Naked Short Selling

http://www.elitetrader.com/vb/showthread.php?s=&threadid=238800

 

I saw that when you posted, yea it was flytiger, I think the other disciple was Patch.

i haven't see naked short selling in the news anywhere in the last years, not saying it hasn't been but not much in the headlines.

 

why don't we all reserve judgement until we read about this:

http://www.bloomberg.com/news/2012-...-documents-on-overstock-ordered-unsealed.html

I think it will probably seal the deal. A week to go, and it should be all over the place. I wonder if we're smurfs or muffetts?

 

http://www.cnbc.com/id/100806985

Is that it? Six million dollar fine.

 

I have noticed, and am annoyed by, the habitual practice of ill defining naked short selling in the media. It is no wonder that the public, and some traders as well, are confused about this illegal, but heretofore common practice.

For example in the Bloomberg article it is stated:

" ...naked shorting, where investors sell shares they don’t own in anticipation of making a profit by paying for the stock after its price has fallen. "

This is true of both legitimate shorting and naked shorting as long as one allows that ownership in the case of something borrowed can be an ambiguous concept. This is, nevertheless, the way that naked short selling is invariably described in the common media.

In the present case, and to its credit, Bloomberg does, in the next paragraph, what is hardly ever done, and that is to correctly distinguishes naked short selling from legitimate short selling. The key feature of naked shorting being, of course, a failure to locate and deliver, whether intentional or not.

To avoid confusion Naked shorting should always described in the media in contrast to legitimate shorting. For example, "In legitimate short selling, borrowed shares are sold with the hope of buying them back later at a lower price, whereas in illegal, Naked short selling, shares one does not own are sold without borrowing them, making the shares sold fictitious." (It is not necessary to be strictly correct about the selling-borrowing sequence to get the point across.)

Once it is recognized that the onerous practice of naked short selling effectively creates shares out of thin air, anyone can understand why the practice needs to be cracked down on and stopped.

 

I think naked shorts (in this case) have to do with the fact naked shorts are created in the normal course of business in trading options. The naked shorts created are not to be "sold' but dissolved when the option expire.