds, make a "memo entry" in the short seller's account and then use the short sale proceeds to post as collateral against the stock that was borrowed from the stock lender.

---------

At a later date, the short seller will "cover" the short position. When the short seller does this, he or she will buy the same stock in the open market and the entire process that I've described so far will unwind.

The short seller buys stock from another seller. The short seller's broker will then pay for the stock out of it's client account, by using the stock to then return the stock loan to the stock lender, freeing up the cash collateral and margin requirement in the process.