Naked Short

Naked Short
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— Speech by SEC Chairman Christopher Cox [22]

^ Knepper, Zachary T. (2004). "Future-Priced Convertible Securities & The Outlook For "Death-Spiral" Securities-Fraud Litigation" (pdf) . Bepress Legal Repository . Berkeley Electronic Press. p. 15.

^ Kass, Doug. "This blame game is short on logic" . Financial Times . Retrieved 10 June 2021 .

^ Jump up to: a b c d e "Key Points About Regulation SHO" . Securities and Exchange Commission. April 11, 2005 . Retrieved 2008-10-19 .

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^ "Searching for the naked truth" , The Economist , August 17, 2008

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^ Jump up to: a b c Fotak, Veljko; Raman, Vikas; Yadav, Pradeep K. (2014). "Fails-to-deliver, short selling, and market quality" (PDF) . Journal of Financial Economics . 114 (3): 493–516. doi : 10.1016/j.jfineco.2014.07.012 .

^ Jump up to: a b Stokes, Alexis Brown (Spring 2009). "In Pursuit of the Naked Short" . Rochester, NY. SSRN 1769014 . {{ cite journal }} : Cite journal requires |journal= ( help )

^ Jump up to: a b Kadlec, Daniel (9 November 2005). "Watch Out, They Bite!" . Time . Archived from the original on April 24, 2008.

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^ Jump up to: a b c d "The Naked Truth on Illegal Shorting" . fool.com. Archived from the original on 2008-03-07 . Retrieved 2008-03-12 .

^ Jump up to: a b "Fails-to-Deliver Data" . SEC . Retrieved 2008-03-12 .

^ "SEC.gov | Fails-to-Deliver Data" . www.sec.gov .

^ "The SEC finally steps in; As other regulators hustle to address the economy, the Securities and Exchange Commission needs to better enforce laws already on its books" . Los Angeles Times . July 17, 2008.

^ Jump up to: a b "Regulators Say REG SHO is Working" . Depository Trust and Clearing Corporation (DTCC). January 24, 2006 . Retrieved 2008-03-12 .

^ "SEC Issues New Rules to Protect Investors Against Naked Short Selling Abuses" , Press release, Securities and Exchange Commission, September 17, 2008

^ "Naked Short Selling Is One Problem a Slumping Market Shouldn't Have" . Retrieved July 23, 2012 .

^ "Naked Truth Dressed to Baffle" . thestreet.com . August 29, 2005 . Retrieved 2008-04-03 .

^ Barr, Alistair (June 14, 2006). " 'Naked' short selling is center of looming legal battle; Companies on the defensive seize upon an aggressive form of shorting" . MarketWatch.

^ "Committee to Hold Hearings on Collapse of Lehman Brothers and AIG" Archived 2008-10-14 at the Wayback Machine , October 3, 2008 testimony of Richard Fuld Archived 2009-08-26 at the Wayback Machine

^ Jump up to: a b Moore, Heidi N. (2008-10-07), "Dick Fuld's Vendetta Against Short-Sellers—and Goldman Sachs" , Deal Journal (Wall Street Journal Blogs)

^ Smith, Aaron (October 6, 2008). "Fuld blames 'crisis of confidence' " . CNN . Retrieved May 19, 2010 .

^ "HITC Business - News" .

^ Jump up to: a b Cox, Christopher (2008-07-18). "Public Statement by SEC Chairman: Naked Short Selling Is One Problem a Slumping Market Shouldn't Have" . Securities and Exchange Commission . Retrieved 2009-08-23 .

^ Jump up to: a b c d "Key Points About Regulation SHO" , Security and Exchange Commission

^ Jump up to: a b Legal Information Institute - Cornell Law. "17 CFR 242.203 - Borrowing and delivery requirements" . Archived from the original on 2019-01-25.

^ University of Cincinnati College of Law. "Securities Lawyer's Deskbook, Rule 200" .

^ United States Securities and Exchange Commission. "Proposed SEC 17 CFR PART 242 (Release No. 34-54154; File No. S7-12-06) RIN 3235-AJ57 Amendments to Regulation SHO" (PDF) .

^ Cox, Christopher (July 12, 2006). "Opening Statements at the US Securities and Exchange Commission Open Meeting" .

^ Norris, Floyd (June 14, 2007). "S.E.C. Ends Decades-Old Price Limits on Short Selling" . The New York Times .

^ "Daily Stock Market Overview, Data Updates, Reports & News" . www.nasdaq.com .

^ Video of Christopher Cox , March 2008

^ Judith A. Burns, "SEC Proposes Teeth for Short-Selling Rules" , Wall Street Journal , March 5, 2008

^ "SEC proposes tougher 'naked' short selling rules" , March 4, 2008, Reuters

^ Westbrook, Jesse (July 15, 2008). "SEC to Limit Short Sales of Fannie, Freddie, Brokers" . Bloomberg.com . Retrieved 2008-07-15 .

^ Jump up to: a b Ivy Schmerken, "SEC Short Sale Rule Could Create a Bubble in Financial Stocks" , Wall Street & Technology , July 20, 2008

^ Antilla, Susan (August 1, 2008). "Short Sellers in Stock Cop's Sights" . Bloomberg .

^ Norris, Floyd (August 12, 2008). "Did It Help to Curb Short Sales?" . New York Times .

^ Gordon, Marcy (August 13, 2008). "SEC's ban on short-selling Fannie, Freddie ends" . Associated Press.

^ Petruno, Tom (August 13, 2008). "Short sellers pare bets on financials" . Los Angeles Times .

^ Krantz, Matt (August 13, 2008). "Financial stocks suffer after protection ends" . USA Today .

^ "SEC Issues New Rules to Protect Investors Against Naked Short Selling Abuses" , Securities and Exchange Commission, September 17, 2008

^ Sara Hansard, "SIFMA to sue if short-sale vote wins; Naked short selling on South Dakota ballot , InvestmentNews , November 2, 2008

^ Aaron Siegel (November 5, 2008). "Naked short-selling ban nixed in S. Dakota" . InvestmentNews .

^ Lynch, Sarah N. (2009-07-27). "SEC to Limit 'Naked' Short-Selling" . The Wall Street Journal . Retrieved 2009-07-27 .

^ "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.

^ "Sebi bans overseas short-selling" . The Wall Street Journal . October 28, 2008.

^ "Dutch invented short selling in 1609" . 2008-09-22. Archived from the original on 2010-12-02 . Retrieved 2015-01-26 .

^ 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.

^ Saltmarsh, Matthew (September 21, 2008). "More regulators move to curb short-selling" .

^ 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.

^ "Sebi allows all to sell short" . The Financial Express . March 22, 2007. [ permanent dead link ]

^ Tomoko Yamazaki (May 18, 2009). "TCI Cuts $1 Billion of Japanese Short Stock Positions" . Bloomberg .

^ "Japan Extends Curbs on Short-Selling Until Oct. 31 (Correct)" . Bloomberg . July 24, 2009.

^ "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 .

^ de Clercq, Geert; Day, Paul (11 August 2011), "WRAPUP 7-Europe curbs short-selling as credit markets swoon" , Reuters

^ "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

^ "NYSE American | The New Choice for Institutional Investing" . www.nyse.com .

^ "SEC Charges New York Hedge Fund Adviser With Short Sale Violations in Connection With Hibernia-Capital One Merger" , SEC Press Release, October 10, 2007

^ 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 .

^ Drummond, Bob (August 4, 2006). "Naked Short Sellers Hurt Companies With Stock They Don't Have" . Bloomberg.com. Archived from the original on January 6, 2008 . Retrieved 2007-12-25 .

^ "DTCC Chief Spokesperson Denies Existence of Lawsuit" . financialwire.net. May 11, 2004. Archived from the original on November 5, 2007 . Retrieved 2007-12-25 .

^ "Senator Bennett Discusses Naked Short Selling on the Senate Floor" Archived 2008-02-27 at the Wayback Machine , website of Senator Bennett, July 20, 2007, accessed 2009-02-21

^ "Nevada Court Dismisses Nanopierce Lawsuit Against DTCC On Naked Short Selling" . Depository Trust Clearing Corporation. May 2005. Archived from the original on December 7, 2006 . Retrieved 2007-02-05 .

^ Moyer, Liz (2006-04-13). "Naked Shorts" . Forbes . Archived from the original on May 9, 2006 . Retrieved 2007-10-10 .

^ "US Judge Dismisses Naked Short Selling Suit Vs. Brokers" , Dow Jones News Service , Dec. 20, 2007

^ "Naked Short Victim Strikes Back" . Forbes . February 2, 2007 . Retrieved 2007-10-10 .

^ Moyer, Liz (July 18, 2007). "Naked Shorting Case Gains Traction" . Forbes . Archived from the original on August 21, 2007.

^ "Overstock Shares Rise on Court Ruling in Broker Suit" , Bloomberg News , July 18, 2007

^ Pet Quarters, Inc. v. Depository Trust and Clearing Corp.
--- F.3d ----, 2009 WL 579270 C.A.8 (Ark.),2009.

^ "Court Rules Against Company Claiming Illegal Short Selling" by Carol Remond, Dow Jones News Service, March 11, 2009

^ Edwards, Amy K. & Weiss Hanley, Kathleen (April 18, 2007). "Short Selling and Failures to Deliver in Initial Public Offerings". SSRN 981242 .

^ Evans, Richard; Geczy, Christopher; Musto, David; Reed, Adam (7 December 2005). "Failure is an Option" . SSRN 423881 . {{ cite journal }} : Cite journal requires |journal= ( help )

^ Evans, Richard; Geczy, Christopher; Musto, David; Reed, Adam (2009). "Failure is an Option: Impediments to Short Selling and Options Prices" . Review of Financial Studies . 22 (5): 1955–1980. doi : 10.1093/rfs/hhm083 – via Oxford Academic.

^ Langton, James (April 15, 2007). "No evidence of excessive failed trades on Canadian marketplaces: study" . Investment Executive .

^ Gordon, Marcy (2009-06-03). "Guidance on short-selling needed: GAO". Associated Press.

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^ What Caused 2008 Financial Crisis Cityam.com

^ "Short sellers not to blame for 2008 financial crisis, study finds" . www.buffalo.edu .

^
Holman, Jenkins (April 12, 2006). "Do Nudists Run Wall Street?" . Wall Street Journal . Retrieved 2008-03-16 .

^ Alex Blumberg (editor), "Catch It This Weekend: 'Naked Short Selling'" , NPR, September 12, 2006

^ Norris, Floyd (June 23, 2007). "S.E.C. Requests Receiver for Universal Express" . The New York Times . Retrieved May 19, 2010 .

^ Floyd Norris, "A Sad Tale of Fictional SEC Filings" , The New York Times , June 22, 2007

^ "Universal Express statement" (pdf) , June 28, 2007 (archived 2009)

^ "Phantom menace" . The Economist . August 14, 2008.

^ " 'Naked Shorting': Far More Dangerous Than Sexy" . The Washington Post . July 16, 2008 . Retrieved May 19, 2010 .

^ "SEC muscle, finally" . Los Angeles Times . July 17, 2008 . Retrieved May 19, 2010 .

^ "Who's Partying Naked?" . The Wall Street Journal . July 18, 2008.

^ "Naked Short Sales Hint Fraud in Bringing Down Lehman (Update1)" . Bloomberg . March 19, 2009.

^ Norris, Floyd (2009-05-01). "Goodbye to Naked Shorting" . The New York Times . Retrieved 2009-05-01 .

^ 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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