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by machina_ex_deus
1144 days ago
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You don't understand what naked shorting is. Naked shorting is shorting without first borrowing from someone. Normal shorting is limited by the availability of stock to borrow (by the way, if stock holders wish, they can request from their broker that their stock won't be available for borrowing, potentially causing short squeeze), by the interest rates on borrowing the stock. Naked shorting skips it all. Some market makers are privileged and can sell stock they don't own and didn't borrow. So they have a privilege of printing stocks in the short term, and that's quite broken, and many of them abused this position to manipulate markets. Normal participants in the market can't naked short. Naked shorting means that the market maker who supposedly sold you a stock, can now fail to find the stock he sold you, leading to "fail to deliver". The excuse given is that naked shorting allows for more liquidity, but given the other problems, I think it's bad. |
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I assume you have a counterpoint to the decades of data the NYSE, SEC, Financial Crisis Inquiry Commission and others around the world have collected that show naked shorting improves liquidity without FTDs negatively impacting price discovery while tamping volatility, evidence made particularly robust by the fact that naked shorting is permanently banned, and has been temporarily banned, in many markets, such as Australia, Switzerland and, for some stocks post crisis, in the United States? (See Wikipedia for a summary.) The whole affair reminds me of the lead up to the Onion Futures Act [1].
[1] https://en.m.wikipedia.org/wiki/Onion_Futures_Act