Regulation SHO — Short Sale Regulation

Regulation SHO governs short selling in equity securities. It requires broker-dealers to have reasonable grounds to believe that the security can be borrowed before accepting a short sale order. The regulation also imposes close-out requirements for securities that have failed to deliver.

The rule includes a circuit breaker that restricts short selling when a stock has declined 10% or more from the prior day's close, preventing further downward pressure during periods of significant decline.