Naked Short
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Naked Short
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— Speech by SEC Chairman Christopher Cox [22]
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^ Cox, Christopher (July 12, 2006). "Opening Statements at the US Securities and Exchange Commission Open Meeting" .
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^ Video of Christopher Cox , March 2008
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^ Jump up to: a b Ivy Schmerken, "SEC Short Sale Rule Could Create a Bubble in Financial Stocks" , Wall Street & Technology , July 20, 2008
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^ "SEC Takes Steps to Curtail Abusive Short Sales and Increase Market Transparency" . Securities and Exchange Commission . 2009-07-24 . Retrieved 2009-07-28 .
^ News, BBC. "US rules on abusive short selling" . bbc.co.uk . Archived from the original on July 31, 2009 . Retrieved 2009-07-27 . {{ cite news }} : |last= has generic name ( help )
^ "ASX ban on short selling is indefinite" . Sydney Morning Herald . October 3, 2008. Archived from the original on October 5, 2008.
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^ Nakamichi, Takashi; Tomisawa, Ayai (October 28, 2008). "Japan Cracks Down on Naked Short Selling" . Wall Street Journal .
^ "More countries put bans on short selling" . Reuters. September 19, 2008.
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^ Ashurst Madrid (September–October 2008), Short selling restrictions and disclosure obligations in Spain (restrictions adopted on 22 September 2008)
^ "What is short selling?" . The Hindu Business Line . December 23, 2007.
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^ Tomoko Yamazaki (May 18, 2009). "TCI Cuts $1 Billion of Japanese Short Stock Positions" . Bloomberg .
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^ "Japan to extend naked short selling ban to Oct." July 26, 2010. Reuters.
^ Goh Eng Yeow (November 16, 2008). "SGX to build up penalties for 'naked' short-selling" . The Straits Times . Archived from the original on February 12, 2010.
^ Kirschbaum, Erik & Torchia, Andrew (May 18, 2010). "Germany bans naked short-selling" . Reuters.
^ BBC News (May 18, 2010). "Euro drops to new four-year low against US dollar" . BBC News .
^ "Germany to permanently ban some short selling: Bafin' " . Reuters . Reuters. May 28, 2010.
^ Naked Short-Selling Ban Coming into Force in Germany , July 26, 2010. CNBC.com.
^ Buergin, Rainer (August 17, 2010). "Merkel's 'Distortive' Short-Selling Ban Failed to Achieve Aims, IMF Says" . Bloomberg .
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^ "Markets up on short-selling ban" , Irish Times , 12 August 2012
^ "More woes for Refco, execs: Newspapers say creditors eye over $1B insiders made from stock, while SEC probes 'naked shorting' " . CNN/Money. October 20, 2005 . Retrieved May 19, 2010 .
^ "SEC Complaint against Gryphon Partners" (PDF) . December 12, 2006.
^ Webster, Ben (March 15, 2007). "Goldman Sachs fined $2m over short-selling" . TimesOnline . London. AP . Retrieved May 19, 2010 .
^ "Monthly Disciplinary Actions – July 2007 " Archived 2013-03-25 at the Wayback Machine , NYSE Regulation , July 11, 2007
^ Edgar Ortega, "Piper Fined by the NYSE Over Short-Sale Violations" , Bloomberg News , July 11, 2007
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^ Heidi N. Moore, "We See Dead People: $250K Fine for Lehman Short-Sales" , Wall Street Journal , October 22, 2008.
^ Marcy Gordon (AP), "Goldman Sachs settles short-sales allegations" , USA Today , 5 April 2010.
^ Taibbi, Matt (15 May 2012). "Taibbi: Goldman and 'Naked Short Selling' " . Rolling Stone Magazine . Archived from the original on 26 June 2014.
^ "DTCC response to Wall Street Journal Article" Archived 2009-03-02 at the Wayback Machine , Press release, July 6, 2007
^ "Naked shorting: The curious incident of the shares that didn't exist" , April 2005
^ Whitehouse, Kaja (2008-11-05). "Drop in naked shorts" . New York Post . In some cases, [naked short selling] may be perfectly legal, but usually it's not. (...) efforts to take more serious actions against short selling continued yesterday (...)
^ James W. Christian, Robert Shapiro & John-Paul Whalen (2006). "Naked Short Selling: How Exposed Are Investors?" (PDF) . Houston Law Review . Retrieved 2007-03-25 .
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--- F.3d ----, 2009 WL 579270 C.A.8 (Ark.),2009.
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^ Taibbi, Matt (October 2009). "Wall Street's Naked Swindle" . Rolling Stone . p. 53. Archived from the original on October 18, 2009 . Retrieved 2009-10-15 . But the most damning thing the attack on Bear had in common with these earlier manipulations was the employment of a type of counterfeiting scheme called naked short-selling. From the moment the confidential meeting at the Fed ended on March 11th, Bear became the target of this ostensibly illegal practice – and the companies widely rumored to be behind the assault were in that room.
^ "Max Keiser Radio - The Truth About Markets - 15 May 2010" – via Internet Archive.
Naked short selling , or naked shorting , is the practice of short-selling a tradable asset of any kind without first borrowing the asset from someone else or ensuring that it can be borrowed. When the seller does not obtain the asset and deliver it to the buyer within the required time frame, the result is known as a " failure to deliver " (FTD). The transaction generally remains open until the asset is acquired and delivered by the seller, or the seller's broker settles the trade on their behalf. [1]
Short selling is used to take advantage of perceived arbitrage opportunities or to anticipate a price fall, but exposes the seller to the risk of a price rise.
The oldest documented example of a naked short in securities trading appears to be a 1609 maneuver against the Dutch East India Company by the Dutch trader Isaac Le Maire . [2]
Critics have advocated for stricter regulations against naked short selling. In 2005 in the United States, " Regulation SHO " was enacted, requiring that broker-dealers have grounds to believe that shares will be available for a given stock transaction, and requiring that delivery take place within a limited time period. [3] [4] In 2008, the SEC banned what it called "abusive naked short selling" [5] in the United States, as well as some other jurisdictions, as a method of driving down share prices. Failing to deliver shares is legal under certain circumstances, and naked short selling is not per se illegal. [6] [3] [7] In the United States, naked short selling is covered by various SEC regulations which prohibit the practice. [8]
In August 2008, the SEC issued a temporary order restricting short-selling in the shares of 19 financial firms deemed systemically important, by reinforcing the penalties for failing to deliver the shares in time. [9] Effective September 18, amid claims that aggressive short selling had played a role in the failure of financial giant Lehman Brothers , the SEC extended and expanded the rules to remove exceptions and to cover all companies, including market makers . [5] [10]
A 2014 study by researchers at the University at Buffalo, published in the Journal of Financial Economics , found no evidence that failure to deliver stock "caused price distortions or the failure of financial firms during the 2008 financial crisis" and that "greater FTDs lead to higher liquidity and pricing efficiency, and their impact is similar to our estimate of delivered short sales". [11]
Some commentators have contended that despite regulations, naked shorting is widespread and that the SEC regulations are poorly enforced. [12] Its critics have contended that the practice is susceptible to abuse, can be damaging to targeted companies struggling to raise capital, and has led to numerous bankruptcies. [8] [13] However, other commentators have said that the naked shorting issue is a "devil theory", [14] not a bona fide market issue and a waste of regulatory resources. [15]
Short selling is a form of speculation that allows a trader to take a " negative position " in a stock of a company. Such a trader first borrows shares of that stock from their owner (the lender), typically via a bank or a prime broker under the condition that they will return it on demand.
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