Why is it so evil? Because it allows entities to short stock without idiotic locating regulations? Why is it that in futures where shorting is very simply these problems do not exist. It's the regulations in the first place that created the loopholes which took naked shorting to an extreme level. Playing games with locating stock & clearing houses.
Do you understand that a futures instrument is a derivative instrument - with different dynamics compared to the underlying. There are many ways to achive a negative delta position. You can still buy put options without having to locate stock. Why don't the rumor mongers buy put options with the same aggressiveness they use to naked short stock.
Have you ever looked at the options markets for some of these low float pieces of crap? They are a joke. But for BSC there was heavy put buying. Have you ever looked at other stock markets where none of these riduculous hard to borrow issues exist? These markets are a fraction of the US. Yet noone is crying. Have you ever had a stock you are dying to short because the move is obvious yet cannot, due to no shares being available since the execs of the company have been manipulating float in order to constantly short rip and push their stock price up? You put in ridiculous regulations and you will have smart guys finding any loophole. Then the loophole will get abused. As I have stated, naked shorting appeared due to inability to simply go out and short companies that are obviously overpriced beyond any reason.
the stock price decline always or most of the time reflect in the decline of the business. speculators believe or see that your business or company is failing so they short it.
the people who don't like shorting are shareholders of the company shareholders of the company are always bullish if they weren't they would be selling their shares and the last to admit that the business is failing. they would blame the demise of their company or decline on price to shorts rather than blame themselves the owners of the business for messing up the business.
Before the uptick rule was repealed, some traders shorted on a downtick "legally" (or so they thought) by purchasing "bullets" from a third party company that bought an opposing call option against the short, i.e. you'd technically be "flat". The SEC dragged their feet on their intepretation but ultimately closed this avenue stating it as a loophole. (I think some people can short via a newer strategy called "slips". I'm not sure if this is still available.) Anyways, legitimately shorting should not incur a hurdle IF there's a buyer of the transaction. Briefly put, I don't know how many members of this thread are hedge fund traders but I'm assuming most prop or retail traders are not intentionally naked shorting. I cannot speak on behalf of institutions but I'm assuming most people here are intraday trading. If clearing is T-3 and a prop trader is flat after naked shorting unintentionally, the delivery of stock will take place since the trade did cover in three days. There should NOT be a failure to deliver. This discussion is confusing in that regard. Who exactly is the blame being placed on? I do not claim to educated on this matter but has there been a rampant failures at the DTCC? Is there an assumption that the institutions are constantly shorting without any covering? I can understand people being annoyed about the rumors but we trade on information... act first, evaluate later. The shorts are out there and just as there are high profile activist investors trying to increase shareholder value like Icahn (as a recent example) there are others that have the power to question the CEO & board members such as Einhorn that PUBLICLY stated his short position. Shorting is not "free" money that some of you seem to think that it is. When there's smoke, there's usually fire. He showed his hand to the market and instead of crushing him, they agreed with his LEH analysis. Alhough the other financials are still hurt, the amount of exposure to illiquid assets seems to be commensurate to the amount of share price decline. On one hand you have GS and on the other you have LEH. The fact that accounting rules can be applied now to evaluate a bad balance sheet and creatively show a profit is fooling the general public. How the hell can you translate that to the common man? It's like saying that someone's house is being foreclosed because of the drop of home pricing but his/her credit will actually benefit from the foreclosure. It confuses people like me who watch CNBC and Bloomberg regularly while others buy in equities through the 401ks, IRA, pension funds who have NO CLUE what's going on. I don't mean to weaken my soapbox, but there's a saying: "Don't hate the player; hate the game." If you're an investor, this is the BEST time to get in especially if you read most financial books that talk about taking advantage of fear. This time should be considered value / bottompicking 101. It's silly to assume that every stock will have a near vertical slope to go higher and higher just because YOU got in.