# Margin account...



## Canuck (Mar 13, 2012)

Soooo I had no idea that i could withdraw cash from my T.D waterhouse account to do whatever I like with it.

I was always under the impression that a margin account could only be used to purchase stocks, etf's, bonds etc. Basically anything that I could buy through T.D that is held in that T.D account.

for example- If I wanted to buy a studio apartment for $300,000, I could just transfer that amount out of my Canadian margin account into my Vancity account to purchase the condo, and I'd only be paying an interest rate of 3% on my margin.....who knew!


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## Canuck (Mar 13, 2012)

Four Pillars said:


> You might want to read the fine print before buying that condo.


ah is there a catch?

besides an obvious margin call, but I'd only ever use maybe 20% of my available margin


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## Canuck (Mar 13, 2012)

"Margin loans can have some pricing advantages over mortgages and other more traditional loans. Borrowers pay no closing costs, no property appraisal is required and there are no prepayment penalties."

plus if i buy an investment property all my interest is tax deductible.


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## Canuck (Mar 13, 2012)

Four Pillars said:


> Are you sure you are allowed to take the money out of the account? That's not really a margin loan if that's the case.
> 
> How would they do a margin call?


I'm positive. Well if I'm to believe the T.D rep that i spoke to. I was just looking to transfer a very small amount of cash out and wondered if i could do that, and he said "of course, you can transfer your entire margin amount out if you wish"..."for anything you like, buying car, going on a holiday".

I'm not seriously thinking of buying an apartment on margin, but I thought it was interesting that I could if I wanted to.

I spoke at length about it, and he broke down the interest I'd pay ( President's account)

0-$25,000 -4%
$25,000- $100,000 - 3.75%
$100,000 - limit - 3%


there is nothing stopping them from still doing a margin call, i have much more equity than i do margin


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## humble_pie (Jun 7, 2009)

pillars the broker always holds back enough collateral to cover the margin debt. They update continually. Some brokers update margin levels to the minute.

amounts over & above the debt level, the client is free to withdraw & spend on mumbletypegs.

keep in mind that if he does that - withdraw to the max - & then there is a margin call (because the collateralized securities have just dropped in value) then the broker is going to liquidate up to e.v.e.r.y.t.h.i.n.g.

PS when $300k is 20% of margin, that's about $1.5 million in margin. That's a pretty big account, somewhere around $3 mil, extremely roughly speaking. Not chump change.


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## blin10 (Jun 27, 2011)

that's how rich get richer :> people with money can borrow at much lower rates


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## Canuck (Mar 13, 2012)

humble_pie said:


> pillars the broker always holds back enough collateral to cover the margin debt. They update continually. Some brokers update margin levels to the minute.
> 
> amounts over & above the debt level, the client is free to withdraw & spend on mumbletypegs.
> 
> ...


$300,000 was just an example, I don't have $1.5 in margin, but i do have an available margin of $804,000. Again, the most I'd ever go in margin for anything (including stocks) would be about $150,000. Honestly, I rarely even use it, but I owe a chunk of cash to the CRA, hence the phone call....damn tax time.


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## humble_pie (Jun 7, 2009)

Canuck said:


> Well if I'm to believe the T.D rep that i spoke to. I was just looking to transfer a very small amount of cash out and wondered if i could do that, and he said "of course, you can transfer your entire margin amount out if you wish"..."for anything you like, buying car, going on a holiday"



a big problem at the TD is that they closed the edmonton call centre a while back & laid off 140 experienced representatives, some highly-trained, highly experienced & presumably more highly-paid.

then when clients complained too much about long wait times on phones because not enough staff, the TD hired 100 new rookies with zero experience. Of course the broker saved itself $10k-$15k a year, per representative, with this outsourcing-in-canada shuffle, but the service went to hell in the proverbial handbucket.

the rookies began saying the most stunningly awful stupid things to clients. None of them knew how to take complex orders or even had option licenses, in the beginning, which was a few months ago. 

i'll be the first to say the rookies are improving, but quite a few are still saying the most stunningly awful stupid things. Like this quoted remark :biggrin:

of course, the remark could have been exaggerated by the poster


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## Canuck (Mar 13, 2012)

humble_pie said:


> a big problem at the TD is that they closed the edmonton call centre a while back & laid off 140 experienced representatives, some highly-trained, highly experienced & presumably more highly-paid.
> 
> then when clients complained too much about long wait times on phones because not enough staff, the TD hired 100 new rookies with zero experience. Of course the broker saved itself $10k-$15k a year, per representative, with this outsourcing-in-canada shuffle, but the service went to hell in the proverbial handbucket.
> 
> ...



Are you saying the broker was wrong? I'm not exaggerating that is what he told me.
Also, being in the President's club, I was given a different phone number to call, ensuring that I was always speaking to an experienced licensed broker when i did call, plus 0 wait time, which is usually the case.


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## humble_pie (Jun 7, 2009)

canuck they do *not* have any presidents' account dedicated lines any more. The PA desks were broken up & stopped last november. November 2nd 2013 if i'm not mistaken.

calls are taken by anybody & everybody now. Your pickup could be the most highly-trained & most experienced representative in the whole of canada. Or could be a rookie. One never knows.

what betrays your callee as a rookie, though, is not that he was wrong. It's true that you can borrow up to your margin limit. The problem is that what he said - assuming you are quoting 100% accurately - was inappropriate.

he went beyond stating the margin limit terms & began encouraging you to borrow for anything you like, buying car, going on holiday. There's a line that he crossed. He should have remained more responsible, less swashbuckling. Instead of exhorting to buy car, travel etc, he should have directed you to a sober warning text discussion of margin debt implications, which doubtless exists somewhere in the TD account disclaimer language.

there are actually many stories of former PA clients calling & hearing responses from rookies that are far more astonishing than yours. All of these stories are highly entertaining. Some of the rookies would even hang up when they got a question that was too difficult for them to handle. Although i believe that practice - hanging up on a challenging call - has been stopped by now.


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## Canuck (Mar 13, 2012)

humble_pie said:


> canuck they do *not* have any presidents' account dedicated lines any more. The PA desks were broken up & stopped last november. November 2nd 2013 if i'm not mistaken.
> 
> calls are taken by anybody & everybody now. Your pickup could be the most highly-trained & most experienced representative in the whole of canada. Or could be a rookie. One never knows.
> 
> ...


Gotcha, thanks for explaining. I've been with them for years and have only had to call maybe 5 times, i did however have one absolutely crazy conversation with someone that was unbelievably clueless, I asked to be transferred to someone else and I mysteriously got disconnected altogether.

So that whole President thing is pretty much a farce, besides I guess the .25% savings i get on margin loans?


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## humble_pie (Jun 7, 2009)

Canuck said:


> Gotcha, thanks for explaining. I've been with them for years and have only had to call maybe 5 times, i did however have one absolutely crazy conversation with someone that was unbelievably clueless, I asked to be transferred to someone else and I mysteriously got disconnected altogether.
> 
> So that whole President thing is pretty much a farce, besides I guess the .25% savings i get on margin loans?



gotcha, thank you for confirming.

your first-mentioned callee - the one who was clueless - must have been the rookie. He or she probably hung up on you. Hangups were not uncommon esp last november & december, esp from markham call centre :biggrin:

ottawa & montreal were behaving slightly better though

i think it would be fair to say TD is passing through an excruciating cost-cutting transition period now & nobody knows where or how they will end up. They might become more profitable as a division for the parent banksters, but they've lost the flagship leadership position they always used to enjoy. Sic transit gloriae mundi.

may i say that i'm always impressed with the high quality of the individual TD trainee representatives. For that matter, also the high quality of the BMO representatives, where i have a backup account. They all work as hard as they possibly can. They are all very bright, very talented, very motivated, eager to learn, often straight out of university. In 2-5 years they will become as expert as the crowd of skilled & experienced PA representatives who were let go when the TD closed edmonton office.

in the meantime, though, there can be big surprises & even hardships for former PA clients who wish to arbitrage, short, negotiate commish or margin, because the newbies can't do any of this. For a while there - last november & december - the poor kids couldn't even find a senior representative to help them, because the place was in such a mess. Even today, i'm not sure to what extent they can find help when they need it, i've come to dread contacting the big green & i am trading the backup account far more actively these days.

there are still some PA advantages. Better margin loan rates, the statements are supposed to be prettier, if you have a difficult trade for example a multi-legged option combo & if you luck out when a former PA rep answers the phone, you can still be excellently served. Not sure what else, maybe there's something i'm overlooking?

publicity-wise, it was a most unwise time for the big green to switch to lower service, right in the middle of the never-ending-no-USD-rrsp débacle.


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## Canuck (Mar 13, 2012)

humble_pie said:


> gotcha, thank you for confirming.
> 
> your first-mentioned callee - the one who was clueless - must have been the rookie. He or she probably hung up on you. Hangups were not uncommon esp last november & december, esp from markham call centre :biggrin:
> 
> ...


I don't think you're missing anything. It would have been nice had they lowered the trade commission a few bucks for PA members when they lowered the commission for all members.


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## Four Pillars (Apr 5, 2009)

I deleted my posts since they were so far out in left field...

I didn't understand what was happening - I thought C was talking about using the the account like an LOC ie even with no securities was able to borrow from it.


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## kelaa (Apr 5, 2016)

Can someone explain to me when does the margin borrowing costs come due?

In my case, I moved 100 shares of BNS from my cash account to a new margin account. On October 10th, I withdrew 1,700 to cover some expenses. I paid 1,700 back to the account October 15th. I've have yet to see any interest or borrowing charges.


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## humble_pie (Jun 7, 2009)

kelaa said:


> Can someone explain to me when does the margin borrowing costs come due?
> 
> In my case, I moved 100 shares of BNS from my cash account to a new margin account. On October 10th, I withdrew 1,700 to cover some expenses. I paid 1,700 back to the account October 15th. I've have yet to see any interest or borrowing charges.




here's my understanding: normally interest charges on a margin account would appear on end-of-month broker statements.

in your case, you borrowed a relatively small amount ($1700) for only a short period of time (5 days). Most brokers do not charge for interest amounts of $5 or less.

your broker could not be charging more than 6% interest on margin accounts, so you could guesstimate a theoretical maximum interest charge of $1.40 for your $1700 5-day loan. This is less than the threshhold $5, so no interest was charged.

note that the tally resets every month. In other words, you have a little window of opportunity each month - a few days, a few dollars - to run a small overdraft without any cost.


that's the good news. The bad news is that, during those 5 days in october, the broker was free to borrow your BNS shares. No notifications are given intramonth, so you would not have known, you will never know, if your shares were borrowed or not. In any event, when you repaid your loan in full by injecting cash on october 15, the broker had to return any shares it might have borrowed.


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## Money172375 (Jun 29, 2018)

humble_pie said:


> here's my understanding: normally interest charges on a margin account would appear on end-of-month broker statements.
> 
> in your case, you borrowed a relatively small amount ($1700) for only a short period of time (5 days). Most brokers do not charge for interest amounts of $5 or less.
> 
> ...


Why is that bad news? Are there negative impacts to me if my shares are borrowed?


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## kelaa (Apr 5, 2016)

Thanks for sharing your knowledge, Humble_pie.

Money172375, I have a vague sense that if your shares are borrowed and shorted by someone else, 1) there is a question of voting rights, 2) someone else would be receiving qualified dividends and hence your own dividend tax status would change, 3) in the event of insolvency by the borrower or brokerage, recovering your actual shares might not be possible or be much more complicated.


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## Eclectic12 (Oct 20, 2010)

kelaa said:


> ... 2) someone else would be receiving qualified dividends and hence your own dividend tax status would change ...


??? ... maybe for a dual US - Canada citizen?

For a Canadian I am aware of "eligible", "non-eligible" and "foreign" dividends.
Assuming the dividends paid were "eligible" - not receiving them would cut one's income but AFAICT, does not change one's dividend tax status.


Cheers


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## kelaa (Apr 5, 2016)

Yes, "eligible" is the right word. It had escaped me at the time. 

Take the following example, Eclectic12:

Party A's 1 share of BNS was borrowed to Party B, who shorted it by selling to Party C. Party C rightly expects their eligible dividend from BNS. Party B has to pay something to Party A with respect to the dividend payments. It doesn't make sense for Party A to also collect an eligible dividend; this would have created new eligible dividends out of thin air. I'm don't know what happens in practice, but from an abstract point of view, the payment Party A receives is not an eligible dividend.


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## humble_pie (Jun 7, 2009)

kelaa said:


> Yes, "eligible" is the right word. It had escaped me at the time.
> 
> Take the following example, Eclectic12:
> 
> Party A's 1 share of BNS was borrowed to Party B, who shorted it by selling to Party C. Party C rightly expects their eligible dividend from BNS. Party B has to pay something to Party A with respect to the dividend payments. It doesn't make sense for Party A to also collect an eligible dividend; this would have created new eligible dividends out of thin air. I'm don't know what happens in practice, but from an abstract point of view, the payment Party A receives is not an eligible dividend.




curiously, there will indeed be a doubling of dividends. How this happens i do not know ... something about regulators are somewhat relaxed & easy here when it comes to double-divvying in short sales & also in other instances.

certainly party "A" whose BNS shares were borrowed by the broker will receive full dividends eligible for canadian tax credits. In all likelihood he won't even know that broker has borrowed his shares, although it will be indicated on his monthly statement, if the borrowed shares are still "out" on the last day of the month.

also party "C," who received the shares as sold by party "B" who was the short-seller, will receive full dividends which will be eligible for canadian tax credits.

meanwhile, it's party "B" the short-seller who pays an amount equal to the dividend. He pays this amount to the broker, who then re-names these funds as a dividend & delivers them to either party "A" or to party "C" as the case may be. In any event, there's no ambiguity about the amount of cash in play here. Penny for penny, it nets out.

what is puzzling is that, all of a sudden, a dividend has doubled. Yet that cannot be, theoretically speaking, since the publicly-traded company involved issued one dividend and one dividend only.

it seems to me that regulatory authorities are allowing the "brokerage industry" at large to call the extra payment a "dividend" even though technically it is not a dividend issued by the underlying canadian company & in fact its "dividend status" appears to be created out of thin air, as kelaa mentions above. . 

this situation - calling the replacement or substitute payment a "dividend" that is fully eligible for canadian tax credits if applicable - has been going on for at least a century. There've been billions of short sales & gazillions upon gazillions of such "dividend" payments. One could say the brokerage industry has got the practice enshrined like an 11th commandment upon a stone tablet from mount sinai.

this is not the first instance one sees where the "financial industry" at large has been able to handily rename "dividends," "returns of capital," "other income" & the like, according to its wishes or convenience or both.

from a retail investor's point of view, the good news is that both the lender of shares & the buyer of the shorted shares receive "dividends" with full eligible canadian tax credits where applicable.


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## kcowan (Jul 1, 2010)

It seems that this synthetic dividend is given favourable tax treatment at a cost to Canadian taxpayors. I wonder if the impact has been sized. It would seem to be an indirect subsidy to the brokerage industry?


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## kelaa (Apr 5, 2016)

At one time it might have been argued that the effort to keep track of this would be outsized compared to the impact. But now with complete digitization of records, cheap data-basing and cheap computing power, that should no longer be the case.

Let's try making a back-of-the-napkin calculation for a $150,000 taxable income individual in Ontario:

The dividend-like payment is expensed by the borrower, for a tax rate of negative 46.4%. The dividend-like payment is recorded by the original owner as eligible dividend of a tax rate 31.7% (on the raw, not grossed up number). This seems like a sizable tax loss for the government. And note that this can be done a unlimited number of times on the same original shares. 

Is there any legal requirement that the borrower and original owner cannot the be same person? Assuming an accommodating brokerage that wants to irritate the CRA enough that this rule/allowance is changed, they can borrow from one account and shift it into another with even the same person.


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## humble_pie (Jun 7, 2009)

kcowan said:


> It seems that this synthetic dividend is given favourable tax treatment at a cost to Canadian taxpayors. I wonder if the impact has been sized. It would seem to be an indirect subsidy to the brokerage industry?



i'm still puzzling over this widespread & historic dividend-doubling sleight-of-hand practice. Still trying to figure out who benefits & how.

by "cost to canadian taxpayers" do you mean the tax credits offered by the duplicate dividends result in less income tax paid, therefore this notional shortfall has to be made up by other taxpayers? hmmmn ... but keep in mind that probably the greater proportion of shorted shares are US or foreign or non-eligible canadian, so the notional shortfall in national income tax revenues due to eligible dividend tax credits would not be that significant.

the brokerage industry would certainly benefit by the commissions earned from buying/selling the same shares twice. Once to original buyer, a 2nd time to the unsuspecting buyer of the shorted shares. Keep in mind that every trade is actually a double commission for the industry, e.g. a sell plus a buy, although both are not necessarily carried out by the same broker.

when you thinggabbouddit, the brokerage industry is very clever in supporting shorting practices. They get to increase their volume of business by at least half, without any party having to inject any new capital whatsoever. The administrative costs for brokers to carry the short positions have to be minimal. 

meanwhile the brokers also get to charge interest on their loans to short artists who work on margin.


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## Topo (Aug 31, 2019)

kelaa said:


> Party A's 1 share of BNS was borrowed to Party B, who shorted it by selling to Party C. Party C rightly expects their eligible dividend from BNS. Party B has to pay something to Party A with respect to the dividend payments. It doesn't make sense for Party A to also collect an eligible dividend; this would have created new eligible dividends out of thin air. I'm don't know what happens in practice, but from an abstract point of view, the payment Party A receives is not an eligible dividend.


This is a very good point. In theory, the amount (dividend replacement) given to Party A should be characterized as interest, since he is a lender, no different than if he had lent cash or sold a bond. But in that case, Party A would demand a higher payout to compensate for the higher tax burden, or elect not to lend his shares (by keeping the stocks in a cash account). That would take away a source of income for the broker.


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## humble_pie (Jun 7, 2009)

Topo said:


> This is a very good point. In theory, the amount (dividend replacement) given to Party A should be characterized as interest, since he is a lender, no different than if he had lent cash or sold a bond. But in that case, Party A would demand a higher payout to compensate for the higher tax burden, or elect not to lend his shares (by keeping the stocks in a cash account). That would take away a source of income for the broker.



but Topo why should party "A's" dividend suddenly be reclassified as "interest" without his knowledge or permission?

countless laws & regulations in canada require businesses to carry on with their clients in good faith. Party "A" bought his BNS shares in good faith, expecting to receive eligible dividends with tax credits plus a hope of capital appreciation in the price of the shares themselves. All very normal.

would not be even remotely acceptable for the brokerage industry - not the underlying public company which in this case is the venerable bank of nova scotia, but the brokerage industry acting independently - to suddenly up & drastically change the terms of the deal they had sold to party "A." 

fraud artists act like that. Kangaroo dictatorships act like that. Not. decent. fair-minded. law & order driven. reliable. proper. canada.

if anybody should be deprived of tax credit dividends, it should be the buyer of the shorted shares. This would mean that the short artist himself would have to be penalized somehow, would have to sell those shares for less money as "bank of nova scotia non-dividend paying shares."

in effect a sort of split corporation would be created, with shorted shares trading for their capital appreciation potential only.

can you imagine the fearful costs of such an overhaul of the ancient short-selling tradition? to gain what, in the end? 

the fact is, there's a massive broker-driven short-selling business in force & effect, which the retail securities-buying public knows little about. But is this business really hurting the retail securities buyer? aren't there other problems in the world at large that are far more serious, that urgently need constructive attention?

bref, if it ain't broke, then don't try to fix it


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## Topo (Aug 31, 2019)

That is exactly my point. Party A should be told explicitly that his dividend would be classified as as interest. In that case Party A could choose to accept the terms (if having a margin account is more beneficial than paying extra taxes), demand a higher payout (to cover the taxes), or deny consent.


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## humble_pie (Jun 7, 2009)

Topo said:


> That is exactly my point. Party A should be told explicitly that his dividend would be classified as as interest. In that case Party A could choose to accept the terms (if having a margin account is more beneficial than paying extra taxes), demand a higher payout (to cover the taxes), or deny consent.



how in decent democratic law-abiding canada can party "A" - who bought & paid for his BNS shares in good faith, having carried out his due diligence carefully - how can he suddenly be ordered to accept something entirely different & harmful to his interests?

business doesn't work like that in canada.

if you might be saying that all margin account holders must accept in advance that their margin accounts mean no more eligible canadian dividends ... that's not going to fly in this country.

short-selling is a real industry in this country. What's the point in trying to destroy it?

we have real problems in this country. Lack of decently priced housing in most major cities, for example. Ever-increasing homelessness, for example. Medical systems on the desperate cusp of underfunded collapse, for example. Soaring costs of university tuitions, for example.

let's stick with the real problems? who is going to "explicitly" order party "A" to radically alter his purchase contract with his broker? the broker is not going to "explicitly" order party "A" anything along those lines. Securities authorities are way too busy with real problems to take up fantasies such as "explicitly" ordering investors to accept much worse deals than what they had paid for.


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## Topo (Aug 31, 2019)

humble_pie said:


> how in decent democratic law-abiding canada can party "A" - who bought & paid for his BNS shares in good faith, having carried out his due diligence carefully - how can he suddenly be ordered to accept something entirely different & harmful to his interests?


How in decent democratic law-abiding Canada can an industry double-dip into the eligible dividend tax credit at the expense of taxpayers?





> short-selling is a real industry in this country. What's the point in trying to destroy it?


This is not destroying it. It is fixing it. 

Plus I have never heard someone support "short-selling" so vehemently on patriotic grounds. That sounds like a flying turtle.



> we have real problems in this country. Lack of decently priced housing in most major cities, for example. Ever-increasing homelessness, for example. Medical systems on the desperate cusp of underfunded collapse, for example. Soaring costs of university tuitions, for example.


I suggest we apply the taxes saved to help fix or ameliorate some of these problems. 



> let's stick with the real problems? who is going to "explicitly" order party "A" to radically alter his purchase contract with his broker? the broker is not going to "explicitly" order party "A" anything along those lines.


I have received tons of paperwork, forms to sign, disclosures, etc from each and every brokerage account I have opened. This would be one additional item on the smorgasboard. But there are other ways to deal with it. Maybe the brokers should pony up.



> Securities authorities are way too busy with real problems to take up fantasies such as "explicitly" ordering investors to accept much worse deals than what they had paid for.


I don't know what securities authorities are doing, but I am pretty sure Morneau is busy nickle and diming mom-and-pop small businesses. So rest assured nothing is going to change.


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## kcowan (Jul 1, 2010)

Great discussion. Thanks all.


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## humble_pie (Jun 7, 2009)

Topo said:


> This is not destroying it [short selling]. It is fixing it.


so sorry but i don't believe you are "fixing" anything. What i observe is that you are trying to meddle in something you may not understand.






> I have never heard someone support "short-selling" so vehemently on patriotic grounds.


what nonsense. I don't support short selling. I have never in my life maintained any short position whatsoever. 

it was cmffer kelaa & myself who analyzed, just upthread, how an artificial extra "dividend" is created out of thin air by the brokerage industry for short sellers when necessary.

there have been extensive cmf threads on short selling in the past.. Moderator jas4, who has posted that he shorts occasionally, has discussed positive aspects that short selling contributes to financial markets. Effectively speeding price discovery is one such benefit, he pointed out.






> I suggest we apply the taxes saved to help fix or ameliorate some of these problems


what taxes? the majority of popular short stocks are US stocks. Rarely does a canadian stock such as Valeant attract heavy short attention. In addition, high dividend stocks everywhere are strictly avoided by short sellers because they know they will have to pay the dividends. To use Valeant again as an example, VRX had no dividends, a feature that helped to attract well-known short artists from the US. 

short selling has less than trace effect upon federal tax revenues. The pretence that taxpayers are missing out on phantom "taxes" that should be paid by short sellers is a red herring.


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## james4beach (Nov 15, 2012)

From what I can tell, short sellers are a popular scapegoat. In most cases it is well established _long_ holders who are driving prices down (by dumping their positions), not short sellers.

I was short some US financial stocks in 2007 and 2008. I can assure you that on some of the worst days in their history, I was one of the only people on earth buying. Same goes for the short covering I did in October 2008 as I bought things like SPY and XLF.

Since I went short when the prices were strong, and was buying when prices were weak... does that make me a friend or foe of the typical investor?

Who else was buying those? Nobody. Short sellers add liquidity to markets. They will be the only buyers during really bad times.


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## Topo (Aug 31, 2019)

I don't have any problem with short selling or short sellers. I am not saying short selling should be banned or short sellers should be punished. Obviously, the discussion is not about stocks that don't pay "eligible" dividends. All I am suggesting is that taxes should be calculated and paid correctly. 

It is also important to note that markets like real estate, that don't have short sellers, function completely fine. As a matter of fact they have less volatility, which is a positive attribute.


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