Tradestation and naked shorting????

S

SideShowBob

From a newsletter I received as a tradestation customer:

We also know that some of you apply short selling to your trading strategies so we
wanted to alert you to new requirements adopted yesterday by the Securities and
Exchange Commission (SEC). The SEC expressed concern "about the possible
unnecessary or artificial price movements based on unfounded rumors regarding the
stability of financial institutions and other issuers exacerbated by "naked" short
selling." SEC Release No. 34-58572.

In order to allay some of these concerns, the SEC imposed enhanced delivery
requirements on short sales of equity securities. What this means for you is that
if you sell an equity security short, and you fail to cover the short position by
settlement date (Trade Date + 3), we may have to buy in your position no later
than the beginning of the regular trading hour of the next business day (T + 4).
Any losses suffered or lost opportunities realized as a result of our actions will
be your financial responsibility. We strongly recommend that you read the SEC
Release and Rule <http://www.sec.gov/news/press/2008/2008-204.htm>
and incorporate the limitations associated with this new rule into your trading
strategies and decisions.

WTF are they talking about? I understand if they can't borrow the shares yes this could happen, but the wording makes it seem to me like they never borrow the shares they just naked short up the wazoo. Anyone who knows what they're talking about care to comment (I'm precluded since I have no freakin' clue what I'm talking about )

SSB:eek:
 
I just got the same message from TradeStation and I was about to post it here. Anyone has any idea what this means? You cannot short anymore without the fear that your position will be closed in 4 days?
 
Dunno, but thinking about the message it's more likely it's a rate occurrence, but they want to get this out there to give them the ability to do whatever they want and then say "hey you were warned". I thought that brokers basically cover the borrowing costs using the interest from the proceeds of the short sale, but I guess if the borrowing costs are too high they'll just cover it for you to prevent you from making a profit.
 
EXACTLY,well in 3 not 4!

Quote from telozo:

I just got the same message from TradeStation and I was about to post it here. Anyone has any idea what this means? You cannot short anymore without the fear that your position will be closed in 4 days?
More...
 
Here's a follow up letter from TS:


Dear TradeStation Clients:

Yesterday, we informed you of the new short selling rule adopted by the Securities
and Exchange Commission (SEC) on September 17, 2008 (the "Rule"). In the Rule,
the SEC expressed concern "about the possible unnecessary or artificial price
movements based on unfounded rumors regarding the stability of financial
institutions and other issuers exacerbated by "naked" short selling." SEC Release
No. 34-58572 <http://www.sec.gov/rules/other/2008/34-58572.pdf>. In order to
allay some of these concerns, the SEC imposed enhanced delivery requirements on
short sales of equity securities. What this means for you is that if you sell an
equity security short, and there is a failure-to-deliver the securities you
shorted by the settlement date (Trade Date + 3), we are required to close out your
short position no later than the beginning of the regular trading hours of the
next business day (T+4).

We have received some questions as to whether TradeStation will notify you (or
attempt to notify you) prior to closing out your short position in accordance with
the new Rule.

THE ANSWER IS YOU WILL RECEIVE NO FURTHER NOTICE.

If required to do so by the Rule, we will take whatever action is necessary,
including closing out your short position at or before the market opens on T+4.
As a reminder, when you opened your equities account, you agreed that "all of your
transactions shall be subject to all applicable laws, rules and regulations."
(Section 2 of the TradeStation Securities Account Agreement.)

Please consider this message as your ONLY NOTICE that we intend, from time to
time as the Rule requires, to "buy-in" and close out your short sale position(s),
without further notifying you, no later than market open on the fourth day after
your trade date (T+4). As a reminder, any losses suffered or lost opportunities
realized as a result of any such buy-ins to close out your position to satisfy the
Rule will be solely your financial responsibility. We strongly recommend that you
read the SEC Release and Rule and incorporate the limitations associated with this
new rule into your trading strategies and decisions.

As always, we remain committed to being your direct trading firm of choice and
encourage you to contact the Trade Desk at (800) 871-3563 should you have any
questions or comments.

Very truly yours,

Joe Nikolson
President
TradeStation Securities, Inc.
 
Quote from SideShowBob:

Here's a follow up letter from TS:
More...

Doesn't that imply that TS lets you short without a locate then? The whole tone of the letter implies it is the customer's responsibility to find a locate. That is bizarre.
 
Quote from sprstpd:

Doesn't that imply that TS lets you short without a locate then? The whole tone of the letter implies it is the customer's responsibility to find a locate. That is bizarre.
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I posted the same email and asked the exact same question. My belief is yes, it's the broker's responsibility to find the shares, not me, the retail customer.

It SURE seems like they're just covering their ass when they either a) don't find the shares or b) don't even bother and then close you out without notice.

Sure seems like they're engaging in total naked short selling.
 
Quote from sprstpd:

Doesn't that imply that TS lets you short without a locate then? The whole tone of the letter implies it is the customer's responsibility to find a locate. That is bizarre.
More...

I don't quite understand that letter either since I'm not able to short anything unless it's on their easy-to-borrow list and is not on their SHO list.
 
Anyone feel like calling them and waiting on hold for 45 minutes before getting a rep who says they reserve the right to make like Kobe Bryant in Colorado and bend you over a chair in a hotel room?

Their later message saying they'll close out shorts of the 800 non-shortable financial stocks means they have absolutely no control over their trading system and no way to block any kind of sales, and they must have some guy running sql queries every minute to find stocks that are shorted and aren't supposed to be and then manually close them out.

I'm glad I don't rely on their trading technology ....oh wait I do crap!!!
 
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