What are the rules governing short selling?

Short selling is a type of stock market trading activity in which an investor sells shares of a certain security that they do not actually own. It is a legal form of trading in California as long as the investor follows certain rules governing the transaction. The California Department of Business Oversight (DBO) maintains specific short selling rules to ensure transparency and protect investors. For instance, only registered market makers and brokers can participate in short selling transactions and must follow certain conditions, such as disclosing the purpose of their stock sale. Market makers and brokers must also provide accurate pricing information and ensure the security is not sold short at a price lower than its current market value. Furthermore, short sales are subject to additional protections, such as the “uptick rule,” which prohibits market makers and brokers from engaging in short selling immediately following a trade in the same security. Additionally, the DBO offers guidance on naked short selling, which occurs when an investor sells a security without having borrowed it prior to the sale. This practice is prohibited in California, as it can be considered a form of investment fraud. Overall, the rules governing short selling in California are intended to ensure transparency and protect all investors participating in the market. Additionally, the DBO provides guidance on the different types of short selling practices, helping investors make informed decisions.

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What are the rules governing short selling?

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