Cracking Down On Short-Selling's 'Naked' Cousin
STEVE INSKEEP, host:
hat term Alix just used - naked short selling - takes a moment to explain. Yes, we're spending the moment, since the practice has been blamed for eroding the value of financial stocks. Here's how it works: traders who sell short, place a bet that the stock will drop. But traders involved in these naked shorts add to the risk. They sign a contract to sell shares at a specified price - let's say, $10 a share - now they have to get some shares to sell at that price. They're hoping that as the market drops they'll find shares cheap, let's say $5. Buy low, sell high. The risk is that the naked short-seller won't find any stock. He is exposed - or naked. That situation gives the naked short-seller a huge motivation to drive down a stock price. And it is considered illegal if it is used as part of a scheme to push down stock values.
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.