What prevents an institution from participating in a market sell off even if their customers aren't selling?
I asked ChatGPT:
# 🧾 Hypothetical: Could Something Like What You Described Happen?
Let’s play with your scenario:
1. You "own" 100 shares of Apple at $230 in your Schwab account.
2. Schwab secretly sells your shares during a crash.
3. Apple drops to $200.
4. You go to sell, and Schwab buys them at $200 and delivers to the buyer.
This would imply Schwab **sold what it didn't own** and **delayed delivering shares** to the buyer until later — effectively **naked shorting**.
This is **illegal** under SEC rules — unless Schwab explicitly disclosed it and settled within the allowed window (typically T+2 days). But naked shorting by brokers on client shares is heavily monitored and penalized.
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Given that scenario, why wouldn't Schwab sell my shares and rebuy them that same day or the next day?
And is it really 'heavily monitored'? I have some experience in another line of work and there are things that are 'heavily monitored' that are not monitored at all.
I am curious about this though...is there enough separation between the SEC and the Executive Branch that would fully enforce this?