Mechanics of a Short Sale (interesting info)

Discussion in 'Trading' started by mrstocker, Sep 30, 2008.


    Couple of quotes:
    It is important to understand that there will be situations where a given stock appears to be borrowable on T, but in the intervening 3 days, the availability changes such that on T+3, it is no longer borrowable. This creates a situation in which the short sale trades will "fail", in other words the timely delivery obligation will not be met by the broker. In this case, a forced repurchase, or "buy-in" may be issued by the broker and the resulting trade will be charged to the trader's account, thereby reducing or eliminating the short position.

    In the case that no substitute loan can be arranged, the broker may notify Trader A that the loan has been recalled and that the trader must cover his/her position immediately. In many cases the broker will simply execute the forced repurchase, or buy-in, of the recalled shares.