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The Wise Investor: February 2010, Submitted by T.P Raman, Managing Director of Sundaram BNP Paribas Asset Management
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Off topic question. I honestly can't find a definitive answer to this, so my apologies.
If I short 1000 shares of a 10 dollar stock, and the next day it opens at 100 dollars, is my liability limited to the initial 10K (and whatever else is in my account), or can the brokerage able to come after my bank account or other brokerage accounts for the additional 90K? I have read a number of margin disclosures and this is never addressed, but it seems critical.
You are liable for the full 90K. You borrowed the stock from someone else, you must make them whole by returning the full 1000 shares, the only way to do that is to purchase 1000 shares at 100 ($100,000) and then give the shares back to the person you borrowed them from. Of course you can be sued for the difference between what you have in the brokerage account and what you owe. You signed a contract to cover any losses, you will be held to it.
Any reason for following this guy. There are some other
prominent managers/analysts are there from the same place.
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