June 19, 2008
Due to relaxations in the restrictions on short selling over the past decade by the SEC, the new phenomenon of naked short selling has exploded.
Naked short selling in stocks doesnt involve first borrowing the shares in which to sell short.
The naked short seller just sells short without borrowing shares.
The short seller then fails to deliver the shares to the buyer on settlement date.
The punishment for what is essentially a delivery default? The SEC puts out a (long) list of stocks which have fails to deliver. Thats all it does, it makes a list. No fines, no forced buy backs, no identification of who is naked short selling, no staying after school for detention.