It appears they could choose to never recover if they are stupid. I would think they would choose to cover when they know they will lose more money waiting than to just cover.
"Once that CUSIP changes, the naked shorter has no apparent way to close out the naked short position. No stock under the old CUSIP number exists anymore; it all automatically converts to the new CUSIP.
Those trades can sit in the Obligation Warehouse forever, in theory. But the “aged fails” — essentially orphaned naked short transactions — remain on the naked shorter’s balance sheet as a liability to be paid later.
By DiIorio’s reckoning, then, the cycle of naked shorting and reverse splits would inevitably result in an ever-increasing number of aged fails. And if that was happening, and those liabilities grew bigger and bigger, then federal regulators could see the outlines of the scheme on any financial statement."
https://theintercept.com/2016/09/24/naked-sho...d-forever/
"Once that CUSIP changes, the naked shorter has no apparent way to close out the naked short position. No stock under the old CUSIP number exists anymore; it all automatically converts to the new CUSIP.
Those trades can sit in the Obligation Warehouse forever, in theory. But the “aged fails” — essentially orphaned naked short transactions — remain on the naked shorter’s balance sheet as a liability to be paid later.
By DiIorio’s reckoning, then, the cycle of naked shorting and reverse splits would inevitably result in an ever-increasing number of aged fails. And if that was happening, and those liabilities grew bigger and bigger, then federal regulators could see the outlines of the scheme on any financial statement."
https://theintercept.com/2016/09/24/naked-sho...d-forever/
9
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