Naked Short Selling

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Naked Short Selling

The sale of shares one has neither borrowed nor made arrangements to borrow. Under Regulation SHO, investors engaging in naked shorting much abide by a "locate" requirement and a "close-out" requirement. The locate requirement forces brokers to have reasonable grounds to believe that the short-sold security can be borrowed; the broker must document this prior to the security's sale. With some exceptions, the close-out requirement means that brokers who have failed to deliver a short-sold security for 13 days must purchase similar securities and present those instead. Naked shorting is very high risk.
References in periodicals archive ?
A number of studies have suggested that the source of most delivery failures are due to naked shorting (Fotak, Raman, & Yadav, 2009; Boulton & Braga-Alves, 2010; Stone, 2010).
Naked shorting is even more controversial than regular shorting because it seems so improper to sell something that the seller doesn't possess, but again, many academics argue that naked shorting helps to reduce irrational exuberance.
The SEC further tightened its rules against naked shorting just hours before Mr.
Naked shorting shifts out the supply curve, dropping the price.