forced covering of a short

I have been short a canadian oil & gas trust because they acquired an E&P that I own. I woke up this morning and the broker covered it without warning me. It’s not a financial stock, it wasn’t heavily shorted nor was it on the regulation SHO list. Its an adr trading on the NYSE with good volume. Really makes me wonder what’s going on and how to play this? If they are covering positions like this then I’m speechless.

were you just arbing it because of the acquisition? that is really weird.

That’s awful that no courtesy call was given by the broker. Legally, though, they do not have to tell you they would be covering. They can do it any time.

yes my point is that if these kinds of stocks are getting covered then there is something funky going on… can’t decide if it’s good. I tried to short an index fund iShare, EFA, and there were no shares available. These ishares are made to be shorted… weird.

Interactive Brokers is NOT a very courteous broker. But they are cheap and they usually will let you short anything.

…could there be a secret directive to cover short positions slowly over the next two weeks or so?

all fails a broker has right now b/c of the SEC order you are supposed to buy in- if it’s a new short that you fail on, it’s either on SD or by the open on SD+1. If it’s a pre-existing fail, I’m pretty sure the interpretation is that you get no grandfathering- it’s SD+3 forced buyins. There are a few exceptions for 144/restricted type stocks, think you get 30 days or so. But yeah, it’s not just reg SHO names or new shorts getting bought in these days. I would say that no call or notification from your broker is pretty cold, but like someone said, technically they can buy you in at any time w/o notification. the joys of going short. EFA I’m surprised you can’t get a locate for. A lot of brokers haven’t been creating new shrs of ETF’s over the last few weeks with the short order, so supply is definitely a bit tighter (IWM was trading negs a few days ago for example, crazy), but I’d think for the most part the broader ETF’s probably still would be ok to short if you gave your broker a call.

I didn’t know that (not up on my current SEC regs, I guess) but this isn’t a fail, right Virgin?

from what I’ve heard if there is a fail-to-deliver on a symbol w/in the firm it has to be bought in for all clients w/ a short position and cannot be shorted again w/in the firm until that happens.

Really? Wow, another new one for me.

I’ve been short this stock, PGH, since July 23. There are only 1.3 million shares sold short out of ~250 million shares outstanding. Covered today without warning.

The broker just might not have a lot of shares available and if the account holding them sold, you’re covered. Used to be they would scramble to find you a new borrow (causing many of the FTD’s which get so much press), not anymore.

Does the fact that the acquisition closed today have any implication for it? Side note: you owned Accrete?

Yes, i owned accrete. My accrete shares (long) are still in my account so I don’t think it’s related. The acquisition was small for PGH.

they covered you on PGH? there are millions of shrs on broker feeds- that is not a hard name to get. record was 9/30 for the div- always gets tight around div seeing as yield is very high but that makes even less sense for them to buy you in today 10/1 the div. who do you trade with you said? Interactive brokers? they always have been a fire first, actually borrow shares later sort of electronic shop. maybe their stock loan desk didn’t really want to hustle for shares right after a record date on stock, but again, boo on them. not sure if this is your own retail acct or your firm’s or whatever- i could see why a retail guy might not get shrs on a lot of names like PGH or other energy trusts, MLP’s, etc… a bit more painful for tax depts, K1’s, etc… Re: forced covering of a short new Posted by: akanska (IP Logged) [hide posts from this user] Date: October 1, 2008 11:00AM from what I’ve heard if there is a fail-to-deliver on a symbol w/in the firm it has to be bought in for all clients w/ a short position and cannot be shorted again w/in the firm until that happens. This isn’t true at all. Every firm has an order of buyin priority and must follow it if there’s a fail, but in no way would a firm have to close out all shorts or not ok more shorts if a name were a trouble name. you locate a new short while your firm is already failing, though, you might have some compliance/FINRA guys looking pretty closely at you. 100% you dont’ have to buy in all clients on a name though. just the fail amt and i will leave it at that in terms of who gets hit and who doesn’t.

Hmm… Believe akanska, believe bannisja, look it up myself… Believe bannisja this time.

yeah i’m not normally a stickler for the rules but i’m right in the trenches on this stuff. has been an exciting few weeks. long, exhausting, but definitely interesting.

bannisja, can you explain to me what happens if you had Lehman PB and you shorted stock. My understanding is Lehman goes out and borrows this stock from someone, say StateStreet, gives them to and you sell them in the market, you collect proceeds, you pay Lehman a borrow fee, Lehman then pays StateStreet a borrow fee. What happens when Lehman PB goes under? What happens to those shares they are owed back to State Street? All Lehman PB’s are frozen, and may never be unfrozen, so where do the shares go? Does StateStreet lose their shares?

good question- if state lends LEH stock, they normally get cash or some sort of other collateral in return. whether state never gets the stock back from LEH but keeps the cash or can buy in the stock and somehow maybe net out the original loan with the buy-in (net/net shrs would be flat), now that is beyond what I know or have ever had to experience. stock loan if you lend stock, you get cash usually, so I’d think on that end maybe state would be decently covered, but i’m sure it’d get a bit messy.