Easy to borrow: Difference between revisions
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In [[Securities lending]], securities are classified by their "hardness" - quality that determines how difficult it is to borrow a security. Highly liquid securities are considered easy, these products are easily found on the market should someone decide to borrow them for the purpose of selling short. Securities that are illiquid on the market are classified as "hard". Due to various regulations, a short sale transaction must be preceded by [[Locate (finance)|locating]] the security and quantity that one would like to be able to sell short in order to avoid [[naked shorting]]. However, lending broker can create a list of security that do no require a locate. This list is referred to as Easy-to-Borrow (abbreviated as ETB), also know as blanket assurances. Such a list is generated by broker-dealers on the grounds of "reasonable assurance"<ref name=ssrule>{{cite web|url=http://sec.gov/rules/final/34-50103.htm#V|title=Final Rule: Short Sales; Release No. 34-50103; July 28, 2004}}</ref> that the securities on this list are readily available upon customers requests. However, if a security on the list can not be delivered as promised (failure to deliver), the assumption of the reasonable grounds no longer applies. In order to provide better grounds for ETB list must be at most 24 hours old. |
In [[Securities lending]], securities are classified by their "hardness" - quality that determines how difficult it is to borrow a security. Highly liquid securities are considered easy, these products are easily found on the market should someone decide to borrow them for the purpose of selling short. Securities that are illiquid on the market are classified as "hard". Due to various regulations, a short sale transaction must be preceded by [[Locate (finance)|locating]] the security and quantity that one would like to be able to sell short in order to avoid [[naked shorting]]. However, lending broker can create a list of security that do no require a locate. This list is referred to as Easy-to-Borrow (abbreviated as ETB), also know as blanket assurances. Such a list is generated by broker-dealers on the grounds of "reasonable assurance"<ref name=ssrule>{{cite web|url=http://sec.gov/rules/final/34-50103.htm#V|title=Final Rule: Short Sales; Release No. 34-50103; July 28, 2004}}</ref> that the securities on this list are readily available upon customers requests. However, if a security on the list can not be delivered as promised (failure to deliver), the assumption of the reasonable grounds no longer applies. In order to provide better grounds for ETB list must be at most 24 hours old. |
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Revision as of 07:33, 10 October 2008
In Securities lending, securities are classified by their "hardness" - quality that determines how difficult it is to borrow a security. Highly liquid securities are considered easy, these products are easily found on the market should someone decide to borrow them for the purpose of selling short. Securities that are illiquid on the market are classified as "hard". Due to various regulations, a short sale transaction must be preceded by locating the security and quantity that one would like to be able to sell short in order to avoid naked shorting. However, lending broker can create a list of security that do no require a locate. This list is referred to as Easy-to-Borrow (abbreviated as ETB), also know as blanket assurances. Such a list is generated by broker-dealers on the grounds of "reasonable assurance"[1] that the securities on this list are readily available upon customers requests. However, if a security on the list can not be delivered as promised (failure to deliver), the assumption of the reasonable grounds no longer applies. In order to provide better grounds for ETB list must be at most 24 hours old.
References
External links
- "Responses to Frequently Asked Questions Concerning Regulation SHO". Securities and Exchange Commission - Division of Market Regulation.