Naked shorting
A 'naked' short involves shorting shares that are not available to borrow.
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.
Subscribe to 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.
-
British Airways revamps Avios scheme bringing down flight prices to £1
With the new Avios part-payments scheme you can now bag a British Airways flight for as little as £1
By Oojal Dhanjal Published
-
RBS to close a fifth of branches
Royal Bank of Scotland plans to shut 18 branches across Scotland, resulting in the loss of 105 jobs. We have the full list of closures.
By Ruth Emery Published