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.
A total of 17 EU countries have suspended naked shorting in general since the start of the crisis, with Greece, Belgium, Spain, France and Italy this summer enacting extra restrictions on bank shares.
The vast majority of the responses to the EC consultation defended short selling as a source of liquidity although naked shorting, the practice of short selling without first securing a source for borrowing stock, was decried by a number of firms such as broker CA Cheuvreux.
The SEC has never condoned the practice, and since 2005 it has clamped down on short selling in any stock that shows evidence of naked shorting. The SEC further tightened its rules against naked shorting just hours before Mr.
More than 100 small- and micro-cap firms have filed complaints, alleging market maker manipulation and "naked shorting" of their firm's securities.
A total of 17 EU countries have suspended naked shorting since the start of the crisis, with Greece, Belgium, Spain, France and Italy this summer becoming the latest to enact restrictions on bank shares.
The consultation covered the types of security that can be short sold, transparency, naked shorting, exemptions and the powers of authorities appropriate in normal and exceptional circumstances.
These requirements were however shown insufficient to eliminate naked shorting (Evans, Geczy, Musto, & Reed, 2009).
It's hard to defend naked shorting, which enables speculators to drive down a company's stock by offering an overwhelming number of shares for sale.
Naked shorting shifts out the supply curve, dropping the price.