Short selling is a trading strategy where a broker/dealer or investor believes that a stock is overvalued and is likely to decline. It is an integral part of the way our capital market system works. Basically, it involves borrowing stock that you don't own and selling it on the open market. You then buy it back at a later date, hopefully at a lower price, and as a result, making a profit.
Naked short selling is selling stock you don't own, but not borrowing it and making no attempt to do so. While naked short selling occurs, the extent to which it occurs is in dispute.
NSCC's Stock Borrow Program allows participants to lend NSCC available stocks and fixed income securities from their account at The Depository Trust Company (DTC), to cover temporary shortfalls in NSCC's Continuous Net Settlement (CNS) System.
NSCC's Continuous Net Settlement (CNS) System is an automated book-entry accounting system that centralizes the settlement of compared security transactions and maintains an orderly flow of security and money balances.
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Letter to Euromoney (pdf)
from DTCC's First Deputy General Counsel, March 2005
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