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Well, plenty of traders are out there selling without actually owning -- that's something market makers and only market makers are allowed to do I assume you a
by ddeck 11y ago
Well, plenty of traders are out there selling without actually owning -- that's something market makers and only market makers are allowed to do
I assume you are referring to naked short selling.
To be clear, anyone may borrow shares and then sell them. Although legal ownership does pass to the borrower, this is not what most people think of if told they must "own shares prior to selling them".
In fact under SEC regulations, the borrow doesn't actually need to take place before the sale, so long as the broker has reasonable grounds to believe that the security can be borrowed to satisfy delivery for the sale.
From the retail traders perspective, this is typically transparent. They simply enter a sell order in a security that they don't own, and their broker worries about locating it for delivery (or doesn't allow the trade if it believes it can't locate the shares).
- minimax 11y agoThe morning of 8/24 was more complicated than that because lots of these stocks/etfs had hit their Reg SHO thresholds, which restricted the ability short sell into a resting bid. https://www.sec.gov/divisions/marketreg/rule201faq.htm https://www.sec.gov/divisions/marketreg/rule201faq.htm
- mrchicity 11y agoAnd when market-makers lose an option for managing their risk (hitting bids in a related security), they'll naturally charge a wider spread to buy, further diminishing liquidity that would stabilize the market.
- dnadig 11y agoSHO limits don't apply to bona fide market making, I'm nearly certain. But regardless, you would expect the inability to short by non-MMs would actually keep ETFs and Stocks from hitting their breakers, not making it worse. By definition, you remove sell-pressure. Until 10AM that day, the problem was zero buy-pressure. No bids at all to speak of. http://www.etf.com/sites/default/files/images/2_rspsurveyor.jpg http://www.etf.com/sites/default/files/images/2_rspsurveyor....