Naked Short Selling Now Being Clothed

Short selling is when an investor borrows shares from a company, sells these shares, buys them back later, and then returns them to the company. The investor makes the difference on the spread between selling at a higher price and buying back at a lower price. Naked short selling is when the investor sells shares without even borrowing them.

The height of the bear market, when many financial institutions saw their stock plummet without taking a breath, can thank naked short selling. Investors were relentlessly selling shares short without ever borrowing them causing prices to tank. The ban on naked short selling now requires an investor to borrow shares before shorting.

I would like to see the reinstatement of the uptick rule. This makes investors wait for the stock to go up a penny from the previous trading price before they can short. This would also help stocks to fall incrementally instead of crashing. Short selling is not a problem, in fact, many investors make cash money on short selling. When their is no order involved with shorting stocks, things can get dangerously bad.