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d to access their pools of liquidity at any time. Critics contend, however, that these liquidity pools may well vanish at the end of a normal closing day.

The shortselling of equity securities may be defined as the selling of borrowed securities in anticipation that the market price of the securities will decline over the very nearterm. The mechanics of shortselling requires that a broker be found who is holding shares in the stock in which a short position is required. Any stock which is purchased on margin (borrowing a part of the purchase price) must be left with the broker until the full price is paid. A part of the margin contract gives the broker permission to use the stocks thus held in shortsales transactions.

Shortpositions may not be obtained in all stocks. For some stocks, the SEC prohibits shortpositions. For others, no buyers can be found. In those situations where shortpositions are possible, the shortseller conducts the sale through a broker. The full amount of the proceeds from the shortsale are placed into an escrow account with the broker, where they remain until the shortsale is covered by the seller. Additionally, under currently prevailing requirements, the shortseller must post an additional margin of 50 percent of the sale price. This margin provides added security for the owner of the borrowed stocks.

The shortseller believes that he or she either has information not available to other investors or, more often, understands the means of information where other investors do not. This belief leads the shortseller to anticipate a drop in the market price of the stock in which the shortposition is held. When the price of the stock drops, the shortseller buys in the open market the number of shares borrowed to establish the shortposition. The recently purchased shares are used to replace the borrowed shares. This transaction is referred to as covering the shortsale. Once the sho...