Forced Buy-Ins

Sometimes in a short sale, it will be necessary to purchase the stock back and close the position for regulatory purposes. This is called a forced buy-in, and is a risk you take when initiating a short position.

A forced buy-in typically occurs as a result of one of two circumstances.

Firms have an obligation under SEC Rule 204 to make delivery to satisfy settlement requirements with the buyers. If your short sale contributes to the inability to make a delivery, you could be forced out of your position. Sometimes, the lender of the shares will recall their shares, and occasionally it is necessary for you to buy back the shares so they may be returned to the original lender. You will receive no prior notice for this.

Another situation which could result in a forced buy-in is if Scottrade is no longer able to borrow shares for your short position. If this is the case, you will receive a notification informing you that you may need to close out your position by the following business day, or Scottrade may buy in your positions for you.

Your margin equity level could also play a part in a forced buy-in. For more information on this, read 'Margin Requirements.”