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Short Selling – Theory Questions

Theory Questions

1. What is short-selling and is it legal?

2. What are the different types of short sales?

3. Outline the process of short-selling.

4. Can an investor short a share without first arranging for the delivery of the shares?

5. What are the potential risks of short-selling? How does it compare with going long on a security?

6. Can an investor simultaneously hold both long and short positions in the same security? If so, will it result in any realized gain from the accounting perspective as well as from the tax authorities’ perspective?

7. Is short-selling good for the stock markets?

8. Describe the rationale behind short-selling.

9. Are there any regulatory requirements of short selling in the U.S. stock markets?

10. What do you understand by securities lending?

11. How are the securities lending market regulated?

12. Who are the participants in securities lending?

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