5.11. Regulation SHO

The SEC originally created Regulation SHO to deal with abusive practices involving short selling (hence the name). Today, Regulation SHO also includes the close-out rules for both short and long sales that take place on an exchange.

A long sale occurs when the seller owns the security that is delivered at settlement. This is the most traditional form of trading transaction. A short sale occurs when an investor believes the price of a stock is going to drop, and tries to profit from this by borrowing shares (usually from a broker-dealer for a fee)