7.2.1.3.2. Regulation SHO
The SEC’s Regulation SHO under the Securities Exchange Act of 1934 was enacted in 2004 to address the potential abuses of naked short selling. Naked short selling occurs when a short seller does not borrow or arrange to borrow the securities in advance of selling them. When sellers do not deliver the sold securities to buyers within the two-day settlement period, it is called a “failure to deliver.” When many sellers choose to naked short sell, the result can be many, many