QQQQ ETF can't be shorted

[peterpr]

Just been informed by IB that the the QQQQ ETF (Proxy for the NASDAQ100) 'Cannot be borrowed and is therefore not available for shorting through IB'

Checked on NASDAQ and CBOT - The fund has been placed on their 'Threshold Securities Lists' It is therefore a regulatory requirement that it cannot be shorted.

Can't help thinking that this may well be a warning of serious further downside in the offing. It won't affect the futures, except my guess is we can expect some serious volatility in the near future.

Watch out for similar action on the DIA and SP funds too. It'll be watch out below if the same happens to them.

 

[rog1111]

Thanks for the post, interesting development isn't it ?! I asked IB whether it was possible via the ECNs and they said the same, although I haven't actually tried a QQQQ short to check.

rog1111

Just been informed by IB that the the QQQQ ETF (Proxy for the NASDAQ100) 'Cannot be borrowed and is therefore not available for shorting through IB'

Checked on NASDAQ and CBOT - The fund has been placed on their 'Threshold Securities Lists' It is therefore a regulatory requirement that it cannot be shorted.

Can't help thinking that this may well be a warning of serious further downside in the offing. It won't affect the futures, except my guess is we can expect some serious volatility in the near future.

Watch out for similar action on the DIA and SP funds too. It'll be watch out below if the same happens to them.

 

[roguetrader]

One could say that that is the ultimate in bare faced market manipulation, it is hard to believe that something that trades nearly 100 million shares a day can be hard to borrow, laughable really.

 

[rog1111]

and so, if they don't want to lend them right now, there must be a VERY good reason why ?

rog1111

 

[peterpr]

Thanks for the post, interesting development isn't it ?! I asked IB whether it was possible via the ECNs and they said the same, although I haven't actually tried a QQQQ short to check.
rog1111

It's the result of a temporary reglulatory order designed to tackle 'naked shorting' where the exchange member involved allegedly has no realistic prospect of delivery of the shorted stock. Came into force 5th Jan this year for 1 year. Any exchange member that executes a short sale of a 'threshold list' security will be breaking SEC regulations unless he already owns the security.

On my understanding of the new rules, it means that 'delivery failures' have occurred on a significant number of recent transactions, so it's interesting to try to understand why that might be.

SEC rules require that for a short sale the exchange specialist involved must 'borrow' the stock to ensure that it is available for purchase at settlement date. 'Failure to deliver' in most cases probably means that the price has not fallen far enough (or at all) to ensure a profit on purchase and so the transaction is rolled over. If that is so then it is probably a symptom of people forcasting and acting upon an expected faster downside run than is actually occuring. There are no doubt other explanations too.

Any other observations on this interesting new rule and it's possible use as a trading indicator anyone ??

 

[def]

Regulation SHO is the culprit (you can read more about that on the SEC website).
IB is addressing the ETF issue and within the next week and will have a ready supply of the top ETF's available for loan.

 

[nomish]

I'm currently short on the QQQQ, so yes you can.