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Industry Discussions / Real Estate Inv. Trusts: REITs

URL:  http://boards.fool.com/ben-said-im-very-confused-by-this-reit-30534447.aspx

Subject:  Re: The One Share Club Date:  2/9/2013  11:59 PM
Author:  yodaorange Number:  73656 of 78785

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

Ben, on some platforms 100% of REIT preferreds are not shortable. They are treated like corporate/muni bonds which are not shortable. A large concern is the illiquidity. The brokerage does not want to let the investor get into a short squeeze position where you literally might not be able to cover the shorts at any price. I had not checked shortability on IB recently, so I was NOT aware they offer it. Have you actually shorted any to verify they will let the trade go through? I will attempt to place a few short trades. I do know that IB has restricted margin on some REIT preferreds. Even though they are NYSE traded issues and should be marginable, IB sets 100% margin requirements. I assume that IB does not allow shorting on these issues, but I will check to determine the status.

Ben said: 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)

Ben, I 100% agree that the Designated Market Maker aka specialist can legally do naked shorting. Can you explain why the DMM which is an algorithm running on a server in Rahway, New Jersey decides to short a single share hours after the last trade? It must be a pretty interesting algorithm to do that. It is possible, I just think it is much more likely to NOT be a DMM algo.

Since specialists have gone the way of th