The Securities and Exchange Commission has granted a September 6 joint request for no-action relief submitted by the Financial Industry Regulatory Authority, the Chicago Board Options Exchange (CBOE) and C2 Options Exchange, Incorporated (C2, and together with the CBOE, the Exchanges) with respect to claiming credit for closing out a fail to deliver under Rule 204 of Regulation SHO (Rule 204) based on net purchases aggregated over multiple days. Pursuant to the requested relief, the SEC’s Division of Trading and Markets will not recommend enforcement action under certain circumstances with respect to multi-day pre-fail and post-fail credit under Rule 204.

Under Rule 204, participants in a registered clearing agency must deliver securities to a registered clearing agency for clearance and settlement on a long or short sale transaction in any equity security by the settlement date, or must close out a fail to deliver at a registered clearing agency in any equity security for a long or short sale transaction in that equity security by borrowing or purchasing securities of like kind and quantity. Such participants must close out a fail to deliver for a short sale transaction by no later than the beginning of regular trading hours on the settlement day following the settlement date, referred to as T+4. If any such participant has a fail to deliver that the participant can demonstrate on its books and records has resulted from a long sale, or is attributable to bona fide market-making activities by a registered market maker, options market maker or other market maker obligated to quote in the over-the-counter market, the participant must close out the fail to deliver by no later than the beginning of regular trading hours on the third consecutive settlement day following the settlement date, referred to as T+6.    

In its September 6 letter, the SEC indicated that its Division of Trading and Markets will not recommend enforcement action if FINRA and the Exchanges enforce compliance with Rule 204 consistent with an approach that would generally permit participants of a US registered clearing agency, or US registered broker dealers to which a participant allocated a fail to deliver position pursuant to Rule 204(d) of Regulation SHO, to claim credit for closing out a fail to deliver position at a registered clearing agency in any equity security prior to the applicable close-out date based on net purchases aggregated over multiple days.  

Click here to read the September 6 No-Action Request and Letter Granting Relief.