What is Regulation SHO and why did the SEC introduce it?
“Proposed Regulation SHO would, among other things, require short sellers in all equity securities to locate securities to borrow before selling, and would also impose strict delivery requirements on securities where many sellers have failed to deliver the securities. In part, this action is designed to address the problem of “naked” short selling. Proposed Regulation SHO would also institute a new uniform bid test allowing short sales to be effected at a price one cent above the consolidated best bid.” That was the statement from the SEC when they proposed Regulation SHO. To the SECs credit at the time the proposed Regulation SHO addressed many shareholder and company concerns, put some teeth in short sale regulation and went after naked short selling abuses. Unfortunately, the Final Rule-Regulation SHO and the Proposed Rule-Regulation SHO were two entirely different documents. Wall Street complained, lobbied, whined, chastised and ultimately had all of the teeth removed from the rule
