The Reg SHO threshold list explained
The threshold list is a daily list of stocks where fails to deliver have built up for days on end. It is published under Regulation SHO, and a stock on it comes with a hard close-out deadline for the firms involved.
Fails to deliver
US stock trades settle one business day after the trade. A fail to deliver is a trade where the shares are not delivered by settlement. Fails are not necessarily the result of short selling, and the rules require them to be cleared quickly: Rule 204 of Regulation SHO requires clearing firms to close out a fail from a short sale by the start of trading on the day after settlement, by buying or borrowing the shares.
The SEC publishes fails-to-deliver data, but the figures are running balances rather than new fails each day, so the age of a fail cannot be read from them.
How a stock gets on the list
A stock becomes a threshold security when, for five consecutive settlement days, the aggregate fail to deliver position at a registered clearing agency is 10,000 shares or more and equal to at least 0.5% of the company’s total shares outstanding — and a self-regulatory organisation includes it on the list it disseminates to its members. The rule covers the stocks of companies that report to the SEC.
Each listing market publishes the list for the stocks whose primary listing it holds — a stock listed in more than one place appears only on its primary market’s list — and FINRA publishes the list for OTC stocks. The lists come out every trading day, before the next session opens, built from the fails data the clearing agency reports at the end of each settlement day.
The 13-day close-out rule
If a fail in a threshold security stays open for 13 consecutive settlement days, the clearing firm must immediately close it out by purchasing shares of like kind and quantity. Borrowing does not count here, as it does under Rule 204.
Until the fail is closed out, that firm — and any broker-dealer it clears for, market makers included — may not accept or make short sales in the stock without first borrowing the shares or arranging to borrow them. A stock that drops off the list before day 13 carries no such obligation.
Coming off the list
A stock stops being a threshold security once its aggregate fail position stays below the threshold for five consecutive settlement days, and its market keeps it on the daily list until then.
What the list does not tell you
The SEC is direct about this. Being on the list should not be read as anything negative about the company, and it does not necessarily mean there has been abusive naked short selling — fails also come from long sales and processing problems. Close-out purchases will not necessarily drive up the price, and Regulation SHO is not meant to cause short squeezes.
How long a stock has been on the list says nothing about where its price goes next.
In TickerRoom
The Reg SHO Scanner posts the daily list — additions, removals and how long each stock has been on it — so there is no raw file to compare by hand. /reg-sho list pages through the full list for any date.