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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Not one of those bizarre, outdated laws you hear about -- like in Maine, where people are required to bring shotguns to church -- but a brand new law with an entirely sensible goal, like keeping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, 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, a site that compiles threshold-list data.

And that's just the tip of the iceberg. 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 (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%
10 AGEN ANTIGENICS 33 $257 27.7 27.4%
Source:, yahoo finance
*as of 7/12/05.

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