re: #349 itellu3times

By “naked shorts” here we mean selling shares you do not have - and have not borrowed. You’re supposed to borrow existing shares, which limits the scale and stabilizes prices. Only, there is no market or government tracking of who is naked and who is not, even after the fact, AFAIK. That kind of nakedness is illegal. If you call your broker and “nakedly” short a stock, broker borrows the shares from somewhere else to sell - or at least, is supposed to, not to mention charging you hefty interest for the “loan”. That, is the law. In some markets there are no loose shares to borrow, that was common at the top of the Internet bubble, you couldn’t short any of the really overheated stocks.

Shorting is legal. Naked shorting is illegal. There is an attempt to see how much naked shorting exists by the publication of the Fail to Deliver list, Reg SHO.

That being said, naked shorting can’t cause extensive damage to a strong company because if the oversupply of sellers drives a share price down, theoretically buyers would step in for the bargain.

But everything came together in a perfect storm.