The Securities and Exchange Commission (SEC) announced today new rules that regulate "naked" short selling of securities.
The new rules amend 2005’s Regulation SHO that helped curb naked short sellers from failing to deliver on stocks that are bought from a borrower who has no way to repay the original owner of the stock.
Today’s announcement requires short sellers to deliver securities on the same business day that a transaction occurs. This practice of naked short selling allows market-savvy traders to force down the price of stocks far lower than a traditional short sale.
This rule seeks to protect both short buyers who do not receive stocks from sellers who "fail to deliver" and banks who are subject to abusive practices.
Regulation SHO put similar limitations on naked short selling, requiring that broker-dealers ensure stocks will be available for a transaction and that they are delivered in a timely manner. Today’s regulations further tighten these restrictions, requiring broker-dealers deliver stocks in one business day.
Sources: Market Watch
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