Box Shorts legal?

Discussion in 'Trading' started by alanm, Jan 25, 2006.

  1. alanm


    As I recall, back in the good old days, it was possible to set up a second, cross-guaranteed account, so that one could be long a stock in their main account, and short the stock in the hedge account, allowing one to avoid the uptick rule, since one could sell their long position in the main account to be net short. This was called a "box" position.

    I also recall that this was made illegal some time ago.

    What I don't recall is whether it was just the cross-guarantee that was made illegal, or whether you had to always mark your sales short or not based on your total position across all accounts (at different brokers?).

    Anyone know for sure? Can I be short a stock in one account and long the stock in another account, perhaps at a different broker, and be able to sell the long stock without marking it a short sale? What if they are different types of accounts (i.e. IRA vs. normal margin)?
  2. if you are doing it to circumvent the the uptick rule than the answer is no its is not legal. i have heard some traders talking about firms out there using other accounts in order to achieve exactly what you are talking about. They use one account to get long and than flip the long still leaving the other account short. The difference is somehow charged back to the trader. This is a riskless transaction and 100% illegal!!!!!
  3. alanm


    Another reason to do this might be that you can borrow the stock in one account but not in another.
  4. what if the stock is an etf with no uptick rule and this is done to get around inconsistent short availability issues?

    so, short 2000 shares at all times in acct A, and either long 0, 2000 or 4000 shares in acct B to net the overall position between short, flat and long as required?

    is this illegal when it's done to circumvent shortable inventory problems (not to get around uptick rule)?
  5. bump
  6. ocupashnltrader, you make all riskless transactions sound illegal. thats not the case is it?

    I remember playing around with a broker that offered fungible stocks on multiple exchanges, I wrote up a quick ATS that waited for opportunities where you can buy a equity cheaper than you could sell it for. Obviously this approach did'nt work due to slippage (institutional arbers probably beat me to them). But it seems slightly similar to what was being discussed, shorting and longing the same equity, in this case on a single account.
  7. Nothing new that I'm aware's always been a "aggregate" rule, all your accounts...if they are net short, and you want to get shorter, you have to mark it a short say.

    I suggest not getting yourself in trouble.

    BTW, why would you have short stock when you don't receive interest on the $$, the broker keeps it? Or are you talking a prop account?

  8. do you know don, is the box illegal when no uptick is required?
  9. Yes, regardless of the SHO rules, you need to mark the sales as SS (short sale). The firm has to actually "borrow" the stock (even though most retail firms have some in inventory). Remember, No interest on the cash generated by short stock for retail traders. (There may be an exception or two, but not that I know of).