Home > Boards > Free Zone > Education > The Resource Center

Naked Short Selling (NSS) basics.

Public Reply | Private Reply | Keep | Last ReadPost New MsgReplies (1) | Next 10 | Previous | Next
Blinton Member Profile
 
Followed By 35
Posts 517
Boards Moderated 1
Alias Born 05/13/10
160x600 placeholder
Biden Touts Infrastructure Proposal in Chip Shortage Meeting
WASHINGTON -- President Biden called for a bipartisan push to strengthen the U.S. semiconductor industry during a meeting with auto and tech executives that he used to pitch his $2.3 trillion infrastructure proposal.
Top Company News of the Day
Correction to Tesla Cameras Article April 7
Nvidia Shares Rise on Higher Than Expected Revenue in 1Q
U.S. Budget Deficit Widened 454% in March -- Update
Uber Posts Record Rider Demand in March -- 3rd Update
U.S. Budget Deficit Widened 454% in March as Latest Stimulus Money Flowed
Retail Sales Seen Rebounding -- Data Week Ahead Update
Novartis, Genentech Get FDA OK of Self-Administered Xolair
Correction to Uber Posts Record Rider Demand Article
Stocks Slip Ahead of Busy Earnings Week
Live Music is Back, But New York City Is Barely Rocking
Microsoft to Buy Nuance Communications for $19.7 Billion -- 2nd Update
Huawei, HSBC Strike Deal in Hong Kong Over Documents in Extradition Fight
Correction to NY Fed Article
Uber, PayPal, Walgreens Program Lets Customers Donate to Increase Vaccine Access
UPS on Track for Record High Close -- Data Talk
BP's Argos Platform, Centerpiece of Mad Dog 2 Project, Arrives in U.S.
NY Fed: March Consumer Inflation Expectations Highest Since Mid-2104
SBA Communications Extends Terms for Leases with Verizon Wireless
Satan Shoes,' Nike Lawsuits and the Booming Sneaker Bootleg Market
Nuance Communications Up 17% After Microsoft Deal
Ecoark Shares Drop 35% After Jury Rules Against Walmart
Blinton   Friday, 05/28/10 08:33:33 PM
Re: Blinton post# 13
Post # of 72 
Naked Short Selling (NSS) basics.

Prerequisites

I recommend reading up on Short Selling before trying to understand Naked Short Selling:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=50725460

Quick Explanation

Naked short selling, or naked shorting, is the practice of short-selling a financial instrument without first borrowing the security or ensuring that the security can be borrowed, as is conventionally done in a short sale. When the seller does not obtain the shares within the required time frame, the result is known as a "failure to deliver".

Is Naked Short Selling Even Legal

Naked short selling is illegal in most cases. Many countries have outlawed the practice. And even in the countries that still allow naked short selling, it is only permitted under specific circumstances.

In theory, if you are a market maker who needs to provide shares for a stock which is lacking sellers, then you can temporarily and legally naked short sell to create liquidity and stability in the marketplace. And even then you're supposed to give your word that you'll obtain the required shares as soon as possible, and at the very least within a set timeframe, otherwise you're violating the law.

Possible Abuse and Manipulation

In recent years, a number of companies have been accused of using naked shorts in aggressive efforts to drive down share prices, sometimes with no intention of ever delivering the shares. These claims focus on the fact that the practice allows an unlimited number of shares to be sold short.

An overly-simplified explanation is that naked short selling enables abusers to drive down a company's stock by offering an overwhelming number of virtual shares. These companies generate overabundant supply, thus depleting demand, resulting in the stock price artificially drifting downward. And to add to the mess, these unnatural downward shifts can also create confusion and fear in the long stock holders resulting in a snowball effect as they prematurely exit the stock. All the while, the naked short sellers illegally make money hand over fist as the price falls.

Mass naked short selling can be devastating to micro-cap stocks where volume and market cap are low - making them prime targets for manipulation. The manipulators can play the odds because micro-cap typically fail more often than not. And over time they've also created a playbook of nasty tricks to help drive down a healthy stock rise after the manipulators have become over leveraged in an unexpected losing short position.

To Be Continued

There is a lot more to Naked Short Selling than this, and we'll eventually go into much greater detail. But for now that's all you'll need to know as far as the basics are concerned.

Resources

* http://en.wikipedia.org/wiki/Naked_short_selling
* http://www.investopedia.com/terms/n/nakedshorting.asp

Public Reply | Private Reply | Keep | Last ReadPost New MsgReplies (1) | Next 10 | Previous | Next
Follow Board Follow Board Keyboard Shortcuts Report TOS Violation
X
Current Price
Change
Volume
Detailed Quote - Discussion Board
Intraday Chart
+/- to Watchlist
Consent Preferences