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 ?
Naked short selling, or selling stock that has not yet been borrowed, is illegal in South Korea.
A more fundamental problem is the mishap accidentally allowed "naked short selling" to happen, in which investors unload shares they do not own.
We do not allow naked short selling at all,' Ranjit said.
While his first foray with Bitcoin may have been spurred by his animus toward Wall Street and its practice of "naked short selling," he has since become a vocal proponent of cryptocurrency, predicting it will free the modern economy from the control and whims of big banks and government.
The latter establishes locate and close-out standards aimed at preventing the opportunity for unethical traders to engage in naked short selling practices.
There are people who believe that everything bad in financial markets is due to naked short selling, and that the big banks are in a massive conspiracy to facilitate illegal short selling to manipulate the stock prices of disfavored companies.
(Merrill Lynch PRO) $3.5 million for violating Regulation SHO, an SEC rule that established a regulatory framework to govern short sales and prevent abusive naked short selling. FINRA also censured and fined its affiliated broker-dealer, Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch), $2.5 million for failing to establish, maintain and enforce supervisory systems and procedures related to Regulation SHO and other areas.
More recently, the use of naked short selling, where a stock has not been lent prior to the sale, has likewise added to the continued negative perception of short selling.
* "Naked Short Selling: Is it Information-Based Trading?" by Harrison Liu, Sean T.
Houston, TX, October 11, 2012 --(PR.com)-- Tim Connolly's Winning Strategies will feature filmmaker Kristina Leigh Copeland of Brown Saddle Films, director of the “The Wall Street Conspiracy” (http://thewallstreetconspiracy.com), and famed naked short selling litigator Wes Christian.
According to Branson (2009), the restrictions advocated for short sales consist of the following five cases: 1) outright ban in terms of stocks and period; 2) partial ban for critical stocks (issues) and/or for periods of time; 3) prohibition on "naked short selling"; 4) regulation of stock borrowing; and 5) restoration of the uptick rule.
Hence the strategy itself is known as "naked short selling," which can be contrasted to a covered short sale in which I take the precaution of borrowing stock to sell, as described earlier.