Naked short selling is illegal, so you have to borrow the stock in order to sell it.
But if the lender decides to take their stock back from you the borrower, then you are suddenly and unexpectedly in the position of naked short selling?
Aren't there some sorts of protections for the short seller, e.g. terms on the borrow?
> But if the lender decides to take their stock back from you the borrower, then you are suddenly and unexpectedly in the position of naked short selling?
Yes, short sold shares can be recalled at any time. If the shares you short sold are recalled by the lender, then your broker will attempt to find replacement shares to borrow. If no replacement shares can be found, you will be notified and can either buy the shares back yourself or your broker will perform a "buy in" (i.e. force you to cover the loaned shares at the current price). All of this happens within 3 business days, or less. This happens with some regularity in "hard to borrow" stocks and is a substantive risk to short sellers. The lender also has the option to "rerate" the loan instead of an outright "recall" ... short sellers must pay interest to borrow shares and the interest rate is set by the lender, which which can be very high in "hard to borrow" stocks and can be increased at any time by the lender. In the case of a rerate, the short seller must buy back the shares in order to avoid paying the excess interest.
They can demand the stock back consistent with the terms of the borrow. A footnote in the article made it sound like it was typically a day-by-day thing. They don't instantly get the stock back, presumably you need to go and buy it on the open market and then return it to them or pay some sort of fine/interest.
Wow. At one point years ago I did some testing to see if I could short any of the stocks in those pump-n-dump email scams that were big circa 2005 or so. Never did find one that was shortable... now I'm glad I didn't! Clever scam though.
Naked short selling is illegal, so you have to borrow the stock in order to sell it.
But if the lender decides to take their stock back from you the borrower, then you are suddenly and unexpectedly in the position of naked short selling?
Aren't there some sorts of protections for the short seller, e.g. terms on the borrow?