Mhat,
It looks like you are right:
A common way to manage the overall liquidity of a lending portfolio is through the use of buffer stocks to control the proportion of stocks in the inventory that a lender is willing to lend. A lender may maintain a float of lendable securities but not lend out all the available stocks – instead maintaining a buffer that varies from stock to stock. Buffers allow fund managers to make sales while avoiding recalls of lent stock. The size of buffers is determined partly by the lender’s willingness to lend and partly by the lender’s own risk management policy – a higher buffer being maintained for high-volatility, potentially illiquid securities
from http://www.bis.org/publ/cpss32.pdf
Bidrec
Anyone see todays wall street journal? interesting article on OSTK and growing strategies focusing on stocks that are very difficult to borrow. There was also an article in the NY Post yesterday which mentions that the CT and Utah attorney generals offices have opened up investigations centering on the practice of naked short selling and those states are seeking DTC records from Bear Stearns, Morgan Stanley, and Goldman Sachs. Watch that page! Bottom line are their hedge funds and other money managers short stock witthout approval. I would answer yes. If these brokers weren't looking the other way when it comes to short approval from time to time they never would have gotten as big as they are in the prime brokerage business regardless of the technology platforms offered. How often do these guys buy in their bigger accounts when they execute short in stocks which are already on the various Sho lists? I would venture to say- not that often. So how do they accomplish this task. Well, thats easy they just look to other accounts already short or borrowing stock and recall them. Technically is there a borrow outthere...Not a chance.
Goldman could be going long ostk versus options in an attempt to create a loan opportunity, but i doubt it.
If you see hedge funds long these difficult to borrow names the position is more than likely a "box" which allows the account to stay short while minimizing market risk. And yes- Goldman et all can borrow that customers long if they are buying on margin.Which also creates a little buy in protection. because they have just created another internal fail to rec.