Got this from Tradestation. Isn't it the BROKER'S responsibility to find the shares?

Discussion in 'Trading' started by steve0617, Sep 19, 2008.

  1. September 19, 2008

    Dear TradeStation Clients:

    Yesterday, we informed you of the new short selling rule adopted by the Securities
    and Exchange Commission (SEC) on September 17, 2008 (the "Rule"). In the Rule,
    the SEC expressed concern "about the possible unnecessary or artificial price
    movements based on unfounded rumors regarding the stability of financial
    institutions and other issuers exacerbated by "naked" short selling." SEC Release
    No. 34-58572 <>. In order to
    allay some of these concerns, the SEC imposed enhanced delivery requirements on
    short sales of equity securities. What this means for you is that if you sell an
    equity security short, and there is a failure-to-deliver the securities you
    shorted by the settlement date (Trade Date + 3), we are required to close out your
    short position no later than the beginning of the regular trading hours of the
    next business day (T+4).

    We have received some questions as to whether TradeStation will notify you (or
    attempt to notify you) prior to closing out your short position in accordance with
    the new Rule.


    If required to do so by the Rule, we will take whatever action is necessary,
    including closing out your short position at or before the market opens on T+4.
    As a reminder, when you opened your equities account, you agreed that "all of your
    transactions shall be subject to all applicable laws, rules and regulations."
    (Section 2 of the TradeStation Securities Account Agreement.)

    Please consider this message as your ONLY NOTICE that we intend, from time to
    time as the Rule requires, to "buy-in" and close out your short sale position(s),
    without further notifying you, no later than market open on the fourth day after
    your trade date (T+4). As a reminder, any losses suffered or lost opportunities
    realized as a result of any such buy-ins to close out your position to satisfy the
    Rule will be solely your financial responsibility. We strongly recommend that you
    read the SEC Release and Rule and incorporate the limitations associated with this
    new rule into your trading strategies and decisions.

    As always, we remain committed to being your direct trading firm of choice and
    encourage you to contact the Trade Desk at (800) 871-3563 should you have any
    questions or comments.

    Very truly yours,

    Joe Nikolson
    TradeStation Securities, Inc.

    Isn't it the BROKER'S responsibility, if they give you shares to short, that THEY ACTUALLY HAVE THEM TO BORROW?

    Or is TS engaging in naked short selling?
  2. ASav


    It is your broker's responsibility to make an "affirmative determination" that shares can be borrowed to short prior to executing the short. That can mean that they get an OK from you that you can borrow the shares, checking a borow list from their clearing firm or checking their own inventory to see that they can lend it. So its their responsibility to have the affirmitive determination, not necessarily the borrow.