Short sales are effected when sellers sell securities they do not own. They have to effect delivery with equivalent borrowed securities. Naked short sales occur when sellers sell securities they do not own and have not make arrangements to borrow for delivery within the standard three–day settlement period. UK and US financial regulators have reacted with emergency measures in response to what appeared to be predatory short–selling of banking and financial stocks. The latter is blamed for the accentuating of the on–going financial crisis on both sides of the Atlantic. Whilst the US Securities Exchange Commission responded with prescriptive actions, the UK Financial Services Authority relied on a one–off disclosure approach. Both claimed success for arresting the possible manipulative price decline of particularly sensitive banking and financial stocks and in particular those undertaking crucial rights issue for balance sheet enhancement. But were ‘shorties’ being made scapegoats?
Business Law Review