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But as the original stock holder what happens when if the loanee defaults? The broker just calls you up and says "you had the share in your account but we lost

But as the original stock holder what happens when if the loanee defaults? The broker just calls you up and says "you had the share in your account but we lost it, here's some money for your troubles?" It seems like the holder wouldn't care if they were just selling it, but if you were transferring the stock out to another brokerage, they just give you the alleged ask price of the shares (which actually doesn't exist because the shares are illiquid) because they made a mistake and lost your shares? I also find this confusing for voting rights: if my brokerage is loaning out my shares without my knowledge, then I don't actually have the voting rights that I think I do, since the share is actually held by someone else?

LatteLazy 6y ago
>The broker just calls you up and says "you had the share in your account but we lost it, here's some money for your troubles?" Pretty much. Devils advocate: if you know you own all the stock, and someone offers to sell you stock, you know the deal cannot actually be completed. So at best you're owed your money back for the "extra" stock you "bought". If you own 101% you should know you cannot actually transfer or vote that stock extra 1%, it's simply not possible. All 101% means is if the stock goes up, you get 101% of the gains. Fyi, times when votes are happening are interesting for shorted stock because a not insignificant percentage of the stock does get recalled so owners can vote it. So short sellers have to reduce their positions and then increase them again. It is one way to try and estimate short-seller impact in the stock...
- esrauch 6y ago
  Thanks for clarifying. It seems like this should be a problem for cases where not just one person owns all the stock but for any fairly illiquid stock: if someone holds 40% of outstanding shares, the brokerage loans it and then it's sold, if there's some kind of takeover or aggressive purchase then it seems like a collection of others who now hold 61% and aren't listing their shares would also cause this "lost share", right? Isn't this also a loophole that can be used to "steal" stock from someone who otherwise doesn't want to sell: their share is loaned by their broker to B who sells it to you, and then you just refuse to sell it back to be returned, and some random middle man is on the hook and you've managed to purchase shares that weren't for sale?
  - LatteLazy 6y ago
    I think you could definately use it to acquire shares that were not truly for sale. You have to be a pretty big organisation and post a lot of collateral to borrow and sell stock. It's also assumed you'll sell it on exchange, if you do so you don't know the buyer though I guess you could arrange it? So a really sneaky player willing to sacrifice a lot of collateral could probably do it. I think the main safety catch here is that if you hold a significant percentage of a company and you want those voting rights, talk to your broker to make sure its not lent without your knowledge... I wonder if this has ever happened? Edit: I spent some time googling and found this: https://www.quora.com/What-happens-to-a-short-seller-who-cant-deliver-the-shares https://www.quora.com/What-happens-to-a-short-seller-who-can... It's quora but it seems pretty good. It does seem that if it's lent and not returned you get cash or wait for some to become available. Sucks if you wanted to vote the shares...

LatteLazy 6y ago

>The broker just calls you up and says "you had the share in your account but we lost it, here's some money for your troubles?" Pretty much. Devils advocate: if you know you own all the stock, and someone offers to sell you stock, you know the deal cannot actually be completed. So at best you're owed your money back for the "extra" stock you "bought". If you own 101% you should know you cannot actually transfer or vote that stock extra 1%, it's simply not possible. All 101% means is if the stock goes up, you get 101% of the gains. Fyi, times when votes are happening are interesting for shorted stock because a not insignificant percentage of the stock does get recalled so owners can vote it. So short sellers have to reduce their positions and then increase them again. It is one way to try and estimate short-seller impact in the stock...

esrauch 6y ago
Thanks for clarifying. It seems like this should be a problem for cases where not just one person owns all the stock but for any fairly illiquid stock: if someone holds 40% of outstanding shares, the brokerage loans it and then it's sold, if there's some kind of takeover or aggressive purchase then it seems like a collection of others who now hold 61% and aren't listing their shares would also cause this "lost share", right? Isn't this also a loophole that can be used to "steal" stock from someone who otherwise doesn't want to sell: their share is loaned by their broker to B who sells it to you, and then you just refuse to sell it back to be returned, and some random middle man is on the hook and you've managed to purchase shares that weren't for sale?
- LatteLazy 6y ago
  I think you could definately use it to acquire shares that were not truly for sale. You have to be a pretty big organisation and post a lot of collateral to borrow and sell stock. It's also assumed you'll sell it on exchange, if you do so you don't know the buyer though I guess you could arrange it? So a really sneaky player willing to sacrifice a lot of collateral could probably do it. I think the main safety catch here is that if you hold a significant percentage of a company and you want those voting rights, talk to your broker to make sure its not lent without your knowledge... I wonder if this has ever happened? Edit: I spent some time googling and found this: https://www.quora.com/What-happens-to-a-short-seller-who-cant-deliver-the-shares https://www.quora.com/What-happens-to-a-short-seller-who-can... It's quora but it seems pretty good. It does seem that if it's lent and not returned you get cash or wait for some to become available. Sucks if you wanted to vote the shares...