Something is illegal when you can be prosecuted for it. For naked short selling to be illegal, there would have to be a specific statutory violation.
After following the debate on naked short selling on the RMIL thread and this one for six months, no one has been able to identify a statute specifically prohibiting the practice of naked short selling by MMs. As I pointed out on the RMIL thread a while back, federal court decisions on the issue suggest that such selling is no only legal, but in many cases desirable, as it serves to bring stock prices in line with reality (I don't necessarily agree, I am just reporting the facts).
IMO, the continued shrilling of "Illegal naked short selling" by certain individuals is counter-productive, as it takes the focus off the proper debate. This is not a holy war against illegal practices. The real issue is how to place the MMs in a position where they have to cover. Very difficult, in my opinion, when a stock's fundamentals don't support an increase in stock price, since the MMs have so many tricks up their sleeves. Calling for certs may be a beginning, but I've yet to be convinced that it is the ultimate solution. |
