Regulation SHO Definition
A Little More on What is Regulation SHO
Regulation SHO serves to prevent traders from unethical practices in short selling. It establishes a “locate” and “close-out” standard for short-sale transactions. Locating means that a broker must verify that the short seller could borrow and deliver the equity to a purchaser at a future date. Closeout concerns the requirements associated with delivery (and failure of delivery) of the security.
Notably, Rule 201 of the regulation prevents short selling that intends to manipulate the securities share price. It prevents short selling of stock at impermissible prices if the stock has seen a 10% decrease. It serves to reduce the likelihood that short selling will further depress the price of a security that is decreasing in value.