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(1) What happens if I buy a stock before it splits? For example, I buy 100 shares of A at $10 dollars per share a day before a 2:1 split. With T+2, delivery will be after the stock split. Does the seller deliver 100 old shares of A at $100 each to me or 200 new shares of A at $50 each?

(2) Let's say I sell 100 shares of stock A to Bob on Day 1. A few hours later, I borrow 100 shares of stock A from Alice in order to deliver to Bob. This is known as naked short selling (I short-sell stocks before borrowing them).

According to regulations, I have to deliver the shares to Bob on Day 3. Coincidentally, Alice delivers the borrowed shares to me on Day 3 as well. I'm not entirely sure how long it takes for me to transfer shares to Bob. Do I have enough time to receive these shares and deliver them to Bob in turn within the same day or will I fail to deliver them to Bob in time?

(3) Is it possible to exploit arbitrage in dark pools? I know that prices in dark pools can be different from the public price so is it possible to buy stock A for $100.00 on a dark pool and sell for $100.10 on another dark pool?

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Stock splits have no effect on the value of the position. Whether settlement is before or after the split, you end up with the appropriate number of shares. No one gets screwed because of a split.

Your broker will not allow you to execute naked short selling. It will have to have or find borrowable shares before you will be allowed to legitimately short the shares. All of the mechanics of shorting (borrowing and delivery of shares) will be handled by your broker. Spend your time finding a good trade rather than worrying about the mechanics :->)

Exploit arbitrage in dark pools? The retail guy is the last one in line for everything. The big players have better technology, faster access, and the know how and a retail guy will be lucky to find a few crumbs, if any.

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  • 1. So that means that if I buy 100 shares of A before a stock split, I still get 100 shares of A after a stock split despite the price reduction? – Anonymous Jun 23 '20 at 13:23
  • 2. So if I sell a stock, I must prove that I hold the underlying shares (either by buying them beforehand or borrowing them beforehand) or else the broker won't let me sell them, right? – Anonymous Jun 23 '20 at 13:23
  • (1) If you buy 100 shares and it splits before settlement, at settlement you will have the new number of shares, regardless of the size or the type of split. (2) If you own shares, you can sell them anytime that you like. If you own none and you want to short them, you need a margin account, approval from your broker for shorting shares, the appropriate margin (cash or marginable securities) in your account to support the trade, and the shares must be borrowable. – Bob Baerker Jun 23 '20 at 13:27

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