Regulation SHO: Who Qualifies and What You Get
Understand the rules for short selling, including locate requirements and rules for high-volatility trading.
Regulation SHO is a set of rules designed to regulate short selling in the stock market.
Who it's for
This applies to traders who engage in short selling, which is the practice of selling a stock you do not currently own in hopes of buying it back later at a lower price.
What you get
You get a standardized set of rules that govern how short sales are executed. This includes requirements for "locating" a stock before you sell it and specific price tests that ensure short sales are conducted fairly.
What it costs you
While there is no direct government fee to follow these rules, you may face costs related to compliance. Specifically, you may have to pay broker fees to "locate" and borrow specific stocks, especially if they are considered hard-to-borrow.
The catch to know
There is an "alternative uptick rule" that you should be aware of. This rule can trigger during periods of high market volatility, changing the conditions under which you are allowed to execute a short sale.
How to apply
- Review the rules regarding short locates to ensure you can find the shares you intend to sell.
- Monitor market volatility to see if uptick rules are currently in effect.
- Confirm any borrowing fees with your broker before executing a trade.
- Visit the official portal for more details: https://www.sec.gov/investor/pubs/regsho.htm