May 5, 2009
Short selling is wonderful as long as you are selling stock that has been registered and issued under SEC guidelines. Naked short-selling, without any need to actually borrow the stock, is the same as selling unregistered securities. The world may think that a company has a certain number of shares in a public float, but naked short selling results in distorted "outstanding share" data. Naked short selling should occur in a bucket shop where actual buying and selling of shares never occurs and the participants bet against each other as to the direction of a stock price. Regulated markets need only registered shares to change hands.
An uptick rule would not matter if everyone who sold shares had to deliver them within three business days or have a margin clerk buy them "at the market" to cover the short seller's failure to deliver the shares.