The SEC is expected to propose tightening antifraud rules on short-selling, the legitimate practice of seeking profit on declining stock prices by selling borrowed shares in hopes of replacing them later with cheaper ones. In the past few years, the SEC has tried to crack down on investors engaging in naked short-selling, which is illegal except in limited circumstances. In a naked short sale, the investor never borrows stock to cover the position. Naked short-selling can put downward pressure on a company's stock.
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