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 ?
tZERO employs a revolutionary blockchain application called a digital locate receipt (DLR), which is a digitised version of a traditional REG SHO locate.
Reg SHO generally allows firms to track their positions in a security from certain trading operations or trading desks separately from other positions maintained at the firm through the use of an "aggregation unit.
Additionally, Reg SHO permits firms to reasonably allocate fail-to-deliver positions to its broker-dealer clients that caused or contributed to the firm's fail-to-deliver position.