Trump Media alerts Nasdaq to potential market manipulation from 'naked' short selling of DJT stock

[Bernardo de La Paz]

16. Shorting is not illegal, but naked shorting is illegal

Shorting is 1) Borrowing shares, 2) Selling them immediately, 3) waiting for anticipated price drop, 4) buying the same number of shares to take limited profit or to stop unlimited loss, 5) returning the borrowed shares.

Naked shorting skips steps 1 and 5. It manipulates the market because the number of shares being traded exceeds the number of shares nominally available to be traded. In sufficient quantity, the selling in step 2 depresses the price. In regular shorting, step 2 does not artificially depress the price. It does depress the price in the same way that the price would have been depressed if the actual owner of the shares sold them. In naked shorting, there is no actual owner, hence market distortion.