Is Naked Short Selling Dangerous?
As financial markets careened wildly in the summer and fall, many corporations blamed short selling - especially naked short selling - for driving stock prices down. Short sellers sell stock they don't own because they expect the stock price is about to fall. In naked short selling - which came in for particularly sharp criticism when market prices plummeted - the seller doesn't borrow the shares for the transaction. The buyer has a claim (economic exposure) on the shares without actually receiving them, yet the seller still has the obligation to deliver.