Short selling – legitimate trading or market abuse?
Kevin Terhaar, CFA Institute
Financial Times, 1 August 2010
Naked shorting runs afoul of rules and regulations in most jurisdictions, and for good reason. It can undermine investor confidence because uninformed buyers are deprived of the basic benefits of ownership, such as voting and dividends, when naked short sellers fail to deliver shares or deliver unauthorised shares. In essence, naked shorting is a fraud perpetrated on buyers because sellers may have no ability (and indeed no intention) to fulfil their end of the deal.
