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Industry Discussions / Real Estate Inv. Trusts: REITs

URL:  http://boards.fool.com/yoda-quot-what-i-strongly-suspect-but-cannot-30533961.aspx

Subject:  Re: The One Share Club Date:  2/9/2013  3:27 PM
Author:  BenHacker Number:  73652 of 77396

Yoda,

"What I STRONGLY suspect but cannot prove is that the trader is NAKED short selling. Naked short selling is where you sell shares you do not own or have not borrowed. To my knowledge, REIT preferreds are NOT supposed to be shortable on any platform. NAKED short selling is illegal, but rarely enforced. My guess is that the trader was going to NAKED short sell the shares and then attempt to buy them back at a lower price the same day.

I'm very confused by this. REIT preferreds are most definitely shortable. Why wouldn't they be?

Also, while you are making the assumption that the trades weren't a market maker, again I feel compelled to repeat that market makers can and do naked short (legally) specifically for the purpose or limiting one off price spikes (and yes, making money.

Just logged into my broker and looked up these preferred off the top of my head, here is the status:

1) GKK PA --> 200k shares available to borrow (aka, available to short)
2) KIM PH --> 1k shares available to borrow
3) FUR PD --> 15k shares available to borrow
4) RPT PD --> 15k shares available to borrow

Those are the first four I checked.

Obviously being able to (non-naked) short as a retail investor requires the ability to locate a borrow prior to shorting. I can see why this could be harder for some preferred because of their small size, and as you get smaller / less liquid I would imagine shorting would be more difficult. However, my broker allows you to submit an order to short and maintain the order even during times when you cannot find a borrow... you just get a warning that you can't short until a borrow is located so you can't guarantee execution.

Even shorting OTC preferreds should be possible, again, as long as you can locate shares to borrow. I will note that my broker (IBKR) pays you a portion of the lending fees so that they are actively encouraging their clients via a market based mechanism to lend more shares and thus borrow availability is going up, and borrow cost for shorting is going down on their platform.

Thanks,

Ben
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