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Naked Shorting

Naked short selling has played a key role in the current financial crisis, but what the hell is it?

Posted on October 10, 2008, at 3:52 p.m. ET

Here's one definition: Naked short selling, or naked shorting, is the practice of selling a stock short, without first borrowing the shares or ensuring that the shares can be borrowed as is done in a conventional short sale. When the seller does not obtain the shares within the required time frame, the result is known as a "fail to deliver". However, the transaction generally remains open until the shares are acquired by the seller or the seller's broker, allowing a trade to occur when the order is filled.

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