I am thinking Rule 204 will come into play?
FAILURE TO DELIVER
To address abusive “naked” short selling in equity securities, the SEC announced on October 14, 2008, that it was adopting a rule requiring that self-clearing broker dealers deliver securities by settlement date, or if the participants have not delivered shares by settlement date, immediately purchase or borrow securities to close out the fail to deliver position by no later than the beginning of regular trading hours on the settlement day following the day the participant incurred the fail to deliver position.
A participant that does not comply with this close-out requirement will not be able to short sell the security either for itself or for the account of any customer, unless it has previously arranged to borrow or borrowed the security, until the fail to deliver position is closed out. This Rule has now been adopted permanently by the SEC and is known as SEC Rule 204.
SHORT SALES
With respect to short sales, any fail to deliver by regular settlement date (trade date plus three or “T+3”) must be bought in no later than the beginning of trading (9:30 a.m. ET) the next day (“T+4”). If the security that is failing is not bought in on the next settlement date at or before the opening of trading, then the broker dealer is penalized in that it must not effect short selling in that security for itself or by any of its clients unless it has obtained a guarantee from a lender known as a “pre-borrow”. The SEC has stated in industry conference calls that the manner of the buy-in must be with a Market on Open (“MOO”) order on T+4. We understand that a MOO price may be higher than a price that could be obtained throughout the trading day but the SEC mandates that we purchase not later than on the open.
LONG SALES
In addition, all fail to deliver positions resulting from long sale transactions on T+3 must be bought in no later than the open of trading on T+6. Just as with T+4 buy-ins, it must be made using a MOO instruction. If a broker-dealer has failed to buy in the Securities within the stated time periods, then the broker-dealer and its clients are penalized in that the broker dealer must not effect short selling in that security for its own account or for the account of any customer without first pre-borrowing the security.
