Naked Shorts' Long Shelf Life

So what gives? Or rather, what doesn't give? Why aren't broker-dealers cleaning out these naked-short positions? Asking the watchdogs doesn't offer much insight. John Heine, a spokesman for the Securities and Exchange Commission, says that body doesn't comment on the activities of its enforcement office, which oversees broker-dealer activity.

"There hasn't been a case yet where we've brought enforcement action" regarding Regulation SHO, Heine says. "We're always interested when people have any information about violations of SEC laws."

NASD, which is supported by 5,200 member brokerage firms, is required to gather data on naked short-selling, so it's in the best position to understand why so many stocks are stuck on its threshold list. Yet it seems oddly indifferent.

"Isn't that the business of the SEC?" snapped NASD spokesperson Nancy Condon when asked about the lingerers on its threshold list. A second spokesperson called back to point out the SEC's Web page explaining Regulation SHO, but didn't comment any further.

On that Web page, the SEC notes that a stock's longtime threshold status may be due to new failure-to-deliver positions opening up before the old ones can be closed out, or from positions that were grandfathered in before Regulation SHO took effect. But neither exception fully explains why so many liquid stocks are spending such long stretches with positions that could be closed out in a matter of days.

Why, for example, has it taken more than six months to clear out grandfathered short positions in Taser or Netflix?

Or take Overstock, which was on the threshold list from the beginning but fell off in March, suggesting any grandfathered short positions had been cleared out. But it appeared on the list again a few weeks later and has been there for 72 straight days.