This accounts for as much as 50 percent of daily trading. The trader is supposed to locate (or have a “reasonable belief” he can locate) or borrow the shares in brokerage accounts, and then transfer them to the buyer within two days. Short selling, effectively betting that a stock will go down, involves a trader selling shares he does not own, hoping to buy them back at a lower price to make money on the spread. The Securities and Exchange Commission could create a system to identify and enable punishment of illegal trading activities, including naked short selling.Īt the House Financial Services Committee hearing last week on the GameStop debacle, there was an elephant in the room: naked short selling.