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ARTICLE · 18 SEPTEMBER 2008

SEC Issues New Rules To Combat Naked Short Selling Abuses

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On September 17th, the Securities and Exchange Commission (SEC) took three coordinated actions designed to combat “naked” short selling (i.e., a short sale where seller does not actually borrow the stock and fails to deliver it in time for settlement).

United StatesFinance and Banking
Michael Butowsky
Michael Butowsky
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Originally published September 17, 2008

Keywords: SEC, short selling, broker-dealer, options market maker, Rule 203(b)(3), Rule 10b-21, tick test

On September 17th, the Securities and Exchange Commission (SEC) took three coordinated actions designed to combat "naked" short selling (i.e., a short sale where seller does not actually borrow the stock and fails to deliver it in time for settlement). The SEC's actions will apply to the securities of all public companies and are effective at 12:01 a.m. ET on Thursday, September 18, 2008.

First, the SEC adopted, on an interim final basis, a new rule requiring a short seller's broker-dealer to deliver securities by the close of business on the settlement date (e.g., three days after the sale, or T+3, for equities). If a short sale violates this "close out" requirement, the short seller's broker-dealer will be prohibited from further short sales for all of the broker-dealer's customers (not just the original

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