sellers brokerage firm, which holds a wide variety of securities in street name. The owner of the shares will not even know that the shares have been lent to the short seller. If the owner wishes to sell the shares, the brokerage firm will simply borrow shares from another investor. Therefore, the short sale may have an indefinite term. However, if the brokerage firm cannot locate new shares to replace the ones sold, the short seller will need to repay the loan immediately by purchasing shares in the market and turning them over to the bro- kerage firm to close out the loan. Exchange rules permit short sales only when the last recorded change in the stock price is positive. This rule apparently is meant to prevent waves of speculation against the stock. In other words, the votes of "no confidence" in the stock that short sales represent may be entered only after a price increase. Finally, exchange rules require that proceeds from a short sale must be kept on account with the broker. The short seller, therefore, cannot invest these funds to generate income. However, large or institutional investors typically will receive some income from the pro- ceeds of a short sale being held with the broker. In addition, short sellers are required to post margin (which is essentially collateral) with the broker to ensure that the trader can cover any losses sustained should the stock price rise during the period of the short sale.5 To illustrate the actual mechanics of short selling, suppose that you are bearish (pes- simistic) on IBM stock, and that its current market price is $100 per share. You tell your     5 We should note that although we have been describing a short sale of a stock, bonds also may be sold short. I. Introduction 3. How Securities Are Traded The McGraw−Hill Companies, 2001           CHAPTER 3 How Securities Are Traded 91     Table 3.10 Cash Flows from Purchasing versus Short Selling Shares of Stock   Time Action Cash Flow   Purchase of Stock 0 Buy share Initial price 1 Receive dividend, sell share Ending price dividend Profit (Ending price dividend) Initial price