illegal shortsale/profit removal

K

kean

On Wedenesday last week I posted a bullet for 500 shares and then sold short brut for 500 shares, nothing happened to this order(no fill) so I sent it again to BRUT. Immediately I received the shares. A minute & half later an additional 500 shares popped into my blotter with Brut the contra. I'm now iiiegally short 500. I covered the entire 1000 in the next minute with $345 being the profit from 500 shares illegal. My boker firm disgorged these profits saying they would be forwarded to the NASD. I have a number of problems with this 1. I spoke with the NASD they have no such policy 2. This has happened before with another broker and if you have a legitimate explanation they let you keep the profits-Brut not reporting the confirmation is a legitamate explanation 3. I had to approach my broker two days later to find out why my equity was innacurate, only then did they tell me 4. Nothing been posted to my account to document the monies being debited. Can anyone tell me what the rules/policies are about this. Should I pursue it?:mad:
 
My firm does the same thing. Used to be if it was a mistake, and you covered right away, they'd let it slide. Now any profits from an illegal short are automatically debited from my account and I'm charged the cost of the bullet. It happens occasionally when I try to sell a stock and it moves further, so I cancel and re-send the order at a different price, but the original one was held and ends up being executed too.
 
If the NASD has no such policy that probably means their retaining those profits. That's BULL****. Also it's not a fair market if you report fills a minute later. If you could do that it's a licencse to print money. Report the ones that move in your favor and don't report the ones that don't.
 
Many firms like to take the profit and hit the client if their is a loss.....however, in order to do this they have to move trades to their error account....if there are a lot of trades in the error account, it will effect the firm's net cap requirement...generally, there should be no more then 6-10 trades PER YEAR in the error account....As far as sending the profit to the NASD...i would call back and ask for the person's name and supervisor and ask them to put that policy in writing....don't hold your breath though...they will deny ever saying that...also, regardless of the profit/loss of the trade...it is the software and FIRM"S responsibility to prevent that from happening and they may face trouble down the road. good luck....and be careful with any firm that tries this sort of stuff
 
Sorry...novice here just trying to get more acquainted with the markets...

Could someone explain to me what an "illegal short sale" is and why this sort of situation arises? I didn't quite follow the original poster....

--noah
 
Quote from noahlh:

Sorry...novice here just trying to get more acquainted with the markets...

Could someone explain to me what an "illegal short sale" is and why this sort of situation arises? I didn't quite follow the original poster....

--noah
More...

An illegal short sale is selling long when you don't already own the shares. When you short, you are instructing the broker to loan you shares to sell. If you don't ask them to loan them to you as a short sale, then you are selling something you don't have, nor did you borrow. You are essentially selling air. :)

I imagine most retail brokers will automatically convert a sell to a short sell if you don't have shares in your account. Brokers, prop firms, etc. that don't check could end up allowing you to make an illegal short sale.

Not sure I explained it well...

BTW, in the poster's case, he had 500 shares in his account from the bullet. So he could sell long those 500 shares. He accidentally ended up short 1000 shares though, and not because of an actual short sell. So he illegally sold 500 shares (not intentionally of course).
 
It's when you are selling a stock that you don't own or have a bullet on and it's not marked as a short sale and not executed on an uptick. Most professional software doesn't put any limitations on this and if you hit sell, it sells. Your fault if you don't own the stock or have a bullet.
 
Quote from TM_Direct:

Many firms like to take the profit and hit the client if their is a loss.....however, in order to do this they have to move trades to their error account....if there are a lot of trades in the error account, it will effect the firm's net cap requirement...generally, there should be no more then 6-10 trades PER YEAR in the error account....As far as sending the profit to the NASD...i would call back and ask for the person's name and supervisor and ask them to put that policy in writing....don't hold your breath though...they will deny ever saying that...also, regardless of the profit/loss of the trade...it is the software and FIRM"S responsibility to prevent that from happening and they may face trouble down the road. good luck....and be careful with any firm that tries this sort of stuff
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Are you saying 6-10 for the firm or per trader?
 
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