4 ms·
Not necessarily. As long as the borrower commits to borrow the stock at a determined point in the future which the broker legitimately deems should have borrow
by fractionalhare 6y ago
Not necessarily. As long as the borrower commits to borrow the stock at a determined point in the future which the broker legitimately deems should have borrow liquidity (availability of shares to borrow), the short sale is not naked.
And interestingly enough, if this transaction occurs in good faith and for unforeseen reasons there is no borrow liquidity at the agreed upon time, a fail to deliver will occur despite the short sale not being naked.
- jaycroft 6y agoThat's fair - said another way you just have to have a plan in place to borrow the share but don't actually have to have it borrowed yet. And all this discussion is fairly moot given the number of shares that routinely fail to deliver and the general lack of meaningful enforcement actions.
- jkhdigital 6y agoThat... seems gimmicky. Like using repurchase agreements to pretend that your balance sheet looks cleaner than it actually is.
- theknocker 6y agoYeah it's actually a practice closely related to naked shorting, sometimes referred to as "naked shorting but totally not."
- fractionalhare 6y agoIt's not really about presentation of balance sheets, it's about liquidity. The explicit purpose of market makers is to provide liquidity, so they have a special exemption to buy and sell shares without being certain they exist. They have to have a good faith belief they will exist though. Usually they're right. Occasionally they're wrong.