This statement regarding SHORT SELLING should be read in connection with the statement regarding the risks of Day trading.

Trading on margin or short selling may result in losses beyond your initial investment.

When you day trade with funds borrowed from a firm or someone else, you can lose more than the funds you originally placed at risk. A decline in the value of the securities that are purchased may require you to provide additional funds to the firm to avoid the forced sale of those securities or other securities in your account. Short selling may lead to extraordinary losses, because you may have to purchase a stock at a very high price in order to cover a short position.

Furthermore, stock-loans of stock to short sellers are callable on demand. This means that you may be forced to buy back your short position at any time, even if you are losing money and even if you have sufficient equity in your account to support the position from the point of view of the usual margin requirements. Short sellers are liable for payment of any dividends payable. In the case of securities that may be delisted from any exchange, there may be special conditions relating to the dividend date. Be sure to consult the relvant exchanges, if appropirate.

Aufhauser Securities offers "short interest rebates" to customers with short positions in their account.  The amount of the rebate varies from day to day and from stock to stock. The maximum rebate offered on easy to borrow stocks is 60% of the Fed Funds rate. This rebate is calculated by our clearing broker, Pershing LLC.  However, in the case of stocks that are difficult or very difficult to borrow, the "rebate" may be even be negative. To be sure of the amount of the rebate, you have to contact us on a daily basis. The statement posting of the short interest rebates runs from the 20th of the month until the 19th of the next month.

To get an idea of which stocks are hard to borrow, clients are encouraged to visit the following websites. Client who hold short positions should constantly monitor the level of short sale rebates (positive or negative):




Here is what the SEC says:
U.S. Securities & Exchange Commission
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U.S. Securities and Exchange Commission

Short Sales

A short sale is generally the sale of a stock you do not own. Investors who sell short believe the price of the stock will fall. If the price drops, you can buy the stock at the lower price and make a profit. If the price of the stock rises and you buy it back later at the higher price, you will incur a loss.

When you sell short, your brokerage firm loans you the stock. The stock you borrow comes from either the firmís own inventory, the margin account of another of the firmís clients, or another brokerage firm. As with buying stock on margin, you are subject to the margin rules. Other fees and charges may apply. If the stock you borrow pays a dividend, you must pay the dividend to the person or firm making the loan.

For instructions on how to obtain short interest for individual stocks, please see Section V.10 of Key Points About Regulation SHO, which the staff of the Division of Market Regulation prepared.  This document describes short sales (including uncovered short sales), discusses legal and compliance issues, answers frequently asked questions from investors, and provides links to helpful resources.

For additional information about selling short, please read our publications entitled Selling Short Against the Box and Short Sale Restrictions.

We have provided this information as a service to investors.  It is neither a legal interpretation nor a statement of SEC policy.  If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.

Modified: 04/19/2006