IANAL Technically you could lose shares loaned to short sellers, but it would happen under some pretty extreme circumstances. Basically, the short seller woul

IANAL Technically you could lose shares loaned to short sellers, but it would happen under some pretty extreme circumstances. Basically, the short seller would have to go into default and be unable to return the shares; then, your brokerage would have to also be in default and be unable to buy the shares needed to return them to your account. I have never been in this situation but I think most brokerages would try to offer a cash settlement for the lost shares. If the brokerage is bankrupt and was unable to transfer your account to a solvent brokerage, then, as far as I know, you would be a creditor during the bankruptcy proceeding and would be "first in line" i.e. you would have to be paid before the bond- or stockholders of the company. To compensate for this sort of risk short sellers must make interest payments, and usually brokers will share the interest payments with the client that they borrowed shares from (and thus the client must know the shares are being loaned). [EDIT: Looked it up, should have done this beforehand; if your brokerage is in default, you would be entitled to withdraw the collateral the brokerage had deposited for the loaned shared.]