SEC Regulation SHO originally set (1) new rules governing short sales and (2) a pilot program suspending short sale price tests in a subset of securities to allow the Securities and Exchange Commission (SEC) to gather data to evaluate the need for any price test restrictions. However, in July 2007, the second component of Reg SHO was eliminated.
Effective January 3, 2005, new short sale rules were implemented, including a uniform “locate” requirement for short sales in all equity securities and additional requirements for broker-dealers trading securities in which a substantial amount of failures to deliver have occurred (Regulation SHO Threshold Securities). Please refer to Head Trader Alerts #2004-108, #2004-155, #2004-166 and #2004-168.
The Securities and Exchange Commission (SEC) has amended Regulation SHO to eliminate the “grandfather provision” effective October 15, 2007. Please refer to Regulatory Alert #2007-086 for complete details.
On January 2, 2007, a Regulation SHO Threshold List for NASDAQ and OTCBB stocks was not published on NASDAQTrader.com. As a result, certain original published Regulation SHO Threshold/NASD 3210 Lists listed below have been modified. Please review General News 2007-022 for complete details.
As announced in General News Item #2005-005, Wednesday, April 13, 2005, was the last day that NASDAQ posted a separate addendum to the Threshold List in order to identify the additional OTC securities subject to Regulation SHO.
The SEC issued a final rule amending its short sale price test. The rule eliminated the Rule 10a-1 tick test as well as the short-sale price tests of any self-regulatory organization, including NASDAQ’s Rule 3350 bid test. NASDAQ eliminated short-sale validation on July 6, 2007.
The SEC rule also removed the Regulation SHO requirement that a broker-dealer mark a sell order “short exempt” if the seller is relying on an exemption from a price test.
NASDAQ maintained the list for the Reg SHO price test change until October 4, 2007. Effective October 5, 2007, broker-dealers are no longer permitted to mark sales “short exempt”; instead all short sales must be marked “short”.
