What Are Short Tenders?

What Are Short Tenders?

A short tender refers to borrowing shares to participate in a tender offer, which is an attempt to buy some or all of the shareholders' stock in a company. If someone responds to a tender this way, they can sell more stock than they currently own. This activity has been against the law since the 1970s.


Exchange Act Rule 14e-4, commonly known as the short tendering rule, is a regulation that restricts the practice of short selling in response to tender offers. Short tendering involves borrowing stock to respond to an acquisition offer for a company's shares. It essentially entails offering to sell more shares than one actually owns. Typically, the purchase price in a short tender offer is set at a premium above the market price.

The purpose of Rule 14e-4 is to prevent short sales of tendered stock, as such sales provide an advantage to brokers who offer more shares than they possess. This rule is in place to safeguard against unfair practices that work against individuals who only offer to sell the shares they own.

What Are Short Tenders?

Short tendering is an investment practice that involves responding to a tender offer by offering to sell more shares than one owns. To participate officially, an investor must already have a net long position that matches or exceeds the tender offer amount. The net long position is calculated by subtracting any short positions in the same security from the total number of shares owned.

Essentially, a short tender offer entails paying the purchase price for the stock in the offer, which is typically set at a premium above the market price, using borrowed shares. This approach allows the person making the short tender to offer more shares than they possess.

Previously, before the implementation of the short tendering rule, brokers could take the risk of selling more shares than they owned, often at prices higher than the prevailing market rate. If the short sale offer was accepted, the broker could purchase the additional required shares at the market rate, still yielding a profit since they would sell them for more than the current market price.

Short Tenders Example

The scenario involves two brokers, A and B. Broker A owns 500 shares and makes a short tender offer of 600 shares, which is accepted. On the other hand, Broker B owns 500 shares and decides not to participate in the short tender offer, offering their entire 500 shares instead. However, Broker B discovers that they can only sell 400 of their shares, leaving them with 100 unsellable shares. Had Broker A not engaged in short tendering, Broker B would have been able to sell all of their shares.

Ownership Criteria Under the Short Tendering Rule

Under the rule of short tendering, ownership of a tendered security is determined by particular criteria. These criteria encompass the following:

  1. Possessing complete legal title to the security.
  2. Being engaged in a binding contract to purchase the security, regardless of whether it has been received.
  3. Having the option to purchase the security, exercising that option, and having the right to subscribe to such security with exercising those rights.


Short tendering involves borrowing shares to sell more stock than owned in a tender offer. This practice has been prohibited by Exchange Act Rule 14e-4 since the 1970s. The rule aims to prevent unfair advantages for brokers and protect those who sell only owned shares. Ownership of a tendered security is determined by specific criteria, including legal title, purchase contracts, and exercised rights. These regulations ensure fairness and transparency in stock transactions.

Short Tenders
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