After the stock market crash in 1929 and the ensuing great Depression, short selling has been a scapegoat in many market downturns. In a short sale, an investor sells shares in the market who have borrowed and taken to the village. The goal is to turn a profit by buying shares to repay the loan, at a lower price. After the great Depression, the American Commission on securities and exchange Commission, or sec, impose restrictions on short sale transactions to limit excessive pressure down.
For many years after its creation in 1937, the rule is growth dominated. This rule allowed short selling to take place only on growth from previous stock sale. For example, if the last transaction was at $17.86, a short sale may be executed, if the following tender price was at least $17.87. In fact, this rule prevents excessive sales pressure from short sellers and helps to keep the market in balance, at least in theory.
Several studies have been conducted over many years revealing any additional measures comes from the rule of growth in a bear market. In 2007, the SEC repealed a rule the uptick, giving complete flexibility for short sellers, who soon took advantage of in following the stock market crash in 2008. For a second, since then, has again revised the rule, the introduction rules for the uptick on certain stocks when the price falls by more than 10% from previous day’s closing.
An important rule for short sale can involve stock needs to be sold. It should be easily available dealer broker to deliver in the village, otherwise it’s not delivery or naked short selling. Although the stock trade, this is considered a denial, there are ways to achieve the same position by selling contracts and options or futures. (For associated reading, see: the truth about naked short selling: a comment.)