Naked Shorting
Definition of 'Naked Shorting'The illegal practice of short selling shares that have not been affirmatively determined to exist. Ordinarily, traders must borrow a stock, or determine that it can be borrowed, before they sell it short. But due to various loopholes in the rules and discrepancies between paper and electronic trading systems, naked shorting continues to happen.While no exact system of measurement exists, most point to the level of trades that fail to deliver from the seller to the buyer within the mandatory three-day stock settlement period as evidence of naked shorting. Naked shorts may represent a major portion of these failed trades. |
|
Investopedia explains 'Naked Shorting'Naked shorting is illegal because it allows manipulators a chance to force stock prices down without regard for normal stock supply/demand patterns.In 2007, the Securities and Exchange Commission (SEC) amended Regulation SHO to further limit possibilities for naked shorting by removing loopholes that existed for some broker/dealers. Regulation SHO requires lists to be published that track stocks with unusually high trends in "fail to deliver" shares. Some analysts point to the fact that naked shorting, albeit inadvertently, may help markets stay in balance by allowing the negative sentiment to be reflected in certain stocks' prices. |
Related Definitions
Articles Of Interest
-
The Truth About Naked Short Selling
The media demonizes naked short selling, but in most cases it occurs in a collapse, rather than causing it. -
The Short And Distort: Stock Manipulation In A Bear Market
High-quality stock reports needn't be confused with stock manipulators' dramatic claims. -
Short Selling Risk Can Be Similar To Buying Long
If more people understood short selling, it would invoke less fear, which could lead to a more balanced market. -
How does somebody make money short selling?
Short selling is a fairly simple concept: you borrow a stock, sell the stock and then buy the stock back to return it to the lender. Short sellers make money by betting that the stock they sell ... -
Short Selling Tutorial
Want to profit on declining stocks? This trading strategy does just that. -
When To Short A Stock
Learn how to make money off failing shares. -
Top 4 Most Scandalous Insider Trading Debacles
Here we look at some of the landmark incidents of insider trading. -
The Short Squeeze Method
The short squeezed strategy can be risky - but also very rewarding - for those who master it. -
Helping Clients Navigate Short Sales And Foreclosures
Both buyers and sellers can benefit from a real estate professional experienced in dealing with short sales and foreclosures. -
Bear Put Spreads: A Roaring Alternative To Short Selling
This strategy allows you to stop chasing losses when you're feeling bearish.
Free Annual Reports