3 ms·

So as the buyer opposite the short, in such a case, what do I have in my account? It’s not thin air.

• otherme123 6y ago
  You have the right to receive a share, as soon as it is available in the market. They have 2 days to fullfil your account, or they issue a "fail to deliver". Naked shorts are allowed to market-makers, because if when you buy there's no counterpart but it's reasonably expected, you receive this "right to a real share" to be filled with a real share as soon as the market-market can buy a real one. You'll never notice however. This mechanism works like oil in an engine and is almost neutral to the market dynamics, and they receive a fee to keep the engine oiled. The problem is when market-makers abuse this ability, and shorting nakedly too much sends wrong signals to the market, pushing it down and self-fullfilling the profecy. In the same way that pump-and-dump is illegal, this works in reverse (short-and-distort).
  • lupire 6y ago
    Short and distort is separate from naked shorting. Excess Naked shorting is just fraud to amplify the scheme.
  • lokar 6y ago
    People just don't understand how the market works. When you click sell and get back a confirmation you have not sold. You have agreed to sell, in two days.
• delaaxe 6y ago
  The buyer does receive a share, but the seller didn't have it beforehand nor borrow it from anyone