Will It Be ENFORCED!?!

Mandatory Close-Out Requirement for Threshold Securities – Reg SHO will require each market center (e.g., NYSE, NASDAQ) to publish each settlement day a list of securities that have been failing to the CNS system operated by NSCC for a minimum amount over a defined period. (See the SEC’s release for the details of these requirements.) These securities are called “threshold securities.” Reg SHO requires that a broker-dealer who is failing for 13 consecutive settlement days in a threshold security close out its fail to deliver position by buying the securities in the market. If the broker-dealer cannot buy-in the securities (e.g., there are no offers in the name), the broker-dealer, and any broker for which it clears, is prohibited from accepting any additional short sale orders in that security unless it first borrows the security (or enters into a contract to borrow the securities) until the fail is cleaned up. If the broker is reasonably able to determine which of its account(s) contributed to the fail, it may impose this pre-borrow requirement only on the responsible account(s).

To reiterate, the 13 consecutive settlement day requirement for threshold securities also applies to long sale fails. Accordingly we also we will be monitoring long sale fails where our clients have failed to deliver on or prior to settlement date of a trade.

Note:

Specialists and other market makers will not be exempt from locate requirements with respect to threshold securities once their clearing firm has been failing to deliver threshold securities for 13 consecutive settlement days and has been unable to buy-in the amount of shares in which it has been failing for 13 settlement days.