What are the rules governing “Short Sales”, and “Naked Shorting”?
For years, management of many small-cap and micro-cap publicly-traded companies that have either traded on the Nasdaq SmallCap market, or on the Nasdaq run OTC Bulletin Board have complained about short selling, particularly the practice known as “naked shorting.” Naked shorting is when the investor is not required to borrow stock before selling the stock short. Many were skeptical that either the National Association of Securities Dealers (NASD), or the Securities and Exchange Commission would ever take action to correct what they believed was a major abuse in the over-the-counter trading system. In a move that surprised most Wall Street insiders, the NASD has significantly tightened one of its rules governing short selling. Named by the NASD as “affirmative determination,” the new NASD rule requires that brokers and dealers engaged in a short sale transaction ensure that the shares can be delivered within the three day settlement period. Until this rule change, foreign brokers, speci
