Well, they’re claiming that they’re doing it to prevent an illegal practice ‘naked’ short-selling. Now naked short-selling is pretty much the same as short-selling but with a difference — in this case, the broker doesn’t check whether the stock is available for borrowing in the first place. He just assumes it is available. And things can get quite messy when it comes time for the traders to buy back the stock and return it. They’ll have to scramble to find the requisite quantity of stock. If not, the risk might even fall on the broker. (View Highlight)
Now that’s just a singular example. Think of this on a larger level. Without people shorting the market and asking questions, the market simply could keep rallying or heading north. Eventually, it could create bubbles. And that will only hurt retail investors even more when the eventual crash comes. Heck, in 2021, even the IMF asked South Korea to rethink its short-selling ban. The IMF basically said that short-selling is required so that “investors are more sensitive to risks.” Or put another way, markets need short-sellers so that investors don’t get complacent about a market rally and that they don’t burn their fingers. (View Highlight)
