I can't believe I just wasted 5 minutes of my time reading "Dr Byrne's" explanation of "naked short selling" at ncan.net
Look, the first point to understand is that the consensus of economists for a long time has been that short selling, in principle, is not an evil thing. The SEC has said as much each time it adopted or amended the "uptick rule."
Secondly, the far narrower allegation that some folks may not properly be enforcing the delivery-versus-payment rules in the margin regulations against their hedge fund customers is a matter for the SRO and SEC enforcement divisions - send them the evidence and if it holds up in enforcement proceedings, hang 'em by the yard arm, I say. Its certainly not something to gets your shorts in a knot over, if you'll pardon my pun.
it really disappoints me when people cite stuff like this as a reason to hold a certain opinion.
socialized education...socialized medicine...socialized self defense, and now, socialized thought.
Take a look at the Reg. SHO lists. Fail-to-deliver's are supposed to closed out within 13 days, and companies have been on those lists for months. What do you do when the SRO's and the SEC enforcement divisions aren't doing their jobs? Wait for a catastrophe before somebody finally wakes up and does something about the problem?
Think of naked short selling as naked short writing:
Writing Naked Checks
I dropped off a check at my broker dealer to pay for my stock purchase, but asked him to not cash it.
"Don't worry", said I, "the check proves you are the beneficial owner of a block of money in my account and it is more convenient to keep the money in my account in electronic check form. I'll keep it safe for you."
My broker was insistent that he receive cash proceeds, so I told him that if he paid me a $40 handling fee and waited 4 - 6 weeks, I would pull his cash for him.
I explained to him that sometimes it isn't possible to pull the cash as there are actually more checks outstanding then cash available to honor those checks. Lucky for me, the regulators came out with a rule in January that I don't have to honor checks written before the beginning of the year as that could create financial hardship for me.
The rule tried to dissuade me from writing new bum checks - I'm supposed to put money in my account within 13 days, but I get around that by kiting checks with my buddies.
I asked him again. "Are you sure you want to pull your cash? Most of my other creditors are happy to keep my payment in electronic, check form.", but it seems he doesn't trust me and would rather he be the actual owner of the cash rather then just the beneficial owner.
For some reason, he was unhappy that some of the checks I had written were naked and were not backed by cash and he wanted to cash his first before the other creditors found out.
Folks, ask for your certificate, which proves you own your shares. In reg SHO companies, there aren't enough certs. to go around, so it will be "first come, first served".
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There's this guy named Bob O' who is campaigning against my check writing practices. He's started a group, NCANCB, or the National Coalition Against Naked Check Buying.
He's a nut case who doesn't understand that most of the checks I don't honor are for crappy stocks that I bought. I mean if these companies were well run and well managed, I'd be happy to put up cash to back up my purchase, but it is definitely the companies' fault that people like me write bum checks to buy their shares.
I mean, if Bob O' had his way, I'd have to put up cash to honor all my checks and it would financially benefit the people I wrote those checks to.
NCANCB is all about putting money in the pockets of the naked check holders. It's all about financial benefit to them, without consideration of the hardships it might cause me.