According to Regulation SHO, enacted in 2005, self-regulatory organizations, for example stock exchanges, are required to publish lists for threshold securities, stocks that rank high in trade-settlement failures. Regulation SHO was enacted by the US Securities and Exchange Commission to prevent "naked short selling", short selling of a stock without first borrowing the shares or making sure the shares can be borrowed.
Definition of Threshold Securities
Threshold securities are defined by SEC as stocks that "fail to deliver position for five consecutive settlement days at a registered clearing agency, totaling 10,000 shares or more and are equal to at least 0.5% of the issuer's total shares outstanding."US Securities and Exchange Commission: FAQ Concerning Regulation SHO
Short Selling
Regular short selling is when the seller first borrows a stock share, sells it and then buys it back, hopefully at a lower price, before returning it. If the stock declines in value, the seller makes a profit. According to Regulation SHO, a short sale order cannot be accepted without the seller having borrowed the shares, a situation which is commonly referred to as naked short selling.
References
Fast Facts
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Fact:
Self-regulatory organizations publish their own SHO Threshold Lists
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Fact:
Required to publish them daily
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Fact:
Regulation SHO became effective on September 7, 2004
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Fact:
Market participants were required to comply with SHO starting January 3, 2005
