Naked Short Seller Gets in Trouble
Also the CEO of Goldman Sachs is also a DJ, the managing director title, and Morgan Stanley interns projected in Times Square.
“Naked short selling is an imaginary problem,” I said last week, enraging apparently hundreds of very online investors in a now-private oil company called Next Bridge Hydrocarbons Inc. for reasons that are, I promise, not worth getting into. And so of course yesterday the US Securities and Exchange Commission brought a naked short selling enforcement action:
The basic rule is that if you want to sell stock short — that is, sell it without owning it, to bet on its decline — you have to borrow the stock that you sell from someone who owns it, and generally pay them a fee for the use of their stock.1 And before you sell the stock, you need to get a “locate,” meaning that your broker checks and tells you “yeah you can probably borrow enough shares for this short.”2 You get a locate, you sell the stock, and then you have to deliver the stock when the trade settles two days later. So, between the trade and the settlement, the broker who gave you the locate goes out and actually borrows the stock for you. If you do not borrow the stock in time to settle the transaction, that is called a “fail.”