> Because of short sellers that means tracking down people who may no longer exist and get them to pay you money that they never planned on owning anyone.
IMO, the death and disappearance problem is amusing, but the more interesting question to me as a layman is how the agreements are worded between brokers, shortsellers and stockholders.
I may have to review my own paperwork, because I don't recall giving permission to lend out my stock, or yielding my interest in related lawsuits. I've never short sold, so I don't know how the agreement is intended to work. But if they're not on the hook legally, (which seems like they ought to be?) then it seems like it's up to the broker to make me whole.
> I may have to review my own paperwork, because I don't recall giving permission to lend out my stock, or yielding my interest in related lawsuits. I've never short sold, so I don't know how the agreement is intended to work. But if they're not on the hook legally, (which seems like they ought to be?) then it seems like it's up to the broker to make me whole.
The problem here is for the broker, not the person who owns the share. If they loaned it out that's their issue, you'll get your money. That's why the broker is the one making the money on loaning out short shares, they also assume the responsibility.
> The main reason why the brokerage, and not the individual holding the shares, receives the benefits of loaning shares in a short sale transaction can be found in the terms of the margin account agreement. When a client opens a margin account, there is usually a clause in the contract that states that the broker is authorized to lend - either to itself or to others - any securities held by the client. By signing this agreement, the client forgoes any future benefit of having his or her shares lent out to other parties.
"Typical margin account agreements give brokerage firms the right to borrow customer shares without notifying the customer. In general, brokerage accounts are only allowed to lend shares from accounts for which customers have debit balances, meaning they have borrowed from the account. SEC Rule 15c3-3 imposes such severe restrictions on the lending of shares from cash accounts or excess margin (fully paid for) shares from margin accounts that most brokerage firms do not bother except in rare circumstances. (These restrictions include that the broker must have the express permission of the customer and provide collateral or a letter of credit.)" [1]
IMO, the death and disappearance problem is amusing, but the more interesting question to me as a layman is how the agreements are worded between brokers, shortsellers and stockholders.
I may have to review my own paperwork, because I don't recall giving permission to lend out my stock, or yielding my interest in related lawsuits. I've never short sold, so I don't know how the agreement is intended to work. But if they're not on the hook legally, (which seems like they ought to be?) then it seems like it's up to the broker to make me whole.