Do naked short sale transactions create “counterfeit shares?
Some believe that naked short sale transactions cause the number of shares trading to exceed the number of shares outstanding, which in turn allows broker-dealers to trade shares that don’t exist. Others believe that the U.S. clearance and settlement system, and specifically the National Securities Clearing Corporation’s (“NSCC”) Continuous Net Settlement System (“CNS”), produces “phantom” or “counterfeit” securities by accounting for fails to deliver. Naked short selling has no effect on an issuer’s total shares outstanding. There is significant confusion relating to the fact that the aggregate number of positions reflected in customer accounts at broker-dealers may in fact be greater than the number of securities issued and outstanding. This is due in part to the fact that securities intermediaries, such as broker-dealers and banks, credit customer accounts prior to delivery of the securities. For most securities trading in the U.S. market, delivery subsequently occurs as expected. H
Related Questions
- I held stock substantially identical to the stock I sold short, but I covered the short sale with shares that I purchased later. How does that affect the way I report the short sale?
- Can a purchase of fund shares during the first 30 days of January 2011 create a wash sale that will affect 2010 cost basis reporting?
- Do naked short sale transactions create "counterfeit shares?
