Editing Short (finance) (section)

=== Naked short selling ===
{{Main|Naked short selling}}
A naked short sale occurs when a security is sold short without borrowing the security within a set time (for example, three days in the US.) This means that the buyer of such a short is buying the short-seller's promise to deliver a share, rather than buying the share itself. The short-seller's promise is known as a hypothecated share.

When the holder of the underlying stock receives a dividend, the holder of the hypothecated share would receive an equal [[dividend]] from the short seller.

Naked shorting has been made illegal except where allowed under limited circumstances by [[market maker]]s.  It is detected by the [[Depository Trust & Clearing Corporation]] (in the US) as a "[[failure to deliver]]" or simply "fail."  While many fails are settled in a short time, some have been allowed to linger in the system.

In the US, arranging to borrow a security before a short sale is called a ''locate''.  In 2005, to prevent widespread failure to deliver securities, the [[U.S. Securities and Exchange Commission]] (SEC) put in place [[Regulation SHO]], intended to prevent speculators from selling some stocks short before doing a locate.  More stringent rules were put in place in September 2008, ostensibly to prevent the practice from exacerbating market declines.  These rules were made permanent in 2009.