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Hi Fools-

Long post with questions about short selling. Looking for a translator who can explain an article to me.

I read the Wall Street Journal just about daily. I often venture into areas where I have little knowledge to possibly expand my horizons. On Monday, I came across an article that I could not understand, so I'm tossing it out there to see if someone can translate for me. The article was on page A15 on the Opinion page, written by Eric Winig entitled, "How the SEC Stops Short Sellers From Keeping Markets Honest". The writer claims that SEC activities thwart successful short trades and cause them to be very unprofitable.

I have a simplistic understanding of shorting, so I can't follow his points. My understanding is that when shorting, your broker borrows shares on your behalf and sells them. You plan to buy the shares back when they fall in price, thereby buying low and selling high, but in the reverse order that is normally pursued. While waiting for the price to fall, of course, stuff happens. For instance, if the stock throws off a dividend, the short seller must pay the dividend to the owner of the shares he borrowed. Or of the price goes up instead of down, the broker may require additional margin to set aside against the now higher cost of replacement. And if the original owner wants to sell his shares, I presume that your broker must borrow from someone else to provide the shares to sell.

In the article, Mr. Winig talks of a company he was short when the SEC halted trading on that company. Here's where it gets murky. Mr Winig states,"Specifically, investors who were short the stock at the time of the halt were charged a fee of roughly 200% split between brokers... and stock owners." Can anybody tell me where such a fee would originate? Who requires this fee- the SEC, the brokerage?

Continuing on, "An investor short 1000 shares was charged an annual fee of about $56,000- 1000 shares times the $28.19 price when it was halted, times 2." Where does this formula come from?

Then he discusses unfortunate investors who held outstanding options during the halt. He claims, "Along similar lines, those who- again, correctly- bought April and May put options were unable to sell them, and brokers made them extremely difficult to exercise. Several brokers required an entire year's worth of short fees, as well as up to 500% in margin, to exercise puts, even though it was clear the stock would trade significantly lower when it reopened." Again, what are these annual short fees being imposed? Aren't the margin requirements established in the account agreement? How does the broker have the authority to make an option difficult to exercise? Is this a fine print item in the options contract?

If this is just a useless rabbit hole, tell me to go away. I am unlikely to ever sell short anyway. Although I have been investigating options. Is this just a "buyer beware", stay away from this activity? This sounds exactly like the kind of mumbo jumbo used to scare off normal people when they want to get started choosing their owns stocks.

Thanks in advance if you had the patience to ride this far, and if you can offer some insight in the mechanics/logistics.
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