Short-selling occurs when a trader borrows shares in a stock from a broker to sell. If the stock price goes down, the trader buys back more shares at a cheaper price, returns the broker's portion and keeps the rest.
Regulators in Great Britain have enacted a temporary ban on short-selling.
The above news is reported by VOA news, but let's see what other sources are writing about short selling, which is also called naked short selling.
Investopedia calls the practice of short selling an "advanced investing technique." The word advanced usually has a positive connotation, but I don't know why short seling is positive if the U.S. government moves to restrict or, according to some, bann it. Here is the quote from the above place. "Many investors make money on a decline in an individual stock or during a bear market, thanks to an advanced investing technique called short selling."
According to VOA "New York state's attorney general, Andrew Cuomo, says he is launching an investigation into instances of illegal short-selling, in which traders or brokers spread false information about the deals."
There is a similar practice, which is called Naked Short Selling. According to Wikipedia "Naked short selling, or naked shorting, is the practice of selling a stock short without first borrowing the shares or ensuring that the shares can be borrowed as is done in a conventional short sale. When the seller does not then obtain the shares within the required time frame, the result is known as a "fail to deliver."
In the United States, naked short selling is covered by various SEC regulations. In 2005, "Regulation SHO" was enacted to curb the practice, requiring that broker-dealers have grounds to believe that shares will be available for a given stock transaction, and requiring that delivery take place within a limited time period. As part of its response to the crisis in the North American markets in 2008, the SEC issued a temporary order restricting fails to deliver in the shares of 19 financial firms deemed systemically important. Effective September 18, 2008, following the the largest bankruptcy filing in U.S. history by Lehman Brothers, the SEC made permanent and expanded the rules to remove exceptions and to cover all companies.
Some commentators have contended that despite existing regulations, naked shorting is widespread and that the SEC regulations are poorly enforced, although the SEC has denied these claims. However, the SEC and others have also defended the practice in limited form as beneficial for market liquidity. Its critics have contended that the practice is susceptible to abuse, can be damaging to targeted companies struggling to raise capital, and has led to numerous bankruptcies.
