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15:33
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Originally posted by tutor
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Pretty much about right. In this example, MS is a prime broker with a number of HF clients, the first HF may have decided to short something else and covers, returning stock to MS, which it can lend another of its customers or return to JPM. JPM is the custodian for Blackrock in this example and it wouldn't return stock to Blackrock (Blackrock is using JPM as custodian rather than doing it itself). They would know that their stock is available for lending and would be able to enquire about whether stock is out on loan or not at any particular moment.
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Ok- So, the main disadvantage of borrowing a second lot of shares by HF, may be time – In the context that as time goes on, the more the share price may lower, as the shorting activity is done by HF. So, the lower the share price goes, if HF were to acquire a second lot of shares, the less the profit margin for HF, when HF covers, on that second lot of shares only?
