How do you "have a committment for borrowing the shares that you are shorting"?

Question

redwine writes "old rules were that you had to have a reasonable expectation to borrow the shares you were shorting. It was illegal to just short without looking or having any intention to look for the shares you were shorting. Now the rules are that you have to have a committment for borrowing the shares that you are shorting." tba

Answer 1

When you sell short, your broker has to borrow the stock to deliver to the buying brokerage firm.  This law went into effect in the late 20s, early 30s and still remains in effect today.

There is nothing in today's rules or in the past that states you have "a committment for borrowing the shares that you are shorting"

The short selling customer does not have to borrow the stock they are shorting, but their brokerage firm does the borrowing

However, the are those that just sell the stock with out noting that it is a short sale, which is called naked short selling.

The short sellers broker does not realize that it was a "short:" sale until past settlement date.

Some brokers will try to borrow the stock to deliver to the buyer, since they are penalized in the net capital computation for carrying an open item over 30 days.

When you short with major brokerage firms. they may require you to have permission to short, this is to permit them to try to borrow the stock for making the delivery to the buyer, if they can not borrow it, they can refuse to let you sell short.

At the present time the SEC is looking to change back the short selling rules by putting back in the uptick rule and prohbting "naked' short selling.  This has the backing of most major and reputable brokerage firms, since the rule change was suggested from the world of Academia, and not from the industry

Answer 2

shorting is basically just borrowing shares from your broker and selling them, with the intent of buying them back when the price goes down so you can keep the difference,.. i guess what they mean by committment is that your liable for the amount of money you borrowed from your broker

Answer 3

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