naked short

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.

naked short

The investment position of the underwriting firm for a new issue when the underwriting firm has sold more shares short than will be issued. A short position prior to the issue permits the underwriter group to stabilize the price of the stock by becoming buyers immediately following the deal. A naked short allows the underwriting firm greater stabilization ability. See also greenshoe.
References in periodicals archive ?
Skeptics argue that many (if not most) companies harmed by naked short selling suffer from performance problems or poor business models.
Eyebrows were raised earlier this year when the KNF approved a new regulatory framework that permitted naked short selling for a number of securities traded on the WSE, but Szuszkiewicz asserts that the robustness of the measures put in place will protect market participants.
Schaeuble, in turn, angered his EU partners by going it alone and signing off on a ban on so-called naked short selling of Germany's top financial stocks, euro zone government debt and credit default insurance contracts on that debt.
Global Banking News-19 May 2010-BNP says German ban on naked short selling might not be effective without similar measures by the US(C)2010 ENPublishing - http://www.enpublishing.co.uk
As well as attracting 19 international brokers as remote trading members and introducing a new framework for naked short selling, the WSE announced a strategic alliance with global exchange group NYSE Euronext earlier this year.
Goldman Sachs was censured for violating the SEC's Regulation SHO, whose requirements were implemented in September 2008 to regulate naked short selling.
Most recently, Germany announced a ban on naked short selling in May 2010.
In a response published on 12 July, the Association for Financial Markets in Europe (AFME), which represents investment banks, broadly supported the consultation but warned against a ban on naked short selling as it "will not succeed in its aim of reducing volatility and could have the opposite effect".
"It is our intention to get this on the agenda of the finance ministers' task force meeting on Friday, aiming towards a European ban on naked short selling," the Financial Times quoted a finance ministry spokesman as saying.
Members of the European Parliament's Committee on Economic and Monetary Affairs (ECON) have opted to ban the naked short selling of sovereign credit default swaps (CDSs), where investors bet on the likelihood of government bond prices collapsing, ie a country going bust.
The introduction of naked short selling for instruments listed on the Warsaw Stock Exchange (WSE) in July will "change the landscape" for participants in Poland's financial markets, according to the exchange's head of derivatives.
The latest solo intervention was performed by German financial markets regulator BaFin on 18 May, which banned naked short selling on the shares of 10 German financial companies, and the uncovered short sale of European government bonds with credit default swaps in an attempt to curb speculation against eurozone countries and selected companies.