Short sale rule change

[NoRush993/951]

I came across this today. The author runs an excellent blog.
Advancing Time: Short Sale Rule Change Red Flag Warning Of Trouble!

[jyl]

Okay, time for a reality check.

1. Scottrade is a private company, a discount broker for small investors. It isn't the government and it isn't even a big player in the markets.

2. "Short sale fees" are nothing new. When you short, you borrow stock from investors who own the stock long. Those investors aren't going to loan the stock for free. They charge a fee, called "the borrow", and they always have done. The borrow can be very large for stocks that are in high demand by short-sellers, for some it is >10%/year.

3. The borrow, or what Scottrade apparently calls the short sale fee, is not a government charge and the government has no control over it. It is simply the price charged by the private parties who own the stock, to the people who want to short it, for the right to borrow the stock and sell it.

I have not read anything else in this blog. This particular article is utterly uninformed and amateurish.

[NoRush993/951]

I only posted it because it is a change of policy that affects the small investor. Most likely Scottrade doesn't have enough of the right shares in all their other customer accounts to cover the amounts being shorted internally and they have to pay the floating rates that the big guys deal with to secure the shares. If the institutions are pulling back their shares that they regularly lend, that news will surface shortly.

He does have interesting articles on his blog.

[jyl]

He says "It should be noted that this is not the first time governments and those in power have altered the rules to support a market". Sounds like he's trying to pull the wool over his readers' eyes. Or he himself doesn't understand what he's writing about.