Can't see why you're being downmodded as you're quite close to the nitty-gritty mechanics. Like most financial systems there's how people think it works and th

Can't see why you're being downmodded as you're quite close to the nitty-gritty mechanics. Like most financial systems there's how people think it works and then you look at the actual mechanics and it's quite different; this often leads to semi-informed people thinking they know more than they do. Read here: http://www.law.cornell.edu/ucc/8/ http://www.law.cornell.edu/ucc/8/ ...section 5 (pretty accessible as legal codes go) for the basics. Essentially the laws are structured so that when you buy securities through an intermediary: - "purchasing" shares through an intermediary doesn't instantly give you the shares; it immediately gives you a legal claim against the intermediary to produce those shares - the type of claim you get is very standardized (in terms of delivery times and rules around it, etc.) This makes complete sense if you think about the early years of the stock market. If you went into a brokerage in Chicago in 1940 and bought shares in General Motors, would it really be reasonable to get an actual share certificate instantly? Within an hour? What if it's not Chicago but Poughkeepsie? So the fraud-minimizing solution is that: "purchasing shares" from an intermediary grants you an enforceable claim for those shares that you purchased, but doesn't instantly give you actual shares (it couldn't then, economically). (Needless to say this pushes some of the risk onto intermediaries: since you are buying at whatever price the agent quotes if the stock price were to change then the agent can't ransom "your" shares to you for the post-agreement price change.) A consequence of combining this general setup with the modern electronic infrastructure is that what is essentially fractional-reserve stockbroking becomes possible (if enough brokerages are in on it and if the regulators aren't vigilant enough). The current claims about naked short selling basically reduce to a claim that certain aspects of the order-clearing system are being exploited for fraudulent profit (essentially unregulated fractional-reserve lending, but the specific dynamics are a little different due to the nature of the assets involved). Part of the issue is that if the scam works as the naked-short-selling people think it does then it works best when the naked-shorted company goes out of business within a reasonable time period from when the scam commenced (due to the specific mechanics of how the claimed scam is supposed to work); this makes it hard to accurately assess the merits of many of the claims, since the companies supposedly targeted are usually long-since gone and whenever a company goes out of business there's usually plenty of reasons why it failed that don't involve stock market shenanigans.