I am not sure if all trading accounts work this way, but when I short a stock I must post 130% of the total value for margin. If my net margin balance falls below that, my brokerage house will buy back the stock and cover the short without waiting for me to act. If the shorted company pays a dividend before my short is settled, the amount of the dividend is immediately confiscated from my account and transfered to the legitimate owner of the shares I have borrowed. And if THAT triggers a margin deficit the brokerage house could also close the short. There is no option in my trading that would allow the legitimate owner of the stock to be 'screwed'. Lastly, if the stock I have shorted rises in market value, I must make sure my margin balance is still sufficient to meet that 130% coverage or again I will find myself stopped out at a loss.

The margin that I post is the insurance that even if I am deadbeat or a terrible trader, at the end of the day I am the one who bears the losses and the money is always posted to cover the shorts and deliver the security.

Now I suspect that the big hedge traders get a better deal. But even so I doubt they can sell a security they do not own, take the cash, and just say 'screw you' if they do not cover. I am not able to naked short from my account. I have tried many times to enter a short position and had a message appear that my trade was declined because my brokerage could not provide an inventory of borrowed shares. Perhaps the big funds can navigate through that impass on the old boyz network, or perhaps the rules are different for naked shorting.

It is my understanding that if the merger is approved, on the settlement date all ECU shares will be cancelled and cease trading. Only a specific number of new AUM shares will be issued to replace the ECU shares outstanding. Therefore, the shorts must close their position and deliver the borrowed stock prior to the final settlement date of the merger. Of course there is nothing to prevent them from opening a short against AUM, but they must still close the ECU short and it will not automatically convert to an AUM short. If anyone else has other info please feel free to correct me.

cheers!

mike