I hate to keep repeating myself, correct me if I am wrong, BUT ONE CAN STILL SHORT just not naked shorts...
Yes, you can still short these stocks if you can achieve a legitimate borrow, but many traders I talk to have stated that brokers are declining their short orders altogether or are charging to short. A friend of mine was notified he’d be charged $75 a day to short a few thousand shs of FNM last week. I guess that’s not a lot of money per share, but it’s one of those things that gums up the works for some of my pals who work really fast.
Why would shorts over if the market falls precipitously? Haven't you heard of letting your profits run? Shorts don't cover if the market goes their way, they cover when it moves against them and the want to protect profits. A neophyte might cover if the market is moving his way, but not people that know what they're doing. If the market is moving their way, they're more likely to increase their positions.
Covering when the markets fall precipitously is a taxable event, forcing the shorts to share their profits with the IRS. The great advantage to shorting is when companies go belly-up. Then the shorts never have to cover and nothing gets reported to the IRS so they don't have to pay tax on their profits. Naked shorting is even better, because you don't even need to borrow the shares you';re selling because you';re just selling air, i.e., phantom shares. You can sell multiples of the entire shares outstanding of the company that is being shorted and make huge profits.
In addition, the SEC recently eliminated the up-tick rule for shorting, which had been in place since the great depression. Now you can hit every bid without the inconvenience of waiting for an up-tick and create huge downward pressure and enormous profits when selling those air-shares.
The conditions are ripe for a huge and lasting crash.
Help me understand Naked Shorts. (Sounds like a David Zucker film to me.)
The link you gave earlier says, “The illegal practice of short selling shares that have not been affirmatively determined to exist. “ If they don’t exist, how in the world does that affect the price of oil? And who turns around and purchases their non-existent shares? And why?