Naked short selling

Selling shares short without first borrowing them or arranging to borrow them; restricted in the US by Regulation SHO's locate requirement and banned outright in the EU and UK.

A covered short sale is backed by borrowed shares that can be delivered at settlement. A naked short sale is not, and if the shares cannot be obtained the trade fails to deliver. The EU Short Selling Regulation and the UK's regime prohibit uncovered short sales of shares; the US requires brokers to have reasonable grounds to believe shares can be borrowed before accepting a short sale order, with narrow market-maker exceptions.

Disclosure data does not identify naked shorting: it counts positions, not how they were established.

Related terms

Fails to deliver (FTD): Shares that were sold but not delivered at settlement; the SEC publishes aggregate fails twice a month.

Regulation SHO: The SEC's rulebook for short sales in the US: the locate requirement, close-out obligations for fails to deliver, and the threshold securities lists.

Locate requirement: The US rule that a broker must identify a source of borrowable shares before accepting a short sale order.