Fish Gone Bad

Wall Street Breakfast: Must-Know News

In short selling, a person has his "market maker" borrow the stock from a margin account, and sells it. Eventually the person will have to buy the stock back to replace the borrowed stock.

In naked short selling, a "market maker" (whatever the newest definition of market maker has become), sells a stock and makes an electronic entry to find and borrow the stock from a margin account in three days to give to whomever bought the shares that were sold short. The problem that has been occurring is that the stock is not being located. There are just electronic entries that say, so-and-so bought some stock. This is equivalent to counterfeiting stock certificates. So what is to stop a "market maker" from naked short selling 10% of a company's stock? Nothing. What about 100% of a company's stock? Nothing. Sure there is an electronic entry, but the short is never properly followed through on, and no one apparently gets in trouble for the counterfeiting.

So why on earth would any "market maker" EVER want to risk getting caught for not following up on keeping the books correctly? It all boils down to collecting transaction fees and not getting caught because everyone else is doing it too.

I hope this helps,

Clark Jenkins
FishGoneBad.com


On Jul 16 01:13 PM messy wrote:

>
> Would someone please explain the difference between....selling short
> and NAKED SELLING SHORT. The only explanation i hear is "naked selling
> of a stock" is more shorts than the total shares outstanding. How
> would an investor know that or even care if it does occur, as I believe
> it happens all the time in GOLD BULLION.