Don't loan out your shares II
Many people aren't aware that your broker can loan out your shares to market makers, hedgies, and other professional shorts for the sole purpose of shorting your stocks. It's simply one more tool to manipulate a particular stock.
Lend -> borrow -> short, you'll never know. Lending securities is a huge business - even the clearing houses, e.g. Penson, are in on the act - but there's so much money involved, the broker-dealers take pains to keep it under the radar.
Ask your broker for a Loan Exempt Restriction.
Note: This only applies to margin accounts. If have a cash account, your broker cannot lend your shares.
If you lock up your shares, the manipulators are locked out. There's NO downside to requesting a Loan Exempt Restriction.
MrFrequentPoster: Enter a high sales order and nobody can borrow your shares for naked short selling!
This is a myth that has been repeated on a lot of boards, but I'm willing to be proved wrong. Pls give us a link from a bulletproof source.
Company PRs: We kindly ask our loyal shareholders to contact their respective broker-dealers and make a written request to them asking them not to lend, assign or otherwise pledge the shares held in accounts without your prior approval.
A written request is always a good idea, but if you simply ask your broker to put a Loan Exempt Restriction on your account, your verbal request will prevent your shares from being loaned out to short the bejeezus out of your stocks. No paperwork. No problems if broker is knowledgable (see below). Takes seconds.
If we ALL do it, it would dramatically decrease the shares available for market makers to short for their own accounts.
The process is (mostly) painless.
A few months ago, I talked to a TDAmeritrade rep and at first he pretended not to know the term Loan Exempt Restriction. When I started explaining it, his memory was suddenly refreshed. He said the request can be made easily via phone. He started mumbling something about the Credit Risk Dept. No time, so called next day.
Update 1: Following day, I called TDA to do the above and was told rather firmly by a female rep that this wasn't possible; that loaning out my shares was in the Hypothecation Agreement which I agreed to when opening my account.
Update 2: Being a junkyard dog, I tried again the next day. No problem. I simply pressed 2 to talk to a rep (NOT the Credit Risk Dept) and he was happy to place a code on my account: "All securities are loan exempt." It took maybe sixty seconds.
I asked him if this was a hassle for TDAmeritrade and if he had a lot of requests for Loan Exempt Restrictions: "Not really a hassle. We probably make some money from loaning out shares, but we respect customer requests."
So go for it. It may make a difference in the dramatic, out-of-nowhere, manipulative swings by the MM's.
Thank you!
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From other boards:
I've been told by TDAmeritrade that at the end of any given day they tally up all the number of shares that they have (which is their customers shares, ours) and then with that number can determine how many shares are available to give out to shorts. If you call them up you can request a "loan exempt restriction" on your account which means they cannot borrow your shares in your account to sell short. Its just another line of defense to protect your investment from being shorted. If your BUYING a stock as a long investment and then they borrow your same shares and sell them short to someone else they are making money both ways.
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Everyone should add the following to their account - When a client with a margin account requests that we not lend his or her shares to fill short sell transactions, we will place a "loan-exempt restriction" on the account.
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Getting the restriction put on was very easy- took all of 30 seconds
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TDamtrade said they couldn't just do it to one stock so they froze my entire account so it can't be shorted.
