On March 18, the staff of the Securities and Exchange Commission’s Division of Trading and Markets (Staff) issued three new frequently asked questions (FAQs) relating to Regulation SHO. The current guidance under FAQ 2.5 provides that where a seller is net long 1,000 shares and simultaneously enters multiple orders to sell 1,000 shares owned, only one such order would constitute a long sale. Any additional orders must be marked “short.” In new FAQ 2.5(A), the Staff clarified that the guidance in FAQ 2.5 is not limited to scenarios of simultaneous order entry. Specifically, the Staff states that FAQ 2.5 also applies to marking multiple orders that are entered in rapid succession. In addition, in new FAQ 2.5(B), the Staff reiterates that unexecuted orders to sell a security are presumed to decrease a seller’s net long position. To the extent that a member believes the guidance on marketing multiple orders in FAQ 2.5 does not apply to sale orders that have no realistic possibility of being executed, the Staff reminds such member to be prepared to demonstrate, upon request, that applicable sale orders are never or rarely executed.
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