Does anyone know the answer to this question?  A short seller must borrow shares at a fee, and so I wonder whose shares they borrow.  The other day I was reading at Stockhouse that bullboarder had put a sale order on his shares of Petrobakken @$30 per share  in order to prevent his brokerage from lending out his shares.  Does this mean that my shares are among those which may be lent out?

My friend “Just Me” sent me an article this morning about the subject of short-selling, A not-so-short story, at the Economist which deals with Patrick Bryne’s fight against the short-sellers who harmed his online-retail company.  But there were a few lines that caused me to wake up to the practice of shortselling:

The failure to deliver shares (and thus to settle trades) that goes hand-in-hand with naked shorting is more than just a plumbing problem: a buyer who does not receive his share cannot technically vote it.

What if my brokerage lends out to short seller, who sells them and then my shares are actually delivered.  We have the following scenario.

Stockholder A has 100 shares long.

Stockholder B sells short A’s shares.

Stockholder C buys 100 shares on open market and receives delivery on settlement date.

Now the problem is that if a brokerage can rent out A’s shares at a fee to B, and C receives them, then 100 fictional shares now exist in the market and these are non-voting shares (because only real shares can vote).  So only A or C can vote but not both.  But if C receives fictional shares, then only A can vote.

I reported that I never received ballots for my shares of SKW at Beating the Index.  I wonder if it was because my shares were the fictional ones and that the real ones were borrowed.  Does anyone know the answer to this question?

Given the meltdown of MF Global, I think we should all be concerned.  Perhaps we should go back to the system of my grandfather’s day when you received the stock certificates upon settlement and you kept them in safety deposit box.  Finally, if my brokerage is lending out my shares, I should be told and I should receive part of the fee that the brokerage receives from the short seller.  Has anyone else experienced not receiving ballots for important votes, such as the election of officers?