Proposed Bill: Ban on Naked Short Selling
Naked short selling, a manipulative practice that undermines the integrity of financial markets, should be permanently outlawed. This tactic allows traders to sell shares they do not own or have not properly borrowed, resulting in a failure to deliver (FTD) on those shares. FTDs distort the true supply and demand dynamics, causing artificial price movements that can harm investors, particularly in volatile markets. By permitting this practice, brokerages enable market manipulation, destabilizing the confidence of retail and institutional investors alike. Brokerages that facilitate naked short selling should face significant penalties, including steep fines and potential loss of their trading licenses.
The proposed bill calls for an outright ban on naked short selling in all U.S. exchanges. Enforcement mechanisms should be strengthened, with regular audits of brokerages to detect FTDs. Severe consequences should follow any breach, including higher regulatory oversight and mandatory reporting of FTDs to safeguard the market’s transparency and fairness. Ending naked short selling will restore investor confidence and promote a more balanced, transparent, and equitable financial system.