Short Sale

Short sale is a method for speculating on a decrease in the price of investment instrument. The basic principle of this operation is the sale of investment instrument (security) not owned by the seller at the time of sale, but borrowed from the owner of this security, as well as further purchase of the security for lower price. The seller must pay the lender interest. The lender is entitled to any yield on the security during the term of the loan (dividends, coupons, etc.). As soon as the short sale period ends, the short seller buys back the security on the market and returns them to the lender.

Purpose of Short Sale

The purpose is selling a security for a current price in expectation of buying it back later at a discount. This way, the client speculates on a decrease in the price of the investment instrument and profits from the reduction of its value.

However, if the value of the investment instrument grows, the seller may incur a loss as a result of the subsequent closing of the short position, i.e. buyback of the investment instrument.

General Short Sale Terms:

• maximum transaction duration totals ten business days
• initial security totals 30 % of the short sale transaction volume (cash only)

Short Sale Overview

For who is this product intended?

Short sale is intended for investors who speculate on a decrease in the value of investment instruments.

Model Example:

The client speculates on a short-term decrease in the value of ČEZ, a.s. shares in view of negative developments in the energy sector in Europe and decides to sell 1,000 shares at CZK 846 per share. After the value of the shares falls, the client decides to buy back the sold shares at CZK 723 per share. The client's gross earnings total CZK 123,000.

LBBW Bank Requirements for Brokering Short Sale:

• LBBW Bank current account
• LBBW Bank investment account (no charge)
• Commission Agreement (no charge)