You are definitely doing an illegal short because you only liquidated your 1000 share long from your bullet leaving you 3000 shares shorted illegally. If discovered, there might be fines imposed by the SRO (NASD, NYSE, etc) Who gets the fine? That is a good question, some LLC's (actually I would think most of them would probably have stipulations in the agreement that the person responsible would eat the fine, trading losses. In my opinion, that is the biggest drawback of the LLc model. It has great benefits (capital usage, bullets,etc) but if the software somehow does'nt catch compliance violations and the violation happens daily and SRO fines per occurence.. it could get ugly. I guess you just have to hope that the software is good enough to prevent those compliance busting trades happen.
Thanks GA, That is what I was thinking. I no longer work at the firm where this was occurring. I suspect it is still happening and quite frankly I think that eventually the shit will hit the fan. I am surprised that regulators have not already taken issue with it. :eek:
MACD: Are you sure it wasn't splitting the order into a 1000 share long sale and a 3000 share short sale? That is, did you actually get 4000 shares executed (ever) on a downtick? Some software does this split for you so you don't have to go through the hassle of creating the two separate orders yourself when you want to go from long to short. IMHO, what it comes down to is this: don't do things that you know are against the rules. Once you're a pro, you're responsible for obeying all those rules that you had to study, just like any broker. If your software is letting you break rules, it would seem that your safest bet is to tell your compliance officer, since it's unlikely that it will not be caught eventually in this era of heightened scrutiny by the exchanges.
Some peoples have already mentionned, that PRO firm could short on downtick, but if they do that, I would like to know if they can use only «bullets» for this purpose or if a legal rule accept that a PRO can do this?
first this entire thread needs to be under Professional firms not retail. Retail traders can't do this. Huge advantage to members of exchanges. This subject has been covered already. Go run some searches for bullets/conversions and you will see You are illegally short 3000 shares. with the above rule. You must immeadiatly cover at market and the firm takes away all profits that you made on an illeagal short sale and will fine you. If done repeatedly than your account will be market for only doing short sales and no longer be allowed to use bullets. If your default is 4000 shares than you should have a bullet for 4000 shares. Robert
members of an exchange (ie pro) can not short on a downtick They can get a bullet and sell their position. Robert
Robert. I just learned the past couple of days that some retail firms are already offereing bullets although on a case-by-case basis. i guess you must be a big retail customer to get this privelege. You would have to open 2 SIPC accounts 1 for your daytrades and another 25K for the bullet company. In this competitive environment I guess traders who don't like LLC risk have hemmed and hawwed to get bullets from their retail brokers.
Thanks for the comment. As for this being the wrong thread to discuss this and there being other threads... I am aware of that. The questions I posed have only recently become a curiosity for me and since this is a fresh thread and people have been discussing the topic I thought I would throw the questions out there.