Short Sale Rule Change Red Flag Warning Of Trouble!

Just how worried are those currently in charge when it comes to the stock market? If the E-mail I received this morning is any indication I would say very! Shorts play a very valuable role in keeping markets honest and by changing the rules to make shorting a stock more expensive or difficult a barrier to market price discovery is removed. When you add this to recent rumblings by Janet Yellen that the Federal Reserve might at some time consider buying stocks I see a red flag waving right in front of my face and it screams danger ahead.

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Dear Client,

Effective 10/19/2016 , Scottrade will begin assessing short sale fees to your account.

Short sale fees represent the market cost of borrowing shares from external counter-parties or from internal inventory to facilitate a short sale position, and may be applicable when you sell a security short or when an option transaction results in a short position. The amount of the fee is based on the supply and demand for the security and may change over the duration of the short position, sometimes on a daily basis. Short sale fees will begin to accrue upon settlement of the short sale and will cease upon settlement of the covering purchase. The short sale fee will be assessed to your account on a daily basis and will be reflected in your account activity as “Short Sale Fee.” All short positions may be subject to a buy-in at any time, including, but not limited to, if Scottrade is unable to borrow shares to keep your short position open.

A review of your account activity indicates you will be assessed this fee should you maintain your short position after the effective date listed above. This provides one calendar week to close your short position(s) with no charges assessed to your account. Please contact us at 800.619.7283 if you have any questions about short sale fees.

Sincerely,

Scottrade, Inc.

              

Please do not reply to this message – contact your local Scottrade team for assistance. Brokerage products and services offered by Scottrade, Inc. - Member FINRA/SIPC.

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 It should be noted that this is not the first time governments and those in power have altered the rules to support a market, we have seen it done many times before and in many countries. In this case, I would like to suggest however, the small trader will be the player most affected and shoved out of this market. As you know this means that as shorts leave or flee the market they have to buy stock to cover their position. This means an influx of buyers to drive an already high market even higher. A degree of suspicion might be in order, if not it will in the least make bears a bit more apprehensive.


Footnote; It is Friday afternoon and the markets just closed,  a Scottrade rep just called to inform me this fee was only on my short Tesla positions. He did not know if other companies are also doing this but it is likely they are. This makes it no big deal, however, it is an example of how rules can be changed in the blink of an eye.