SEC banned 'naked' short selling

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On July 27, 2009, the US Securities and Exchange Commission (SEC) made permanent a ban on the so-called "naked" short selling of stocks. In a normal short sale, a trader borrows and sells a stock, promising to buy it back at a certain price in the future. However, in a "naked" short sale, the trader does not actually borrow the stock before selling it. In its release announcing the retention of the rule, the SEC said that allowing the practice often left traders in a position where they could not deliver the stock, which would artificially drive down its value. It said that these so-called "failures to deliver" were down over 75 percent since the initial implementation of the rule. The SEC also said that it would seek to increase transparency concerning the legitimate short selling of stocks in an effort to bolster investor confidence.



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