The SEC has just announced that as of one minute past midnight tonight, ALL naked short selling is no longer allowed on US stock markets. This measure will help to prevent speculators from driving prices downwards so quickly.
Anyone who is going to short a security must deliver the borrowed security within three days of the trade date, and this also applies to market makers.
For more information:
SEC bans naked short selling article on TheStreet.com
SEC puts naked short sellers on notice article on CNNMoney
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“Anyone who is going to short a security must deliver the borrowed security within three days of the trade date, and this also applies to market makers.”
I hope this can be enforced.
But, applying this rule to market makers is insanity. If the MM is unable to short stock as a hedge, that MM is going to stop buying calls and stop selling puts. That will destroy liquidity on the option exchanges and bid/ask differentials are going to get even wider.
Sorry, can you explain what is the difference of a “naked” short sell? Thanks!
@Jordan Clark – no problem. A traditional short sale requires that the short seller first locate and borrow the security being. A naked short sale involves the seller having no intention of having that security borrowed.
@Mark Wolfinger – perhaps a better solution would be to reinstate the short uptick rule?