Naked short selling

Common card · No. 332421

Naked short selling, or naked shorting, is the practice of short-selling a tradable asset without first borrowing the asset from another party or ensuring that it can be borrowed. When the seller does not obtain the asset and deliver it to the buyer within the required settlement period, the result is known as a "failure to deliver" (FTD). The transaction generally remains open until the asset is acquired and delivered by the seller, or the seller's broker settles the trade on their behalf. Short selling is typically used to take advantage of arbitrage opportunities or to anticipate a price decline, but it exposes the seller to unlimited risk if the price rises instead. Critics have long called for stricter regulations of naked short selling. In the United States, the Securities and Exchange Commission (SEC) adopted "Regulation SHO" in 2005, requiring broker-dealers to have a reasonable belief that a borrowed security will be available before executing a short sale, and mandating timely...

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