the clearing firm is not the one doing it.the software vendor seperate from the clearing firm is allowing the trades to happen. he's not coding the illegal shorts as shorts many times but just sales.so every night they electronically send all the trades to be cleared so as long as there's no overnight no problem. i know somebody who has gotten in trouble for this. many times the sec comes back years later. for isntance you know many stocks like baudi inshortable. IF YOU CAN'T HOLD THE SHORT OVERNIGHT ITS A NAKED SHORT AND ILLEGA. DO AT YOUR OWN PERIL.
"I bet you thought IPO's were not shortable on day one!" You CANNOT mark IPO's naturally short within the first 30 trading days (minimum), regardless of the firm's [long] position. Think about it... to mark a trade "short", it needs to be done in what most firms call a type 3 account. Type 3 sales are not possible in a cash (type 1) account, and they are only allowed in MARGIN accounts. However, IPO's are non-marginable for at least their first 30 days trading. I know for a fact that some firms can "locate" IPO's (not usually day 1, but within a couple days), based on longs. But, it's illegal to mark an IPO "short" when it's not marginable. Similarly, a stock may be ETB (from a locate perspective), but if it's non-marginable, you can't mark it short.
WOW, I never knew that! Can you teach me what a PLUS tick is while you are at it. I guess you never traded an IPO on the first day of issue through an institutional desk. Did I ever say I marked my sales "short"?
"I guess you never traded an IPO on the first day of issue through an institutional desk." No, not as a daytrader, I haven't. But you apparently have some sort of special arrangement where you can mark a trade as a long sell, when you are actually going short. Must be nice... I imagine that would be a nice perk to have.
Ok, instead of continuing this "Pissing Contest, it's quite simple and 100% legal. I go home net LONG, and during the course of the day I am buying and selling. When I book my insitutional, average price ticket, at the end of the day, I book one BUY and ONE sell. Nothing out of the ordinary. I have a LONG allocation from 9AM from the IPO, as well as buying stock in the aftermarket so I can sell it and buy it back! Who knows or cares that I sold before I bought?
Thanks to all posters. Who would be responsible legally if a trader is naked shorting: the broker, the clearing firm or the trader? It doesnt make sense that the trader would be responsible. I guess ultimately its the clearing firm that should bear the brunt of it.
It isn't the clearing firms responsibility. From personal experience they come 2.5 years after the trade and slap each one individually with a $100k fine, the broker dealer, the series 24 and the trader. Their software didn't prevent it, the series 24 should have been aware of it and taken steps to prevent it, and the trader is suppose to know the rules because of his education from passing the series 7. All three are responsible for preventing illegal shorts and all three will get in trouble.
you're correct all are responsible. cre are you referring to redwood trading were the naked shorting came back 2 1/2 years later? i've heard that many traders were contacted recently about naked short selling there and they've been gone for years. i agree with many people on here why should the trader get in trouble if they're allowed to short these. i'm sure the sec if they caught it would look how frequently a trader abused it. if its a few trades a week maybe they say nothing but if its's constant bombing of unshortable stocks every day for months it could bite you
Well, what if the trader doesnt have a series 7 and is trading with an LLC or in a "retail account"...theoretically if the software tells me i can short this stock, how can i know otherwise...If its not the clearing firm, then its gotta be the broker/dealer that should be responsible.
FWIW, one firm offered to "set aside" shares for me to short if I let them know by like 7AM and they had them. There was no obligation to short, just a heads up to them of the need for shares.