Shorting involves borrowing shares from a broker, then selling them in the hope they will fall in price and can then be bought back for a profit and returned to the lender.
A 'naked' short involves shorting shares that are not available to borrow. This can arise due to the gap in stock trades between the deal date and delivery date- typically three working days. Brokers should ensure that shares they don't own, but plan to lend to shortsellers, will be delivered to them within that three-day window.
But some 'easy to borrow' US shares can be lent out without the broker finding them first. Should they not then turn up, the borrower has unintentionally sold 'naked'. Deliberate naked selling is banned in America.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
See Tim Bennett's video tutorial: Why a short-selling ban won't work.
-
How much do parents have saved for their children where you live?Parents amass thousands of pounds to give their children an advantage when getting onto the property ladder or paying for higher education – but the average amount varies across different regions
-
Retirement confidence surges – but is it misplaced?One in three now feel ‘very’ or ‘extremely’ confident about their ability to afford a comfortable retirement, but industry data paints a gloomier reality
