Regulation SHO – Definition

Cite this article as:"Regulation SHO – Definition," in The Business Professor, updated January 14, 2020, last accessed August 7, 2020, https://thebusinessprofessor.com/lesson/regulation-sho-definition/.

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Regulation SHO Definition

Regulation SHO is an administrative regulation promulgated by the SEC in 2005 to regulate the short sale of securities.

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.

References for “Regulation SHO

https://www.investopedia.com/terms/r/regsho.asp

https://www.sec.gov/investor/pubs/regsho.htm

https://financial-dictionary.thefreedictionary.com/Regulation+SHO

https://www.nasdaqtrader.com/Trader.aspx?id=RegSho

https://en.wikipedia.org/wiki/Locate_(finance)

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