2.8.4.1.3. Close-Out Requirements
Rule 204 states that broker-dealers must deliver the securities for their long or short sales on the settlement date. If a failure to deliver occurs, then the broker-dealer must “close out” its fail-to-deliver positions for long and short positions by the first business day following the settlement date.
If a participant can demonstrate that its failure to deliver resulted from a long sale, or if it relates to a bona fide market making activity in the over-the-counter market, close-out must be made by T + 5. If the fail is not closed out by the designated date, the broker-dealer is prohibited from any short sale activity in that security unless it first borrows the security or enters into a bona fide arrangement to borrow the security.
Regulation SHO and FINRA Rule 4320
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SEC Rule 204 Close-Out Requirements for Fail-to-Deliver Positions: Registered Clearing Brokers |
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Type of Position |
Must be Closed Out by: |
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Long or short sale of registered equity securities |
T + 3 business days |
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Sale | |