I know when I enter an order, I must indicate whether it is a buy, a sell, or a short. If I am shorting, my broker must verfiy that he has access to borrow shares and then will approve my order. Any fill I get on my short order would be accounted for in the weekly open short interest numbers that GWR has been updating. This is legitimate shorting, and I do not think it contributes to any market issues at all. My margin is in place, and if I default then the broker covers my short and I lose the money. Life goes on...

In a naked short situation, a sell order goes through but no actual shares of ECU are borrowed. In three days the shares must be delivered to whomever bought them, but because there were no borrowed shares no ECU shares are delivered. Thus the buyers are technically paying in full for a counterfit position, and do not own shares. The broker is supposed to report this to the regulator as a delivery failure and the party that was naked short must immediately buy in the market to satisfy that order. But some people are speculating that no such action is taking place, ie. huge shorts are left unbacked by shares. Alternately, the same share pools have been pledged to several short funds and therefore the end result is the same, only a limited number of real shares exist and several buyers claim ownership.

I have read of situations where the total number of shares actually on deposit with some institutions is a multiple of the number of shares that are accounted for in client accounts. In a functioning system that should never happen. And the longer it goes on, the more likely that the resolution will be in a default and some people are going to endu up screwed. Who wants to guess if its the little guy that ends up losing in this scam?

cheers!

mike