Regulation SHO
An SEC regulation, adopted in 2005, restricting naked short selling. Naked short selling involves selling shares one has neither borrowed nor made arrangements to borrow. The regulation requires these brokers and short sale buyers to abide by a "locate" requirement and a "close-out" requirement. The locate requirement forces brokers to have reasonable grounds to believe that an equity 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. Brokers failing to do this may not engage in naked short selling until the position is closed. The rule also requires stock exchanges to publish daily a list of companies whose stock has failed to deliver over a certain threshold. See also: Short selling, Open fail, Threshold security.
