Short selling is often looked at as a nefarious aspect of trading and investing. However, it is quite legal, serves a necessary function in the
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- Short selling is legal except when done to manipulate the price of a stock. Quite often these manipulative practices are referred to as "bear raids."
- Broker-dealers must have reasonable grounds to believe that the security can be borrowed and delivered on the
- Broker-dealers are required to "close out" (i.e., buy into) short sales in "threshold securities" that have failed to deliver for 13 consecutive settlement days. Threshold securities are defined as having an aggregate failure to deliver for five consecutive days at a registered clearing agency, composed of 10,000 shares or more and at least half of the total
"Naked" short selling is not permissible unless it is for purposes of creating market liquidity and stability as is the role of market makers or specialists.