GLOSSARY OF TERMS
The current economic crisis has brought these esoteric terms into mainstream conversation.
| TERMS | | Naked Short Selling | | |
To understand the meaning of Naked Short Selling, it helps to first understand the term Short Selling. When a potential seller anticipates a decline in a stock’s price, he will borrow the stock from a shareholder, sell it at the current high price and then later, repurchase the same stock at a lower price, keep some of the profit and return the stock to the lender.
Naked Short Selling, on the other hand, means that the seller has not even established an agreement to borrow the stock before selling it. Naked Short Selling was assumed to have played a roll in the global financial crisis, and the practice has been either temporarily curtailed or made illegal in various markets.
In the U.S the practice was banned in September 2008. In October 2008, Japan imposed new restrictions on the practice. Australia followed suit and enacted a permanent ban. Likewise, there were similar bans in Singapore and several European states.
In November, The Nasdaq Stock Market Inc. published a naked-short-selling watch list that named 56 stocks, a drastic reduction from the nearly 500 listed in September.
SeeShort Selling
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