Suppose that somebody has a short position in a stock in a brokerage account. In order to cover the short, is one obligated to buy the shares in that account? Or could one, if they were so inclined, purchase the shares outside of the account and transfer them to the short account(assuming the brokerage allows such a transfer)?
I say of course you could do this. Someone* else says that you’d be holding a short and long position at the same time, which is shorting against the box and illegal. I say that’s nonsense: shorting against the box is going short when you already hold a long position. Buying when you’re short is just covering the short. Who’s right? I’m most interested in Canadian rules on this, but I’ll take what I can get.
For a concrete example of how this could be possible, here in Canada it’s common to have separate(but linked) accounts for trading on Canadian exchanges and US exchanges. Some stocks are listed on both a Canadian and a US exchange. It’s possible to buy one of those stocks on one exchange, have the broker transfer the stock to the other account, and then sell on the other exchange.
Here in Etats-Unis, shorting against the box [SATB] is not illegal. SATB used to be a dodge to postpone the tax consequences. e.g.: You SATB in 1976 and then use your own shares to cover the short in 1977, you would pay taxes on both transactions in 1977. You can no longer postpone the tax consequences by doing this if you live south of Lake Ontario. Canadian law may be different.
Stocks can usually be transferred from one account to another – even when the accounts are owned by different brokerage houses. Otherwise, it’d be a lot harder to go short or long.
Shorting against the box isn’t illegal, but it can have tax consequences because the IRA (in the US) will consider it a sale.