In July 2004, the Securities and Exchange Commission (SEC) adopted Regulation SHO under the Securities and Exchange Act of 1934. These regulations modify and replace certain existing SEC and SRO rules with respect to activities associated with the short selling of securities.
Threshold Securities are defined by Regulation SHO to include securities where there have been 5 consecutive settlement days of fails greater than 10,000 shares or one half of one percent of the outstanding shares. Each SRO is required under Regulation SHO to calculate and disseminate a list of Threshold Securities for symbols listed on such SRO’s market or for which the SRO bears primary surveillance responsibility. ArcaEx will publish its list daily and those lists will remain available for the previous 30 days.
If no securities meet the threshold values then an empty file will still be produced for that settlement day. The file will be made available before 11:00 pm CT for each settlement day and will include the data from that settlement day. If there is a processing delay, the Threshold Securities file will be sent the following day and include “as of” information from the missing day. Should such a posting delay occur, ETPs should use the file from the previous day for determining Threshold Securities.
The file name will always reflect the settlement date. Within the file, you will find the date/time that the file was created. In situations where the file creation is delayed, the file name will always reflect the settlement date and the create date will reflect when the file is published.
Broker/dealers are required to close out any fail positions within 10 days after settlement for Threshold Securities. If they are unable to do so, they will be prohibited by their clearing firm from selling short that security without first pre-borrowing the stock.
The Real Deal No agenda, no talking points, just facts.
By Thomas Catino Chief Architect, Columnist January 2005
Regulation SHO: The Promising Debut to Combat the Abuses of Short Selling
The Securities and Exchange Commission is aware of investor concerns about naked short selling and has now instituted Regulation SHO. This was implemented on January 3, 2005 and investors are still waiting to see if it has any impact. The main goal of this new regulation is to require short sellers in all equity securities to locate securities to borrow before selling, and would also impose strict delivery requirements on securities where many sellers have failed to deliver the securities.
To understand the new regulation, one needs to get a grip on what short selling is. Short selling is defined as the selling of a security that the seller does not own and in which the seller will be able to buy the stock at a lower amount than the price they sold short. A major category of short selling that this regulation helps to prevent is naked short selling. This occurs when someone sells a stock short without borrowing the necessary securities to make a delivery, thus resulting in a failure to deliver the securities to the rightful owner. Now, take a look at a clear and concise breakdown of the regulation.
Breakdown of the new SEC regulation
Overview of Rule 203: Rule requiring broker-dealers in all equity securities, to “locate” securities available for borrowing before making a short sale, and imposes additional delivery requirements on broker-dealers for securities in which there is a substantial amount of failures to deliver.
1) Locate Requirement
Regulation SHO restricts broker-dealers from selling short in any security unless the broker-dealer has borrowed the security or has knowledge of the security being delivered on the date delivery is due.
2) Short Sales in Threshold Securities
Regulation SHO requires broker-dealers of a registered clearing agency to swiftly move and take action on all failures to deliver after thirteen consecutive settlement days. In order for a company to be eligible as a threshold security, the security must be registered under Section 12 or required to file reports under Section 15 of the Exchange Act.
3) Long Sales
Regulation SHO requires that broker-dealers engaging in the sale of a security cannot use borrowed securities to complete the transaction and must make the delivery when the securities are due.
Overview of Rule 200: This rule defines ownership of securities for short sale purposes. For example, brokerages must mark sell orders in securities as either “long,” “short,” or “short exempt.” Overall, this will make it much easier for brokerages and outside authorities to make clear a short seller’s net short position.
The new and revised rules implemented by the Securities and Exchange Commission under Regulation SHO are supposed to prevent illegal shorting of securities. To highlight the securities that have been hampered by shorting and have failed to meet certain requirements, a threshold security list has been established to further prevent this from happening. A threshold security is one in which at least 10,000 shares have not been delivered for the security for five consecutive settlement days and the failure to deliver the security relates to more than 0.5% of the company’s shares. On January 10, self regulatory organization started to release the first threshold list before the opening of trading. Therefore, from now on companies on the list that have met the threshold security requirements for five consecutive trading days, must have their short positions cleared below the requirements before thirteen days after being on the list. Some of these companies include; DiCut Inc. (OTC: DCUT), eCOST.com (NASDAQ: ECST), Geopharma Inc. (NASDAQ: GORX), Isonics (NASDAQ SC: ISON), PacificNet Inc (NASDAQ: PACT), Taser Intl. (NASDAQ: TASR), Taylor Devices (NASDAQ SC: TAYD) and Travelzoo Inc. (NASDAQ: TZOO).
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Feb 24, 2021 18:00:23 GMT -4
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Feb 24, 2021 18:35:01 GMT -4
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Feb 24, 2021 20:16:41 GMT -4
narvo: Wondering if anyone here ever knew the shareholder last name Ehmann from the desert area of California? He was a good man and he liked fell off the face of the Earth. I am sensing a bad feeling. He held many shares. Thx, Narvo
Feb 25, 2021 0:20:13 GMT -4
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Feb 25, 2021 16:14:52 GMT -4
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Feb 28, 2021 0:02:28 GMT -4