The real significance of the naked short-selling issue isn’t so much the actual volume of the behavior, i.e. the concrete effect it has on the market and on individual companies — and that has been significant, don’t get me wrong — but the fact that the practice is absurdly widespread and takes place right under the noses of the regulators, and really nothing is ever done about it.

The downward pressure on stocks from short-selling—which is actually much less than is usually imagined—is not increased by a lack of intent to borrow or by a failure to deliver three days after settlement.

In the real world (if not in theory), nakedness just doesn’t matter.

It’s true that we could decrease this downward pressure by requiring all short sales to have located and borrowed stocks prior to sales. This would end naked shorting and would also make short selling far more difficult. But the alleviation of downward pressure on stocks would not come from the fact that short sellers couldn’t short without intending to borrow. It would come from the fact that short selling would be a much slower and costlier process.