[ezinearticles] Buying-In on "Failure to Deliver"

자료: http://ezinearticles.com/?Buying-In-on-Failure-to-Deliver&id=1580516


The stock market is a risky business. Shareholders, buyers, sellers and traders know this but they continue to risk the big money in hopes for a large payout.

With the advanced trading system of short selling, traders have discovered a new way to trade on the stock market: pessimistically. Short sellers hope for the decline of price on a certain stock so they can sell back the stock at a cheaper price than they sold it and pocket the difference.

Because short selling deals with borrowed securities, securities lending has become a huge business. To learn more about it, check out Naked Short Selling: The Illegal Hacking of the U. S. Financial System, an informative E-book that will help clarify the entire system.

However, a large risk has entered the stock exchange when it comes to short sellers: naked short sellers. Naked short sellers sell the stock short; however, they do not in fact own the borrowed stock and thus are selling their clients nothing but 'naked' (non existent) stock.

Basically what happens is when a short seller sells the borrowed securities to a client, he has three days to deliver the goods. However, if the short seller is selling 'naked' stock, then the goods are never actually delivered because they are never in the short seller's possession.

So now what? A naked short seller has failed to deliver leaving the buyer with nothing.
What happens next?

This is where the term 'buying-in' comes into action.

Due to the outburst of naked short sellers, the process of securities lending is bombarded with 'failure to deliver' issues. Therefore 'buy-in notices' are a regular occurrence.

Buying-in is the process where an investor is forced to repurchase the shares because the seller did not deliver the stocks. It is unfortunate for the buyer as he got ripped up. However, it is also unfortunate for the short seller as he will be forced to pay the difference in goods.

This is how it works:

• Once the allotted time for the goods to be delivered is past overdue (usually 10 days),
• [T]hen the unsatisfied buyer will notify the exchange about this issue, requesting a 'buy-in'.
• During this time, a 'buy-in' notice will be sent to the seller of the borrowed securities who failed to deliver.
• If the seller fails to answer, then the broker will have to pay on their behalf.
• The seller will have to pay the broker back at whatever the shares are then worth.

Make sense or still confused? If so, check out Naked Short Selling: The Illegal Hacking of the U. S. Financial System for a better understanding.

Here's an example. Say Dan bought 10,000 shares on XPY for $1.00 each from John. John claimed to borrow the shares from FRD but did not. When Dan does not get his shares, he puts in a buy-in notice. John does not answer this buy-in notice which means his broker, Ben must pay. Dan purchases 10,000 shares from Ben at $1.10 per share. John will be forced to pay this difference.

'Buying-in' is a hassle, yes. However, it is a needed due to the illegal process of naked short sellers. This is just one of the many issues caused by these abusive short sellers.

Extensions, Inc. ("EXT") creates Wisdom Based Search Engines by indexing the experiences and knowledge of its social network members. These social networks leverage EXT's proprietary technology to help members solve complex problems and champion social causes. For more information about their new ebook, Wall Street Under Attack, visit http://www.EXT.inspree.com

Article Source: http://EzineArticles.com/?expert=Julie_Welch