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SEC bans naked short selling

SEC bans naked short selling



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The U.S. Securities and Exchange Commission (SEC) is ordering a targeted ban today on "naked short selling," which is designed to cause panic on the stock market.

Sterling Jenson with Wells Capital Management says a naked short sale is when someone exploits loopholes to sell a stock they don't own. It's designed to make a company's stock drop, causing panic. Then the sellers buy the stock at super cheap prices, making a lot of profit.

In legal short-selling, a broker lets you borrow their shares, which you sell with the hope that you'll be able to buy the stock later at a cheaper price to give back, keeping the difference as profit.

The SEC has put a naked short selling ban in place on targeted companies such as Freddi Mac and Fannie May as a protection. The reason: if people panic on these companies, it causes problems for the rest of the U.S. financial system.

E-mail: athomas@ksl.com

Adam Thomas

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