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
TheStreet Open House

Naked Shorts' Long Shelf Life

What if they passed a law and no one followed it?

Not one of those bizarre, outdated laws you hear about -- like in Maine, where people are required to bring shotguns to church -- but a brand new law with an entirely sensible goal, like keeping people from selling equities that don't exist.

Since January, Regulation SHO has required self-regulatory organizations like the NYSE or the NASD to keep a "threshold list" of securities that have a sizable failure-to-deliver position. That is, they must disclose daily the stocks that someone sold without either owning them or borrowing them.

Selling stocks that nobody owns, called naked short-selling, isn't necessarily illegal. Broker-dealers may sell imaginary shares to maintain liquidity in a stock that sees a sudden surge in demand. So the Securities and Exchange Commission gives broker-dealers a 13-day grace period before they are required to close out those naked-short positions. After 13 days, it's safer to assume there must be at least some abusive shorting going on.

Last month, TheStreet.com noticed that Internet Initiative Japan (IIJI), a Nasdaq-traded ADS that had seen some spectacular and mysterious volatility coinciding with its aborted plans to issue new shares in Tokyo, had been on the NASD's threshold list for 17 days.

That seemed like an unusually long time back then. But IIJI has now been on the list for 39 straight days, according to Buyins.net, a site that compiles threshold-list data.

And that's just the tip of the iceberg. Buyins.net lists 59 other securities that have been on threshold lists for longer than IIJI has -- some of them for as long as 134 days. Of course, most are micro-cap stocks that are so illiquid it's not surprising broker-dealers find shares scarce.

But there are also 10 other companies, all traded on the Nasdaq, that have substantial daily volume and market caps between $150 million and $1.1 billion that have been on its threshold list for more than 26 days -- twice the allotted grace period after which the positions must be cleared out. They include well-known names like Netflix (NFLX), Taser International (TASR) and Overstock.com (OSTK) -- hardly illiquid, yet they've been on the threshold list for months.

Overstaying Their Welcome?
It's not just micro-caps that languish on NASD's threshold list
Ticker Name Days on List Market Cap (millions) Short Ratio Shares Short as % of Float*
1 NFLX NETFLIX 134 $1,100 15.5 30.4%
2 GIVN GIVEN IMAGING 134 $637 17.9 13.5%
3 TASR TASER INTERNATIONAL 134 $567 5.8 31.6%
4 GLBC GLOBAL CROSSING 134 $397 22.3 47.7%
5 CALM CAL-MAINE FOODS 134 $149 10.8 11.8%
6 NAVR NAVARRE CORP 74 $247 30.4 35.3%
7 OSTK OVERSTOCK.COM 72 $858 14.0 51.7%
8 ENWV ENDWAVE CORP 45 $328 11.0 26.1%
9 IIJI INTERNET INITIATIVE JAPAN 39 $777 0.2 N/A
10 AGEN ANTIGENICS 33 $257 27.7 27.4%
11 OVEN TURBOCHEF TECHNOLOGIES 30 $481 7.7 40.5%
Source: buyins.net, yahoo finance
*as of 7/12/05.

1 of 3

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 17,067.56 -30.89 -0.18%
S&P 500 2,002.28 -1.09 -0.05%
NASDAQ 4,598.1880 +17.9170 0.39%

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