Naked short selling - I thought it was already illegal

Discussion in 'Trading' started by sandygray66, Jul 22, 2008.

  1. Pardon my ignorance, but I thought it was already illegal for naked short selling of stocks to be conducted. Meaning, that in order for a trader/institution to sell a stock short, the broker/institution had to be able to borrow the stock from another account which already owned the stock.

    I thought this requirement was in place since somethng like the 1930s.

    So why is there a big deal about all the SEC getting involved to prevent naked short selling (i.e. no shares are actually borrowed) on the stocks of some of the large financial institutions.

    Is this a case of brokers breaking the rules in order to generate fees from their clients (the hedge funds which have been doing the bulk of naked short selling)?

    Is this a case of rules being applied to individual traders, but not the big boys?

    Anyone who's in the know - I'd appreciate an explanation of what's been going on here.

    For the CliffNote version.........

    The SEC is bought off. Top officials routinely leave their GS12's for $500,000 jobs at the best law firms, who routinely represent high level Wall Streeters who have recently been exonerated from Sec actions by those very same job seekers............ See Aguirre, John Mack, Paul Berger.

    Cox looked at real time data, and realized his Masters were about to crash the system. In an 'Emergency' measure' , their words, he forced borrows on 19 financials, who are up as a group about ten percent since Friday. Also, as reported by the good Dr. Byrne, the NYSE would not open Monday unless Cox granted the Option MM exemption.

    didn't see that on CNBC, did you?

    As Bryne said in his interview, when asked by Biff, '......I see you haven't been profitable since 1999......" Patrick responded with,

    'What don't you get about illegal???"

    Yes it is illegal by the '34 act. It is securities' fraud. But it is extremely profitable to the powerful.
  3. Un-f$%ing-believable!

    Thanks for the explanation flytiger.

    Why isn't the WSJ, Barron's or some other newspaper digging into this more? How can so many institutions be flaunting a clear law without repercussions?

    Where are the AG's on this issue?
  4. nonam


    I think foreign brokers are able to naked short if they have the "connections".I think some canadian brokers allow some of their trusted individual customers to naked short.You can bet the big boys have no problem naked shorting from their offshore companies in their traditional hiding places.:mad:
  5. dubes


    Suppose there is some illegal naked short selling going on and the SEC action will put an end to it. Short term legal short sellers aren't stupid. They're not going to take the risk of a squeeze as the naked short sellers cover. Now all of the shorts cover and the stock prices pop. Continuing on, who knows if the SEC will expand this rule to other financial companies outside of the Nearly Insolvent 17. Short sellers in other financial stocks will begin covering too from the regulatory uncertainty.

    The net effect is that the SEC has effectively manipulated the market by scaring short sellers out of financial companies.
  6. All that's doing is getting markets back where they would be otherwise, if the illegal short-selling hadn't occurred to begin with.

    Sure, there may be an over-reaction to the upside as legit short-sellers bail as well, but the SEC action is to eliminate (or at least minimize) an illegal manipulation by the naked short sellers in the first place.
  7. So when are we going to see some of these naked-shorting hedge fund managers and their facilitators at the i-banks do perp walks?

    IMO, these bastards are much worse than many of the others the NY AG has strung up by their balls.

    These naked shortsellers are destroying legitimate value for all the masses of long holders out there (i.e. mutual funds, pension funds, IRA accounts, etc.), for the benefit of the elite few who can invest in these hedge funds. I'm not saying that most of these stocks wouldn't have fallen due to their own merits, but certainly naked-shorting has exagerated their fall.

    Where's Cuomo on this? Spitzer wouldn't have squandered this opportunity for grandstanding for the common man.
  8. Is there any estimate for the # of shares that have to be bought for these 19 companies for the naked shorts to be covered? Should the short covering be about finished, or should we expect more. I know there's no black and white answer, just wondering if anyone has insight. Seems like at least BAC had some short covering at the end today.