This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Naked Shorts Eye Internet Japan

Somebody really, really doesn't like Internet Initiative Japan (IIJI).

And whoever it is took a sudden dislike to the company last month. Short interest on the Tokyo-based company's American Depository Shares, which are traded on Nasdaq, soared nearly 1,500% to 1,769,292 shares in June from 90,539 shares in May, according to the exchange.

Naturally, volume on the stock rocketed as well. In May, some 91,000 shares of IIJ traded on average, but in June the figure surged to an average of 6,426,225 shares a day. Even in the early days of July, a normally sleepy time for trading as U.S. investors extend the Fourth of July weekend, trading has remained above a million shares a day as the stock has hovered between $7 and $8.

What's more, the stock has been the victim of so-called naked short-selling, or selling short shares that aren't borrowed in time to deliver them for settlement. IIJ shares have been on Nasdaq's Threshold List since June 9. Stocks appear on an exchange's threshold list when a short-seller fails to deliver shares to the buyer within the standard settlement period for five straight trading days.

The Securities and Exchange Commission's Regulation SHO, which took effect last January in an effort to combat naked short-selling, requires broker dealers to buy out failure-to-deliver positions in stocks that have been on a threshold list for 13 straight trading days. IIJ shares have been on the Nasdaq list for 17 straight days.

Tom Ronk, who keeps a list of threshold stocks on his Web site, Buyins.net, says a stock will often pop up around the time broker-dealers are required to close out failure-to-deliver positions. Sure enough, on June 27 -- IIJ's 13th day on the threshold list -- the stock shot up 23% and volume rose nearly sevenfold to 10.2 million shares.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,875.41 -36.70 -0.22%
S&P 500 1,968.40 -1.55 -0.08%
NASDAQ 4,457.1930 +14.4950 0.33%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs