Which of the following statements regarding regulations governing the short-sale process is FALSE? A)Short sales can only be made when the last change in the market price of the stock has been upward. B)The short-sale process must be completed within a 90-day period. C)The short seller must pay a margin equivalent to the prevailing margin requirement when the transaction is made. D)If dividends are paid on the stock during the short-sale transaction, the short seller must pay dividends to the investor that loaned the stock. Answer is B which is fine, but I am confused about C. What is prevailing margin req’t? I thought initial margin requirements are set by the Fed Reserve Board. I am using Schweser materials, am i missing something?
The amount of the margin is specified by the Fed Reserve board, and keeps changing from time to time. So the rate that “prevails” at the time of the process must be paid by the Short seller to initiate the contract.
Thanks cpk123
Shouldn’t B be false?
delhirocks – B is the right answer. dec2007 had the question about the semantics of C… which he was clarifying.
that option A is called uptick rule…m i right to say that? cheers
maparam, Schweser simply hasn’t updated the study materials for the short selling rules change. Q Bank still has questions assuming the uptick rule is in effect so for the purpose of this question A is correct. There were previous posts on this issue, most opinions were that we won’t be tested on it.
TKs dec2007. That means the 90 days deadline to complete the sale is a false statement?
For those who do not know this already : please read carefully the option A) which says short sale only on UPTICK. If the mkt price of a share is say ; 1st trade : $39 2nd trade : $40 3rd trade : $40 4th trade : $40 If you see there is no change in price upward between 3rd and 4th. Still this share can be shorted as the CHANGE in price between 1st and 2nd is upward.
FRM2cfa Wrote: ------------------------------------------------------- > For those who do not know this already : > > please read carefully the option A) which says > short sale only on UPTICK. > Actually it says "A)Short sales can only be made when the last change in the market price of the stock has been upward. " Kinda weird to tell other people to read it carefully, and then capitalize a key word that isn’t even in the answer. > > If the mkt price of a share is say ; > > 1st trade : $39 > 2nd trade : $40 > 3rd trade : $40 > 4th trade : $40 > If you see there is no change in price upward > between 3rd and 4th. Still this share can be > shorted as the CHANGE in price between 1st and 2nd > is upward. Which means that according to the non-existent uptick rule you could short the stock.
A) is the UPTICK rule B) FASLE, no such timing deadline… [Answer is B] C) I did’nt knew this, but it’s clear now after reading cpk’s comments… D)DIVIDENDS are DELEGATED back to the original owner So JoeyD, What do we assume if we get a question on UPTICK rule in our Dec 07 exam. Do we still assume it’s still there out in the market? - Dinesh S
Keep in mind that as of this summer, the uptick rule is no longer in effect. CFAI probably will not ask us a question as to that rule as they are big on testing only CURRENT rules and regs. The rule was changed after all the 2007 material was printed.
dinesh.sundrani Wrote: ------------------------------------------------------- > > So JoeyD, What do we assume if we get a question > on UPTICK rule in our Dec 07 exam. Do we still > assume it’s still there out in the market? > You won’t. The exam is more up-to-date than Schweser.