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NorthStar Realty Finance Corp. Message Board

  • dar200 dar200 Jul 8, 2013 10:04 AM Flag

    HTB at Fidelity

    At Fidelity, whenever a "sell short" order is started the display shows how many shares are available to be borrowed. This morning Fidelity shows 11.5 million shares "available to short" but also labeled it HTB and says there is a 1% (annualized) fee to borrow.

    I could not understand how, if 11.5 million are available, it could be hard to borrow, so I called. The answer is, even though 11.5 million are potentially available, they may be hard to borrow because they are held in cash accounts (as opposed to margin accounts). In a cash account, the broker cannot loan the shares without the customer's express consent. That may be hard (expensive) to get. In a margin account, by the terms of the margin agreement, the broker can borrow without even telling the customer, never mind asking first. I only know some of shares have been loaned when I get a payment in lieu of a dividend.

    BTW, I have never sold any stock short in my life....just not my style. I start a sell short order just to find out how many shares Fidelity has available.

    I learned something this morning.

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    • Shares in a margin account are not automatically available for lending. I have a Schwab margin account and they always ask my permission to lend my stocks under the "Securities Lending Program" and offer a lending fee. They only ask when I own at least several thousand shares of a highly shorted stock. I think maybe when you open an account you designate if your securities can be borrowed on the application, not sure about that.

      • 1 Reply to aidanquin
      • I suspect the shares Schwab calls you about lending are held in a cash account. It has been almost 10 years since I last read a Schwab margin agreement, but I believe securities borrowing by the broker (for lending to others) without notice to the account holder is a standard clause in brokerage margin agreements.

        Look closely at your Schwab statement. They must designate which shares are cash and which are margin
        Fidelity puts "(M)" next to the security name to designate margin shares. As I previously posted, you can have cash shares and margin shares within the same non-retirement brokerage account.

    • So here we are a day later and Fidelity has 11.0 million shares.....1/2 million fewer than yesterday, but they are no longer htb. Go figure.

    • thanks, I don't have a margin account so they'll never borrow my shares.

    • The HTB designation is not 'on' for NRF at Schwab today, but, it has been off then on over the past several days. Question: When a margin account is credited with a 'payment in lieu of dividend' what is the proper tax treatment of that payment? If it is 'in lieu of' a qualified dividend, are there tax consequences since the payment would be ordinary income?? Thanks!

      • 1 Reply to newguy7001
      • A payment in lieu of a dividend is ordinary income, not a dividend. With nrf it makes no tax difference as long as the dividend is 100% taxable (as was 2012) because a reit dividend does not qualify for special "qualified dividend" tax rates of 0%, 15% or 20%. Pay in lieu and all taxable dividends are subject to the socialist pig's 3.8% investment income tax, called a Medicare tax even though it goes to the general fund.

        A pay in lieu is subject to the maximum ordinary income tax rate of 39.6% whereas a qualified dividend is taxed at 20%. Fidelity reimburses the difference plus tax on the difference when a pay in lieu is substituted for a qualified dividend, but not for a nonqualified dividend such as nrf's.

    • In a margin account the shares are legally owned by the broker, not by the investor. This is because the shares may be used as collateral to borrow money against. They're the brokers' shares, not yours. So the broker has the right to sell them whenever he wants or to sell them short without telling you. You're being loaned the shares with certain rights transferred such as receipt of dividends and voting rights in most cases, but you do not have the full rights of a owner.

      It IS good to know that they are keeping track of how many shares can be shorted. I am sure that before the outcry over the "naked shorting" scandals that most brokers entered short sales on their books without making much if any effort to identify which shares were being shorted. Back in 2008 some of the stocks had more than the entire float shorted.

      • 1 Reply to ki1gore_trout
      • dividendmonkey Jul 8, 2013 1:40 PM Flag

        I will chime in here and say that first dar200's argument that since there are more shares long than short, thus the longs are more right is a fallacy. Indexers, mutual funds are long only. There can NEVER be more shares short than long period for any stock. What you need to do is compare short interest on a relative basis.

        Second, you wanted to know what percentage are true shorts as opposed to complex option strat etc. Look at number of open interest outstanding, do the math there. The shares controlled due to options are a pittance to the short interest. Less than 2.5 million shares controlled total long and short on all dates for options..

        Third, find out the number of convertible bonds there are and assume most of them are hedging by shorting the stock. I did not take that into consideration when I wrote my short article, and that was one of the reasons I changed my mind. Ultimately shorting in a bull market is extremely difficult, you have to take profits when presented with the opportunity. NRF is a regulatory short, and I personally do not see any catalysts in the near future to cause the stock to fall.

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