IB surprise email: UCO short had been forced to bought-in!

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GloriaBrown

UCO is a very popular etf and I saw IB had a tons to offer for shorting and my annual interest rate was only 2.x%

I had double checked and never recieved any warning email from IB before.I just received this email right after US market closed and I am on my way to work do cannot login IB account to check what is going on.

Luckily this is only very small amount of money. The email doesnt say what price had been executed at all.

UCO is one of the most popular etf and I monitor a lot of etf interest rate to borrow, 2.x% is one of the lowest, there are a lot of etf with over 10%.

I dont think I will short stock with IB again, I feel like IB just bought in my short mainly because they can lend to other with much better interest rate now, of course I have no way to prove. I cannot take a risk of IB can just bought in my short position anytime they like for basucally no reason. US market just hits new high again and oil price is ok peaceful now, I dont see how can IB cannot have enough stock to let customer short at this period of time.
 
Well... that's the risk of shorting. Has nothing to do with IB really... if there's a call, they can't do anything. Even if you have a contract for a fixed rate and time to borrow a stock or ETF... the owner can always call in all off his stocks, nothing that IB can do about it.

It's not that IB lends you the stock, they find it and kinda facilitate the lending process.
 
Robert Morse said:
GloriaBrown,

I think I missed something. Since REG-SHO and failure to delivers are typically executed on the open, what was the reason they give for your buy-in? The reason you give is not likely.
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Here is the content of the email:
This alert is to inform you that due to a recall IB is unable meet your settlement delivery obligations for the short stock position(s) listed below for account U*******. As current SEC regulations require that all transactions be settled on the standard settlement date, these short stock positions have been bought-in. While IB tries to give advanced notice of a possible buy-in, due to the time frame of this fail, in this instance we were unable to do so. The positions listed below have been bought-in:


UCO (xxx shares)


Please note, IB will be unable to make further attempts to locate the shares for the above position. This notification will serve as a final buy-in notification.
 
JackRab said:
Well... that's the risk of shorting. Has nothing to do with IB really... if there's a call, they can't do anything. Even if you have a contract for a fixed rate and time to borrow a stock or ETF... the owner can always call in all off his stocks, nothing that IB can do about it.

It's not that IB lends you the stock, they find it and kinda facilitate the lending process.
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Uco is very popular, IB doesnt have any UCO left for shorting? I really doubt.
 
They have no borrow avail. right now in UCO. It's not just you -- LOL. It can happen at any time with any stock/ETF, although leveraged ETFs are usually very tight and much more likely that normal ETFs to get bought in. That's part of the risk of any short position.
 
Please educate me.

SCO is the inverse etf of UCO. A short of oil at 2x leverage. It trades at decent volume.

Why not just buy SCO, rather than a short of UCO, avoid the borrowed shares risk, and have no interest at all?

What am I missing in this little jigsaw puzzle?
 
GloriaBrown said:
Uco is very popular, IB doesnt have any UCO left for shorting? I really doubt.
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How shorting works:

I have UCO stocks... and tend to keep them... But I want to make some extra money and decide to lend them out to facilitate shorts.

You want to short UCO... and asks your broker (IB) if it's possible.

IB goes out and tries to locate any on your behalf... if they have them themselves, they might be able to lend directly, but I seriously doubt that they actually own UCO, since they're in the brokerage business and are not an investor.

They find them... and agree in some way on a lending rate... then you can short your stock... as long as upon settlement date the stocks are still available for lending.

If I then decide to call back my shares, which I am perfectly allowed to do, since I am the economic and legal owner of the shares... then that's to be 'delivered' back. The reason doesn't matter... they are mine and that's it.

IB gets a notice that there's less shares in the pool of lending and they need to allocate out...

You're kinda screwed since you've shorted and now have to buy-back the shares so upon settlement everything is fine...

You are now pissed off with your broker IB, but you should actually be pissed off with me, since I was the one that lend you the shares and wanted them back...

But really... your risk so no-one is to blame...
 
Quite strange to get this AFTER the close. Exposing you to overnight risk in oil

There should be limitations on what can be done to short sellers in terms of notice and timeframe.

Bad enough they rob you blind with high vig rates in may cases.
 
SoesWasBetter said:
Quite strange to get this AFTER the close. Exposing you to overnight risk in oil

There should be limitations on what can be done to short sellers in terms of notice and timeframe.

Bad enough they rob you blind with high vig rates in may cases.
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You just have no legal rights as a shorter... you don't own anything.
 
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