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Thanks for your stab.

For retail shorts, that was my line of thought as well, the broker takes the hit. But given the recent epical fails of large institutions, I wonder what happens if a higly leveraged short selling hedge-fund (or however you want to call the vehicle) goes belly up.

This report on NPR started my thinking:
http://marketplace.publicradio.org/display/web/2008/09/30/se...
SemGroup, an oil trading company folded after betting the wrong way. As a result many oil producers (and probably also buyers) are left holding bags.

I guess the question expands to any derivate trading. What happens if the issuer of options can't step up to his promise to buy/sell the stock for the contracted price? E.g. what happened to options bought/sold by LEH?

Thanks
FT
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