FINRA Rule Change: Short Sale Delivery Requirements This rule was introduced with the filing of SR-FINRA-2010-028, which has beenapproved by the SEC. This rule becomes effective on October 15, 2010.(a) If a participant of a registered clearing agency has a fail to deliver position at a registered clearing agency in a non-reporting thresholdsecurity for 13 consecutive settlement days, the participant shall immediatelythereafter close out the fail to deliver position by purchasing securities oflike kind and quantity.(1) Provided, however, if a participant of a registered clearing agency hasa fail to deliver position at a registered clearing agency for thirty-fiveconsecutive settlement days in a non-reporting threshold security that was soldpursuant to SEC Rule 144, the participant shall immediately thereafter close outthe fail to deliver position in the security by purchasing securities of likekind and quantity. The requirements in paragraph (b) shall apply to all suchfails to deliver that are not closed out in conformance with this paragraph(a)(1).(b) If a participant of a registered clearing agency has a fail todeliver position at a registered clearing agency in a non-reporting thresholdsecurity for 13 consecutive settlement days (or 35 consecutive settlement daysif entitled to rely on paragraph (a)(1)), the participant and any broker ordealer for which it clears transactions, including any market maker that wouldotherwise be entitled to rely on the exception provided in paragraph (b)(2)(iii)of Rule 203 of SEC Regulation SHO, may not accept a short sale order in thenon-reporting threshold security from another person, or effect a short sale inthe non-reporting threshold security for its own account, without borrowing thesecurity or entering into a bona-fide arrangement to borrow the security, untilthe participant closes out the fail to deliver position by purchasing securitiesof like kind and quantity and that purchase has cleared and settled at aregistered clearing agency.(c) If a participant of a registered clearingagency reasonably allocates a portion of a fail to deliver position to anotherregistered broker or dealer for which it clears trades or for which it isresponsible for settlement, based on such broker or dealer's short position,then the provisions of this Rule relating to such fail to deliver position shallapply to the portion of the fail to deliver position allocated to suchregistered broker or dealer, and not to the participant.(d) A participantof a registered clearing agency shall not be deemed to have fulfilled therequirements of this Rule where the participant enters into an arrangement withanother person to purchase securities as required by this Rule, and theparticipant knows or has reason to know that the other person will not deliversecurities in settlement of the purchase.(e) For the purposes of this Rule,the following terms shall have the meanings below:(1) the term "marketmaker" has the same meaning as in Section 3(a)(38) of the Exchange Act.(2)the term "non-reporting threshold security" means any equity security of anissuer that is not registered pursuant to Section 12 of the Exchange Act and forwhich the issuer is not required to file reports pursuant to Section 15(d) ofthe Exchange Act:(A) for which there is an aggregate fail to deliverposition for five consecutive settlement days at a registered clearing agency of10,000 shares or more and for which on each settlement day during the fiveconsecutive settlement day period, the reported last sale during normal markethours for the security on that settlement day that would value the aggregatefail to deliver position at $50,000 or more, provided that if there is noreported last sale on a particular settlement day, then the price used to valuethe position on such settlement day would be the previously reported last sale;and(B) is included on a list published by FINRA.A security shall ceaseto be a non-reporting threshold security if the aggregate fail to deliverposition at a registered clearing agency does not meet or exceed either of thethreshold tests specified in paragraph (e)(2)(A) of this Rule for fiveconsecutive settlement days.(3) the term "participant" means a participantas defined in Section 3(a)(24) of the Exchange Act, that is a FINRA member. (4) the term "registered clearing agency" means a clearing agency, asdefined in Section 3(a)(23)(A) of the Exchange Act, that is registered with theSEC pursuant to Section 17A of the Exchange Act.(5) the term "settlementday" means any business day on which deliveries of securities and payments ofmoney may be made through the facilities of a registered clearing agency. (f) Pursuant to the Rule 9600 Series, the staff, for good cause shown aftertaking into consideration all relevant factors, may grant an exemption from theprovisions of this Rule, either unconditionally or on specified terms andconditions, to any transaction or class of transactions, or to any security orclass of securities, or to any person or class of persons, if such exemption isconsistent with the protection of investors and the public interest.
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