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Naked Shorting Legalities, A Common Misconception.

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Blinton   Saturday, 05/29/10 04:01:00 PM
Re: Blinton post# 23
Post # of 70 
Naked Shorting Legalities, A Common Misconception.

If you search for "naked shorting" on the internet, you'll often find people talking about how naked shorting is always illegal. This is not entirely true. The post below does a good job elaborating on this matter.


Author Unknown - Reposted by exit301 - CDIV board - Thursday, May 27, 2010

Contrary to the financial media not all "naked short selling" is illegal. A "bona fide" MM can legally naked short sell shares into markets characterized by an excess of buy orders dwarfing sell orders. He accesses this thing called a bona fide MM exemption from effecting "pre-borrows" or "locates". In order to legally access this exemption you need to cover your naked short position on the very next downtick in share prices. Nobody covers though. Why? Because it costs money to cover and due to corruption on Wall Street you can gain access to the funds of investors even if you sell shares that don't exist and never deliver that which you sell. These crooks never, never, never cover preexisting naked short positions until forced to. Aggregate levels of prexeisting naked short positions go constantly upwards because of this. There comes a point in which the naked short position can't be covered without risking financial collapse. Why? Because the first thing you do when you cover is stop your daily naked "maintenance" short selling. If you've been pretty much the only seller in the market for years then the share price will gap upwards just from stopping the maintenance short selling. Remember these "open short positions" are collateralized with cash. The crooks need to naked short sell all day long just to keep their cash collateralization requirements in check. If these guys had to cover an astronomically large naked short position that has been building over 12 years in a market that is already gapping upwards then it could be financially cataclysmic both from the expenses of buying as well as meeting higher collateralization requirements for the uncovered balance. The crooked MMs will win 98 of 100 battles. The 2 they lose will sting financially but will easily be covered by the 98 victories.

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