What US SEC - 17 CFR 242.203 Regulation SHO Borrowing and Delivery Requirements (Locate and Close-Out) requires
17 CFR 242.203 titled 'Borrowing and delivery requirements' is the Regulation SHO rule that imposes locate and close-out obligations on broker-dealers in connection with short sales and certain long-sale fails-to-deliver in equity securities. Paragraph (a) addresses long sales: broker-dealers may not lend or arrange to lend a security marked as long-sale, and may not fail to deliver a security on a long sale, except in good-faith mistake scenarios or specified inter-broker arrangements. Paragraph (b) imposes the core short-sale rules: before accepting any short sale order in any equity security from any other person, or effecting any short sale in an equity security for its own account, the broker-dealer must either (i) borrow the security, (ii) enter into a bona-fide arrangement to borrow the security, or (iii) have reasonable grounds to believe that the security can be borrowed so that it can be delivered on the date delivery is due (the 'locate' requirement); and document compliance with the locate requirement. Paragraph (b)(3) imposes the close-out requirement for threshold securities: where a participant of a registered clearing agency has a fail-to-deliver position in a threshold security for 13 consecutive settlement days, the participant and any broker-dealer for which it clears transactions must immediately close out the fail-to-deliver position by purchasing or borrowing securities of like kind and quantity; further, until the position is closed out, the participant and the broker-dealer may not accept any short sale order in the threshold security from another person, or effect any short sale in the threshold security for its own account, without first borrowing the security or entering into a bona-fide arrangement to borrow the security. Paragraph (c) defines 'threshold security' as an equity security for which there is an aggregate fail-to-deliver position at a registered clearing agency of at least 10,000 shares (and which is equal to at least 0.5 percent of the issuer's total shares outstanding) for five consecutive settlement days, and which is included on a list published by a self-regulatory organization.
Pillar: Banking & Global Finance · Authority: US Securities and Exchange Commission · Version: 1.0.0 · Last updated:
Primary source: https://www.ecfr.gov/current/title-17/section-242.203
SHA-256 integrity: efe57ebaa67f773bce5b1ee3e476ce4b8c22f1b352b60798a90cfe72925a2d24
Primary Citations — 9 traced to source
- 17 CFR 242.203 - Borrowing and delivery requirements - regulatory text at https://www.ecfr.gov/current/title-17/section-242.203
- 17 CFR 242.203(a) - long sale borrow and delivery restrictions with good-faith mistake exceptions
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