Comments on: Breaking News: US Bans Naked Short Selling

By: Preet

Preet — Thu, 18 Sep 2008 15:11:57 +0000

@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?

By: Jordan Clark

Jordan Clark — Thu, 18 Sep 2008 08:57:34 +0000

Sorry, can you explain what is the difference of a “naked” short sell? Thanks!

By: Mark Wolfinger

Mark Wolfinger — Thu, 18 Sep 2008 02:56:57 +0000

“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.