§ 242.200Definition of “short sale” and marking requirements.
(a) The term short sale shall mean any sale of a security which the seller does not own or any sale which is consummated by the delivery of a security borrowed by, or for the account of, the seller.
(b) A person shall be deemed to own a security if:
(1) The person or his agent has title to it; or
(2) The person has purchased, or has entered into an unconditional contract, binding on both parties thereto, to purchase it, but has not yet received it; or
(3) The person owns a security convertible into or exchangeable for it and has tendered such security for conversion or exchange; or
(4) The person has an option to purchase or acquire it and has exercised such option; or
(5) The person has rights or warrants to subscribe to it and has exercised such rights or warrants; or
(6) The person holds a security futures contract to purchase it and has received notice that the position will be physically settled and is irrevocably bound to receive the underlying security.
(c) A person shall be deemed to own securities only to the extent that he has a net long position in such securities.
(d) A broker or dealer shall be deemed to own a security, even if it is not net long, if:
(1) The broker or dealer acquired that security while acting in the capacity of a block positioner; and
(2) If and to the extent that the broker or dealer's short position in the security is the subject of offsetting positions created in the course of bona fide arbitrage, risk arbitrage, or bona fide hedge activities.
(e) A broker-dealer shall be deemed to own a security even if it is not net long, if:
(1) The broker-dealer is unwinding index arbitrage position involving a long basket of stock and one or more short index futures traded on a board of trade or one or more standardized options contracts as defined in 17 CFR 240.9b-1(a)(4); and
(2) If and to the extent that the broker-dealer's short position in the security is the subject of offsetting positions created and maintained in the course of bona-fide arbitrage, risk arbitrage, or bona fide hedge activities; and
(3) The sale does not occur during a period commencing at the time that the NYSE Composite Index has declined by two percent or more from its closing value on the previous day and terminating upon the end of the trading day. The two percent shall be calculated at the beginning of each calendar quarter and shall be two percent, rounded down to the nearest 10 points, of the average closing value of the NYSE Composite Index for the last month of the previous quarter.
(f) In order to determine its net position, a broker or dealer shall aggregate all of its positions in a security unless it qualifies for independent trading unit aggregation, in which case each independent trading unit shall aggregate all of its positions in a security to determine its net position. Independent trading unit aggregation is available only if:
(1) The broker or dealer has a written plan of organization that identifies each aggregation unit, specifies its trading objective(s), and supports its independent identity;
(2) Each aggregation unit within the firm determines, at the time of each sale, its net position for every security that it trades;
(3) All traders in an aggregation unit pursue only the particular trading objective(s) or strategy(s) of that aggregation unit and do not coordinate that strategy with any other aggregation unit; and
(4) Individual traders are assigned to only one aggregation unit at any time.
(g) A broker or dealer must mark all sell orders of any equity security as “long,” “short,” or “short exempt.”
(1) An order to sell shall be marked “long” only if the seller is deemed to own the security being sold pursuant to paragraphs (a) through (f) of this section and either:
(i) The security to be delivered is in the physical possession or control of the broker or dealer; or
(ii) It is reasonably expected that the security will be in the physical possession or control of the broker or dealer no later than the settlement of the transaction.
(2) A sale order shall be marked “short exempt” only if the provisions of § 242.201(c) or (d) are met.
(h) Upon written application or upon its own motion, the Commission may grant an exemption from the provisions of this section, either unconditionally or on specified terms and conditions, to any transaction or class of transactions, or to any security or class of securities, or to any person or class of persons.
[69 FR 48029, Aug. 6, 2004, as amended at 72 FR 36359, July 3, 2007; 72 FR 45557, Aug. 14, 2007; 75 FR 11323, Mar. 10, 2010]
Title 17 published on 2012-04-01
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