Overstock will soon release software designed to help alleviate the very problem that got its founder involved in blockchain in the first place.

After three years of development, a subsidiary of the U.S. retailer now has a tool to let short-sellers identify and borrow shares they want to trade against, instead of shares they might not actually possess. Called a Digital Locate Receipt (DLR), the technology based on the company’s tZERO platform appears to be designed to curb the practices of so-called naked short selling in which investors trade on stocks they promise to borrow, but do not.

The opaque trading practice is widely credited for driving CEO Patrick Bryne to blockchain in the first place.

Multiple calls and emails to Overstock and its subsidiary Medici Ventures were not returned Monday, but according to a post on the tZERO website:

“All DLR creations and purchases are registered to the blockchain creating a permanent order trail and accessible digital record.”

The DLRs, which are expected to be formally revealed at the Money 20/20 conference in Las Vegas this week, are designed to be blockchain-based versions of Regulation SHO “locates,” which were introduced in 2005 to cut down on investors trading against other people’s stocks during off-hours trading.

The regulation was meant to give stock owners the assurance that they could reap rewards from this off-hours trading by formally lending the stock – and thus to discourage short sellers from merely promising to borrow the stocks that they wanted to bet against.

While Overstock’s tZERO platform, a product of the subsidiary Medici Ventures, has seen relatively little adoption, the new application appears designed to entice companies to list their shares by making them more attractive to investors.

The idea is to ensure that actual shareholders are compensated for activities involving the assets they own during off hours and are no longer cut out.

The service will likely be available on tZERO’s Neotrader web portal and via a proprietary web portal through which users can route the trading.

Finally, when users purchase a DLR, they will be able to short the underlying stock equal to the number of receipts they’ve purchased for the day or the overnight positions they’ve acquired.

Also expected to be revealed this week are the pre-sale terms of tZERO’s initial coin offering, which is expected to start on Nov. 1 and run until Nov. 15.

Wall Street image via Shutterstock.