Ask Colin

What happens if I am short a stock that goes into receivership?

I think there may be several possibilities, all of which should be covered in the contract your broker signs on your behalf or that you sign when you borrow the stock to go short. You should ask your broker this, rather than me.

However, I should imagine it is a good problem to have. Unless the stock is somehow resurrected, the shares are worthless. I guess you still have an obligation to return the stock you borrowed to sell short. I would imagine you would have little trouble buying some worthless shares from someone, or alternatively, the relevant contract might provide for a cash settlement. I doubt anyone would pursue you for worthless stock, it would not pay them to do so.

Keyword: