January 10, 2005 is the first day on which SROs will publish threshold lists. Until a security appears on a threshold list for 13 consecutive settlement days and an open fail position for such security exists for those days, Regulation SHO does not require a broker or dealer to close out the open fail position. Therefore, the first day on which a close-out action would be required is January 28, 2005.
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5. Close-Out and Pre-Borrow Requirements – Rule 203(b)(3)
Question 5.1: Does the close-out requirement apply to open fail positions in securities that exist prior to January 3, 2005?
Answer: The Adopting Release states that the requirement to close out fail to deliver positions in threshold securities that remain for 13 consecutive settlement days does not apply to any positions that were established prior to the security becoming a threshold security. (69 FR at 48018, and Rule 203(b)(3)(i)). On January 3, 2005, no securities will have been identified as threshold securities. Therefore, open fail positions in securities that exist prior to January 3, 2005 will not be required to be closed out under Regulation SHO. However, this does not affect the obligation of sellers of securities to deliver those securities to buyers under existing delivery and settlement guidelines.
As explained in Question 6.1, on January 3, 2005, the SROs will begin the calculations necessary to determine whether securities qualify as threshold securities. January 10, 2005 is the first day on which SROs will publish threshold lists. Until a security appears on a threshold list for 13 consecutive settlement days and an open fail position for such security exists for those days, Regulation SHO does not require a broker or dealer to close out the open fail position. Therefore, the first day on which a close-out action would be required is January 28, 2005. |
