Archive for October, 2009

• All About Naked Short Selling
  Eddy Elfenbein, October 1st, 2009 at 10:59 am

  Naked short-selling is one of those topics that gets people angry mostly because they don’t understand it. It’s not counterfeiting. In fact, it helps the market a great deal and it’s almost exactly the same as regular shorting.
  Fortunately, John Carney has spelled out the details in a great post: Everything You Ever Wanted To Know About Naked Shorting But Were Afraid To Ask.
  Here’s more on naked shorting from the SEC’s website:

  Naked short selling is not necessarily a violation of the federal securities laws or the Commission’s rules. Indeed, in certain circumstances, naked short selling contributes to market liquidity. For example, broker-dealers that make a market in a security4 generally stand ready to buy and sell the security on a regular and continuous basis at a publicly quoted price, even when there are no other buyers or sellers. Thus, market makers must sell a security to a buyer even when there are temporary shortages of that security available in the market. This may occur, for example, if there is a sudden surge in buying interest in that security, or if few investors are selling the security at that time.