Reg SHO Threshold List: What It Means for Short Sellers
A stock lands on the threshold list when shares owed at settlement keep failing to arrive. Rule 203 sets the size test, the five-day count, and a forced close-out for fails that run on too long.
Definition
Reg SHO threshold list: A daily list of equity securities whose aggregate fail to deliver position at a clearing agency has stayed at 10,000 shares or more and at least 0.5% of shares outstanding for five consecutive settlement days.
Also called Threshold securities list, Threshold security.
The Reg SHO threshold list is a daily list of stocks where delivery keeps failing. Under SEC Regulation SHO Rule 203, an equity security becomes a threshold security when the aggregate fail to deliver position at a registered clearing agency totals 10,000 shares or more, and also equals at least 0.5% of the issue’s total shares outstanding, for five consecutive settlement days, and a self-regulatory organization includes it on a list it disseminates. Both size tests. Every one of the five days.
The rule covers issuers registered under section 12 of the Securities Exchange Act, along with issuers required to file reports under section 15(d). Exchanges publish their threshold lists daily.
What a fail to deliver is
A trade settles when the seller hands over shares and the buyer hands over cash. A fail to deliver is the seller’s half going missing. Settlement date arrives and the shares do not.
That can happen for ordinary reasons. Shares sit in the wrong account, a transfer runs late, or a short seller’s borrow falls through. A one-day fail is routine plumbing. A fail position that keeps rolling forward day after day, large enough to clear both size tests, is the thing Rule 203 is built to catch.
The count runs on the total position at the clearing agency, summed across every participant firm. One big fail can get a stock there. So can a lot of small ones added together.
The two size tests
Rule 203 sets a floor of 10,000 shares and a proportional test of 0.5% of total shares outstanding, and the fail position has to clear both, which means that for any given stock only one of them is really doing the work and the other is already satisfied.
Which one? It depends on the share count. Half a percent of 2,000,000 shares is 10,000, so at exactly that size the two tests meet. Below it, the 10,000 floor is the higher bar. Above it, the percentage is.
A few quick sums make the point.
| Shares outstanding | 0.5% of shares outstanding | Fails needed each day |
|---|---|---|
| 1,000,000 | 5,000 | 10,000 |
| 2,000,000 | 10,000 | 10,000 |
| 8,000,000 | 40,000 | 40,000 |
For a small issuer, the floor keeps tiny fails off the list. For a large one, a fail of 10,000 shares is a rounding error against the share count, and the 0.5% test lifts the bar accordingly.
Getting on the list and coming off
Five consecutive settlement days at or above the level puts a stock on. A single day below the level breaks the run, and the count starts over.
Coming off works the same way in reverse. A security stops being a threshold security once the fail position does not exceed the threshold level for five consecutive settlement days. One bad day in the middle of that stretch resets it, so a stock whose fails dip and spike can sit on the list for a long time.
The 13-day close-out
If a clearing agency participant has a fail to deliver position in a threshold security for thirteen consecutive settlement days, Rule 203 says it must immediately close out that position by purchasing securities of like kind and quantity.
Immediately means the firm buys. No waiting for the fail to cure on its own.
There is a longer window in a narrow set of cases. Some grandfathered positions and some fails tied to hedging options positions get 35 consecutive settlement days. Those carve-outs are narrow, and whether a position fits one is a question for the firm carrying it.
Run the same numbers with 30,001 on day 26 and the exit run breaks there, so it starts again on day 27 and the earliest exit moves to after day 31. That single share is what the wording “does not exceed” turns on.
Where Rule 204 fits
Rule 203 is the threshold-list backstop. It sits on top of Rule 204, a separate part of Regulation SHO that sets close-out deadlines for fails in all equity securities, threshold list or no threshold list. A fail in a stock that never comes near the list still has a Rule 204 deadline. The 13-day rule adds a second, list-specific requirement for fails that persist in the stocks where delivery has already gone wrong repeatedly.
Why a short seller should care about the count
The close-out duty sits with the clearing firm. Still, a firm that has to buy in may look for the account behind the fail, and depending on the customer agreement, a short it can no longer keep borrowed could be the position that gets closed. You would not see the firm’s 13-day count from your side of the screen. You would see the result.
That is the uncomfortable part. A forced buy-in fills at whatever the market is offering on the day it happens, on a schedule set by a settlement count, with no regard for your stop or for how close the trade was to working. Holding a short in a threshold security means accepting that the exit date may not be yours to pick.
A buyer who is owed shares sits on the other side. The duty runs against the side that did not deliver.
What the list tells a trader
Being on the list says one thing: delivery in that security has failed, in size, for at least five settlement days running. It says nothing about where the price goes next.
What it can hint at is the lending side. Borrow may be tight in a stock that keeps failing, so it may also be hard to borrow, with a locate that costs more or never comes through. Check the borrow status on your own platform before assuming either way.
Don’t confuse the list with short interest. Short interest counts open short positions reported by brokers. The threshold list counts shares that were due at settlement and did not arrive, a different quantity drawn from a different source, and a stock can carry heavy short interest with clean settlement, or a big fail position with modest short interest, without either number contradicting the other.
The uptick rule is a third, separate piece of Regulation SHO. It is a price test triggered by a drop in the stock. A stock can be on the threshold list, under the uptick rule, both, or neither.
How to check a stock
Exchanges post their threshold lists each trading day. Search for the exchange’s Reg SHO threshold list page and look up the symbol.
The list shows the security. It does not show which firms are failing, or whose positions sit behind those fails. That part stays inside each broker.
Also asked
- Does a stock on the threshold list stop me from shorting it?
- The list itself does not ban short sales. Your broker still has to locate shares before accepting the order, and in a stock with persistent fails that locate may cost more or be refused.
- Can a stock come off the list and go back on?
- Yes. Leaving the list takes five consecutive settlement days at or below the threshold level, and a fresh run of five qualifying days puts it back on.
- Who has to do the close-out, the short seller or the firm?
- Rule 203 puts the duty on the clearing agency participant carrying the fail. That firm buys in the shares, and how the cost passes to the customer behind the position depends on the firm's agreements, so read your account terms.