for a discussion on naked shorting and its consequence – Failure to deliver. It is like you have a machine or circuit and suddenly the laws of conservation (of energy, matter, current etc.,) were repealed. Obviously, the engine or circuit may blow up due to accumulation at sink (or deficit at source).
Actually, the consequences on failure to deliver are not as bad as made out in the article. There are two big problems though with naked shorting.
1) Voting rights. Shares from a naked short have no voting rights.
2) Making sure that the naked short can financially cover their position and any dividends that the stock declares.
Personally, as an investor, I don’t care if the stock I buy is from a naked short unless I want to make sure I have a right to vote for board of directors etc (not that they pay much attention to the stockholders anymore – something that I think should change). Just so long as when I sell, I get the delta between purchase and sale. Dividends are what really hurt naked shorts, and having them around may reduce the speculative prices in many stocks — grounding the price of the share back to basics, what the company earns and can pay in terms of dividends.
