Question
In: Finance
a. Following the first SEC suspension of naked shorting (post–June 2008), did other nations follow this...
a. Following the first SEC suspension of naked shorting (post–June 2008), did other nations follow this practice?
b. If not, explain why. If so, list a few.
Solutions
Expert Solution
a.yes. naked short selling is banned in Germany and USA, UK and other such countries.
b. short selling is a practice of selling a stock, without prior borrowing it. This can lead to extreme price movements which can endanger the financial markets. To prevent this from happening, countries are banning the practice of naked short selling. short selling results in over pricing. after the ban on short selling, the stocks reflect their true valuations and investor sentiments which are either berish or bullish on the stock.
post the financial crisis of 2008, several countries imposed ban on naked short selling to prevent unnecessary price drops , which are not related to valuations and is hazardous to the financial health of the markets and restore the stability in the financial markets. short selling would also lead to to the disruption of liquidity which was prevented after the ban, after the bans the stocks have been performing better.
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