Question

A customer wishes to place an order to short 50,000 shares of ABC stock. The average daily trading volume (ADTV) in ABC stock is 40,000 shares. The representative:________.

A. should place the order
b. cannot place the order because the order size exceeds the ADTV.
c. should inform the client that the firm may not be able to borrow the stock.
d. sholud inform the client that the order can only be executed on an up-bid.

Answer 1

c. should inform the client that the firm may not be able to borrow the stock.

Step-by-step explanation:

Since it is mentioned that there is a short of 50,000 shares of ABC stock and the average daily trading volume is 40,000 shares that represent the trading of the stock is less i.e short

According to the SHO regulation, when the stock is sold has short than the dealer should track the shares i.e to be borrowed also find out the shares i.e to be delivered by the settlement by considering the documents

Now in this case, the shares i.e be borrowed find to be tougher also the tracking is not possible

Therefore the customer would not able to short the stock