Is all naked short selling abusive or illegal?
When considering naked short selling, it is important to know which activity is the focus of discussion. • Selling stock short without having located stock for delivery at settlement. This activity would violate Regulation SHO, except for short sales by market makers engaged in bona fide market making. Market makers do not have to locate stock before selling short, because they need to be able to provide liquidity. However, market makers are not excepted from Regulation SHO’s close-out and pre-borrow requirements. • Selling stock short and failing to deliver shares at the time of settlement. This activity doesn’t necessarily violate any rules. There are legitimate reasons why a seller may fail to deliver on the scheduled settlement date. • Selling stock short and failing to deliver shares at the time of settlement with the purpose of driving down the security’s price. This manipulative activity, in general, would violate various securities laws, including Rule 10b-5 under the Exchange
