As an Ivy-League-trained Master of International Affairs and Financial Management, I do confidently report: that continuing to allow for market makers, banks, and hedge funds to nakedly sell stocks short would be equivalent to allow clear violations of economic fairness in our markets. The exploitation of Failure-to-Deliver (FTD) policy under SEC’s REG SHO, the creation of synthetic shares, the borrowing to short without locates, and/or the utilization of the share creation mechanisms of ETFs- allow for economic supply to become a falsified representation of what should be a much lower, true supply. If fake supply, then is substantially greater than the routine economic demand, then the price will be suppressed of any good or stock. This suppression of price allows the perpetrator, or the violator, to profit based on the inside information that only they have.
Failures to deliver a stock is insider trading. The reason it is insider trading, is because it allows only a select group to have particular information about a stock’s excess supply. Because the perpetrator is the only one who knows who failed to deliver, and that information is not accessible by the public, then any closure or settlement of such fail to deliver constitutes a criminal action of insider trading. Thus, there is a conflict between current SEC policy, which enables such fails to deliver under rule 204 as well as ETF fails, and insider trading laws which call for criminal penalties against those who trade on inside information.
Further, participants of the above exploitations to nakedly sell stocks short can therefore play ‘God’ in the stock market. If enough capital is employed in this conduct (which it is, especially by the well-known bad actor known as Citadel Securities) then the conduct can act as a tidal wave of relative power over small businesses, mid-size institutions, and retail investors across the world. Further, this conduct of playing God in our markets can dictate what companies survive and what companies fail. Which is a conflict of not only the constitution, but of antitrust law.
And, additionally, the other issue with naked short selling is that it leads to a falsified representation of voters and proxy voters for company policy. This definition of fraud constitutes falsified company action, and can lead to differences between what true shareholders actually want, and what companies are actually doing. This fraudulent business practice is a dangerous result of naked short selling.
And finally, I want to shed some light on the problem of tokenization of shares. Tokenization of shares is one mechanism that is used to fraudulently authorize the fake locates that participants use as justification for nakedly shorting various stocks. Whether the tokens are created in switzerland, or elsewhere, is a violation of securities laws. Thus tokenization should be heavily scrutinized regarding stocks, until policy was created on the matter.