RE:Canadian Banks Make $Billions off Naked Short SalesThanks kcac1. So how's it work? Say a stock is at $10. Bank A colludes with Bank B to naked short the stock. Bank A promises to buy 1 million shares from Bank B at $10 if the sp drops to say $7. Bank B promises to buy 1 million shares at $10 from Bank A if the stock falls to $7. So it's a wash. Nobody is out any money on the naked short. Mesnwhile Banks A & B have taken out normal shorts on the stock and have managed to drive the sp down. They make money on the sp decrease. Is that how it works?
At $7 they go long and pump the stock making money on the rally as investors buy the dip. Then naked short it again and repeat crwating volatility making money up and down. Pretty slick if that's how it works.