📈 What are the key rules governing short selling in the US stock market?

The key rules governing short selling in the US stock market are designed to ensure transparency, prevent market manipulation, and maintain liquidity. Here are the essential rules: 1. **Uptick Rule**: Also known as Rule 10a-1, this rule requires that a short sale can only be executed at a price higher than the last trade price. This rule is intended to prevent "bear raids" and to mitigate the downward pressure on stock prices caused by aggressive short selling. 2. **Regulation SHO**: Short Sale Regulation (Regulation SHO) was implemented in 2004 to update short-selling regulations that had remained largely unchanged since 1938. It specifically aims to curb naked short selling by imposing "locate" and "closeout" requirements. 3. **Locate Rule**: Under Regulation SHO, short sellers must locate securities to borrow before selling them. This ensures that the securities available for delivery at settlement are readily accessible, preventing failed deliveries and reducing the risk of naked short selling. 4. **Closeout Requirements**: Regulation SHO also imposes additional delivery requirements on broker-dealers for securities in which a substantial number of failures to deliver have occurred. This includes the requirement to close out short sale positions during a certain period if a failure to deliver occurs. 5. **Alternative Uptick Rule**: In 2010, the SEC adopted an "alternative uptick rule" that restricts short selling when a stock has dropped at least 10% in a day. This rule is triggered when the stock price is above the current best bid and aims to prevent excessive downward pressure on the stock. 6. **Reporting Requirements**: The SEC has implemented new rules requiring more detailed reporting of short-selling activities to enhance market transparency and protect investors. These rules are in place to maintain the integrity of the US stock market and prevent actions that could destabilize the market or harm investors. They require short sellers to have a reasonable belief that the security can be borrowed and delivered on a specific date before executing a short sale. Failure to comply with these rules can result in regulatory action against the broker-dealer or trader.