grinninbrit

The Cornerstone Funds Are Sucker Bets

Negative Rebate Fee's.... What do any of you know about the regulation and/or market mechanics of these? Mitchflorida mentioned Schwab would charge him 25% per year to provide the short position to him. This doesn't surprise me as I've seen these charges all over the board for various stocks. But they don't seem to be consistant from broker to broker, and don't always seem to be even be relatively comparable to other stocks in the same liquidity boat.

There is certainly a supply demand aspect to it. But there is so much disparity I have to wonder if there is any regulation and/or structure to it.

For a stock like "Travelzoo" lets say where there is a high negative rebate fee and an extremely large short position I imagine the mechanics would be that there are several hedge funds and market specialists competing to offer their long positions to various discount brokerages for a fee they feel would be likely to place their long stock and earn the income from that fee.

But what about these even more thinly traded stocks such as the Cornerstone closed-ends. If rather than many hedge funds and market specialists owning, rather one hedge fund corners the market supply on that stock, a stock which will be in great demand to short due to a crazy premium for a vanilla basket of large cap stocks, can they essentially dictate a charge to the brokerages to be passed on to the customer that shorts? Or might they be well connected to an entity that does set that fee? I know people prefer demand and supply market forces over SEC regulation, but I'd be interested from someone knowing a little bit more about the mechanics here. Is the structure here conducive to supply demand market fundamentals? Any SEC regulations in place for "charges" to lend out stocks?