Thursday, June 4, 2009

GAO Issues Report on Regulation SHO

From the Highlights of Regulation SHO: Recent Actions Appear to Have Initially Reduced Failures to Deliver, but More Industry Guidance Is Needed
GAO-09-483 May 12, 2009

The Securities and Exchange Commission (SEC) adopted Regulation SHO to, among other things, curb the potential for manipulative naked short selling in equity securities. Selling a security short without borrowing the securities needed to settle the trade within the standard 3-day period, can result in failures to deliver (FTD), and can be used to manipulate (drive down) the price of a security. To further address this concern, SEC recently issued an order amending Regulation SHO. This report (1) provides an overview of Regulation SHO and related SEC actions, (2) discusses regulators’ and market participants’ views on the effectiveness of the rule, and (3) analyzes regulators’ efforts to enforce the rule.

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