4 ms·

It's incredibly difficult to short an IPO within the first 30 days because the SEC requires the underwriter to wait at least 30 days to lend out shares for shor

by justinv 11y ago

It's incredibly difficult to short an IPO within the first 30 days because the SEC requires the underwriter to wait at least 30 days to lend out shares for shorting. So then you'd have to get a retail or institutional investor who JUST PURCHASED shares to lend them to you to short. In which case, why would they bother buying them in the first place.

scurvy 11y ago
This isn't entirely true. If you hold securities in a margin account, your broker can lend the shares out to another client of theirs to short. You have no say in the matter. It's up to your broker to balance the number of longs vs shorts internally. But you can most definitely short on day one. I've done it and my account balance only has 1 comma in it. If the short to long ratio gets too close, they will close out shorts or try to borrow from other clearing firms so that they don't end up naked. Early on, most firms will just close the short.
- prostoalex 11y ago
  > This isn't entirely true. If you hold securities in a margin account, your broker can lend the shares out to another client of theirs to short. You have no say in the matter. I don't think what you said is 100% true either. Charles Schwab brokerage definitely asks before lending out, advertises the interest the borrower is willing to pay on the loaned shares, enrolls the willing lender into Schwab Securities Lending Fully Paid Program, and then buys an insurance policy from Lloyd to cover counter-party default. All of this is done via FedEx letters and hand-written signatures. Sounds like some brokerages don't ask and keep the fees and accrued interest to themselves, which is shady. ETFs and mutual funds don't have to ask anybody, of course, and usually pass on revenue from securities lending to their customers via lower fees.
  - scurvy 11y ago
    Are you sure that's not only for cash accounts. Pretty much every margin account agreement I've ever seen says that they can lend out your holdings without your explicit consent or that acceptance of the agreement is explicit consent. Cash accounts are different creatures.

by justinv 11y ago

scurvy 11y ago

This isn't entirely true. If you hold securities in a margin account, your broker can lend the shares out to another client of theirs to short. You have no say in the matter. It's up to your broker to balance the number of longs vs shorts internally. But you can most definitely short on day one. I've done it and my account balance only has 1 comma in it. If the short to long ratio gets too close, they will close out shorts or try to borrow from other clearing firms so that they don't end up naked. Early on, most firms will just close the short.

prostoalex 11y ago
> This isn't entirely true. If you hold securities in a margin account, your broker can lend the shares out to another client of theirs to short. You have no say in the matter. I don't think what you said is 100% true either. Charles Schwab brokerage definitely asks before lending out, advertises the interest the borrower is willing to pay on the loaned shares, enrolls the willing lender into Schwab Securities Lending Fully Paid Program, and then buys an insurance policy from Lloyd to cover counter-party default. All of this is done via FedEx letters and hand-written signatures. Sounds like some brokerages don't ask and keep the fees and accrued interest to themselves, which is shady. ETFs and mutual funds don't have to ask anybody, of course, and usually pass on revenue from securities lending to their customers via lower fees.
- scurvy 11y ago
  Are you sure that's not only for cash accounts. Pretty much every margin account agreement I've ever seen says that they can lend out your holdings without your explicit consent or that acceptance of the agreement is explicit consent. Cash accounts are different creatures.