Replies to post #44353 on DD Support Board and Research Team

[used0000]

Thanks for the discussion, and info provided here by all.

[BigBake1]

My understanding is that the SEC requires them to settle such open short positions after 35 days on the market. You may sell short without delivery of the actual shares until the restricted legend is removed, but you or the broker will be on the hook come 35 days later after the initial sale to buy from the market. That is part of SEC rule 203:

Pursuant to the suggestions of other commenters, we are including an additional exception from the uniform locate requirement of Rule 203(b)(1) for situations where a broker-dealer effects a sale on behalf of a customer that is deemed to own the security pursuant to Rule 200, although, through no fault of the customer or the broker-dealer, it is not reasonably expected that the security will be in the physical possession or control of the broker-dealer by settlement date, and is thus a "short" sale under the marking requirements of Rule 200(g) as adopted.70 Such circumstances could include the situation where a convertible security, option, or warrant has been tendered for conversion or exchange, but the underlying security is not reasonably expected to be received by settlement date.71 Rule 203(b)(2)(ii) as adopted provides that in all situations, delivery should be made on the sale as soon as all restrictions on delivery have been removed, and in any event no later than 35 days after trade date, at which time the broker-dealer that sold on behalf of the person must either borrow securities or close out the open position by purchasing securities of like kind and quantity.72