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There’s an explicit memorandum that allows it, I’ve read it. That may have changed since, but...

It’s a courtesy extended large customers without the malitious intent - as execution is time sensitive, they execute the order before they’ve found all the shares to borrow. The broker is obligated to find those shares and deliver them. However... some brokers have enabled abuse of this courtesy, which is then not merely serving your customer, but being complicit in the abuse.

Naked shorting is not the process of allowing the short sale of stock without locating it first. That is not ‘naked shorting’.

NAKED SHORTING = SHORT SALE OF STOCK THAT DOES NOT EXIST.

The SEC is trying to confuse the meaning and they have not even yet defined it legtally. The SEC lawyers know what ‘naked shorting’ is, but the phrase has no legal meaning.

The phrase ‘naked shorting’ was born out of incidents involving abuses of counterfeit stock. It is not used legally by the SEC. They do not have a definition of it and they will not legally define it because once they do so, there will be lawsuits and they know it.

If you are a lawyer, you know that each material word or phrase must have a clear definition. None exists for ‘naked shorting’. Using the CAP description I gave above, if that is used as a definition, the the SEC would be guillty of allowing the practice of naked shorting and they want to avoid that at all costs. So they have resorted to obscuring the meaning with ‘abusive naked shorting’ versus something else. They are trying to change a street definition to suit their purposes and cover their rear ends,

Again, naked shorting is not the same as failing to locate. Naked shorting is the conscious act of selling short knowing that the stock may not exist. It is a crime and the SEC will not worm their way out of it by obscuring meanings.

Incidentally, the reason the SEC has not brought this to the forefront when it has been in their face for years, is because the criminal practice of naked shorting is now eating their own.