How are brokerage firms determining these short position buy ins?

Discussion in 'Retail Brokers' started by cknucks, Oct 9, 2008.

  1. cknucks


    Okay, just got a message from IB stating they're about to buy in my short USO position. Last week it was XLY. I was short both positions for a while before the forced buy-ins, so it was NOT a settlement issue! I have a conspiracy theory concerning how retail investors are getting shafted that I hope is completely false that I'm wondering aloud about.

    Basically, say brokerage firm X has a finite number of shares that it can borrow and deliver against shorts. The brokerage firm simply charges its retail investors margin on the position. Now let's say that the brokerage firm also has an institutional desk. A fund comes along willing to pay brokerage firm X a higher rate that their margin rate in order to borrow the shares to short. Brokerage firm X then yanks allocation away from retail investor who is already short, shifts it to fund investor, and then tells retail investor that it has a failed delivery.

    Is this what is currently happening out there behind the scenes? Is IB yanking stock allocated to my short away from me and allocating it to some fund willing to pay some higher rate? If so, would I be better off at a retail firm that doesn't have an institutional desk? Hopefully, I'm way off in my suspicions and understanding of this, b/c I'm otherwise happy with IB.