I'm new to this and trying to understand how NSS works. From what I can tell W/NSS appears traders have purchased short sell stocks which are not delivered (unavailable). If this is happening it seems this would be impossible to track. Seems the MM would have to be in the middle of it...knowing full well what is going on...knowing the short stocks are not available...Is this correct? Seems SEC needs to get a better handle on this activity...creates an unlevel playing field where by hard working entrepeneurs and share holders get killed in the process. Not a good thing for a country trying to create an income...
From Wikipedia....
Naked short selling, or naked shorting, is the practice of selling a financial instrument short without first borrowing the security or ensuring that the security can be borrowed as is done in a conventional short sale. When the seller does not obtain the shares within the required time frame, the result is known as a "fail to deliver". The transaction generally remains open until the shares are acquired by the seller or the seller's broker, allowing the trade to be settled.[1] Naked short selling can be used to manipulate the price of securities by driving their price down, and its use in this way is illegal.[2] However, the practice is considered beneficial under certain circumstances, such as trading by market makers.[3]
In the United States, naked short selling is covered by various SEC regulations which prohibit the practice.[4] In 2005, "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][5] As part of its response to the crisis in the North American markets in 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.[6] Effective September 18, 2008, 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.[7][8]
Some commentators have contended that despite regulations, naked shorting is widespread and that the SEC regulations are poorly enforced. 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.[4][7][9] However, other commentators have said that the naked shorting issue is a "devil theory"[10], not a bona fide market issue and a waste of regulatory resources
AI
