Lucky the Banker mascotLTB
← SIE: Trading & Settlement
SIE practice questionhardRegulation SHO

Under SEC Regulation SHO, before selling a stock short, a broker-dealer must:

  1. AObtain written permission from the stock's issuer
  2. BNotify FINRA at least 24 hours before the short sale
  3. CDeposit 100% of the sale proceeds in escrow
  4. DLocate shares that can be borrowed to deliver on settlement (locate requirement)✓ Correct answer
Explanation

Why D — Locate shares that can be borrowed to deliver on settlement (locate requirement)

Regulation SHO requires broker-dealers to have reasonable grounds to believe the security can be borrowed (located) for delivery by the settlement date before accepting a short sale order. This 'locate requirement' prevents naked short selling. Reg SHO also includes the close-out requirement, which mandates that fails to deliver must be closed out within specified timeframes. There is no requirement to get issuer permission, escrow funds, or notify FINRA in advance.

Turn it into reps

Reading one answer is not the same as being ready

Lucky the Banker is a free practice app with 1,867+ SIE questions, weak-area tracking, and timed mock exams. No credit card, no paywall.

Practice SIE freeSIE exam guide

Spot an error in this question or explanation? Tell us — we fix these fast.

Related Trading & Settlement questions