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Microcap & Penny Stocks : Naked Shorting-Hedge Fund & Market Maker manipulation?
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From: teevee3/5/2006 4:26:45 PM
   of 5034
 
One aspect of naked short selling not discussed is that brokerage firms usually take the short side of a long position bought on margin by a client. In other words, when a client buys a stock on margin, rather than going into the market to buy the stock, the broker simply takes a short position to deliver to a margined long position. Usually the broker borrows the stock from their own client base, so they don't have to worry about getting called. Also, it is a short position that is never reported as far as I know. Often, this happens on IPO's by the underwriter(s) who have a greenshoe or options on more stock as they can exercise to cover their naked short position. Naked short selling is very very lucrative business and the brokerage community will not willingly give it up. Millions of dollars of political donations are made every year to ensure they can continue "playing with a stacked deck". I doubt there will ever be any action taken to stop this practise.
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