Regulation SHO

Definition

Rules adopted by the Securities and Exchange Commission in 2005 to regulate the short sale of securities. The “locate” rule provides that before effecting a short sale in an equity security, a broker-dealer must borrow the security, enter into an agreement to borrow the security, or have reasonable grounds to believe that the security can be borrowed so that it can be delivered when due. The “close-out” rule requires clearing brokers to close out short positions in securities that have not been delivered for 10 consecutive days.