Naked Short Sales

In a "naked" short sale, the seller does not borrow or arrange to borrow the securities in time to make delivery to the buyer within the standard three-day settlement period. As a result, the seller fails to deliver securities to the buyer when delivery is due; this is known as a "failure to deliver" or "fail."

For further information on short selling, naked short selling, and threshold securities, please see the Division of Market Regulation’s Key Points About Regulation SHO. Additional information relating to the SEC's activities relating to short selling can be found in the SEC Spotlight on Short Sales.

http://www.sec.gov/answers/nakedshortsale.htm