What is a "forced buy-in" for illiquid OTC stocks?
I was reading about the illiquid fee policies of a stock broker: www.firstrade.com/content/en-us/customerservice/faqs/illiquidfees/. Excerpt:
Forced Buy-Ins:
Your sale of a low-priced security may be reversed with a forced buy-in executed at the current market price, leading to potential large losses.
What does this mean? Suppose I used to own 100 shares of an OTC stock which I then sold. Does it mean that my stock broker can force me to buy back the 100 shares at a potentially unfavorable price at any time? Why does the broker need to do this?
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The policy appears to be written carelessly. It should refer to a short sale, not any sale. It is saying that if the stock you have borrowed and sold short has to be returned (e.g., because the person who lent it wants to sell), and no other shares can be located to borrow, then you may have to buy the shares.
If you are short hard to borrow shares and the lender sells his shares, you will have a forced buy-in if your broker cannot find replacement shares.
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