Naked Shorts = Fraud: Trying to sell something that doesn’t exist as you do not own it and have no liabilities if the stock does not sell. Naked shorting is a means to force prices lower by offering a stock at a low price and if it does not sell then the seller has no liabilities.
Normal shorting, and a good thing ofr markets, means the seller has ownership of the stock and a liability. To short sell, one borrows a stock and sells it at market price. the borrower owes the original owner of the stock a share of stock back plus a small fee. To make money, the short seller hopes the stock price goes down so they can buy the stock cheaper than they borrowed it, return the stock to the owner, and pocket the difference.
Naked short sellers do not have the stock to sell, so if the price does not go down they are out nothing. This is market manipulation and fraud. The reason for fraud is that should you buy a naked shorted stock, the seller must then go find stock to sell you. They may not find it.
I guess naked shorts is somewhat similar to “buying on margin” back in the 20s? Same result anyway: people making irrational decisions with fiat money.
Do you think that the uptick rule should be reinstated for regular shorts if they ever banned the naked shorts? Just curious