Naked Short Selling

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Naked Short Selling

The sale of shares one has neither borrowed nor made arrangements to borrow. Under Regulation SHO, investors engaging in naked shorting much abide by a "locate" requirement and a "close-out" requirement. The locate requirement forces brokers to have reasonable grounds to believe that the short-sold security can be borrowed; the broker must document this prior to the security's sale. With some exceptions, the close-out requirement means that brokers who have failed to deliver a short-sold security for 13 days must purchase similar securities and present those instead. Naked shorting is very high risk.
References in periodicals archive ?
tZERO employs a revolutionary blockchain application called a digital locate receipt (DLR), which is a digitised version of a traditional REG SHO locate.
Reg SHO generally allows firms to track their positions in a security from certain trading operations or trading desks separately from other positions maintained at the firm through the use of an "aggregation unit.
Reg SHO requires a broker or dealer to have reasonable grounds to believe that the security could be borrowed and available for delivery before accepting or effecting a short sale order.
Additionally, Reg SHO permits firms to reasonably allocate fail-to-deliver positions to its broker-dealer clients that caused or contributed to the firm's fail-to-deliver position.
Reg SHO requires a broker-dealer to have reasonable grounds to believe that the security could be borrowed and available for delivery before accepting or effecting a short sale order.
Short sellers and the broker dealers accepting their short sale orders will be monitored daily for compliance with the new Reg SHO requirements.
Short sellers and the broker dealers accepting their short sale orders are out-of-compliance with the new Reg SHO buy-in requirement at the time this report was generated.
We plan to include these important survey results in NIRI's upcoming Reg SHO comment letter to the SEC.
Also excluded are transactions settling on the distribution day of a new issue, and transactions in issues undergoing a mandatory or voluntary reorganization, in CUSIPs with a CNS buy-in, and in securities appearing on one of the exchanges' lists of "threshold" securities under Reg SHO.
DTCC had recommended in a comment letter to the SEC last September on Reg SHO reform, that such data could be released publicly without putting at risk the confidentiality of participant securities holdings and trading or risking market manipulation.
Shapiro asserts that Reg SHO has not reduced the total number of outstanding fails.
The SEC has also pointed out that their efforts, in promulgating Reg SHO to effectively safeguard extended fails associated with short selling or naked short selling have been successful in achieving their goal.