Res wrote:
Question 1: If there is a share sold for every share bought, is it possible for naked shorting to create a situation where the aggregate number of SNDH dividend shares needed by the shorts/brokers to cover the dividend is greater than the aggregate number shares issued at the 1:10 ratio (Approximately 4 million issued by HQNT)?
Question 2: Are the shares issued by HQNT different than the shares that the shorts have to replace? How are these shares different and how are they treated, covered by shorts, bought by brokers, etc?
OK, I'll give this one a crack:
1. Think of shorting (in general) as creating shares out of the blue, if you will. They were never shares that the company issued, but are in the float, nonetheless. Assume that officially 30 million HQNT shares are outstanding and DC releases 3 million shares of SNDH for dividend purposes. Also assume that HQNT has been shorted (naked or otherwise) to the tune of 20 million shares. So now the owners of 50 million shares want their 5 million shares of SNDH but there are only 3 million to go around. Since the owners of those additional 20 million shares are also expecting their 2 million SNDH shares a shortage exists. Remember the game "musical chairs" you played as a kid? Same principle, but a lot fewer chairs. I wonder what the price of SNDH will be when the music stops?
2. No, a share is a share is a share. There is no difference between a share issued by the company and a share created by a short. When I buy a share of HQNT stock I shouldn't care if the seller was a naked-short European. I'm guaranteed that I will receive all the rights and privileges of any other stockholder -- including dividends.
I hope this helps.
Roy
