"Naked" short selling, as opposed to "covered" short selling, can be defined as the selling of an equity security that the seller neither owns, nor has borrowed, nor has arranged to borrow. The practice is discouraged, but not prohibited by the U.S. Securities and Exchange Commission. Indeed, the level of current discouragement is probably accurately described as only a mild chill. Still, the SEC is considering proposed rules to deepen the chill that "nudist" short sellers must endure to engage in an activity that seems to be increasingly popular.
Nudity and the SEC
The National Law Journal
September 15, 2008
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