Series 14: 2.8.4.1.3. Close-Out Requirements

2.8.4.1.3. Close-Out Requirements

Rule 204 states that broker-dealers must deliver the securities for their long or short sales on the settlement date. If a failure to deliver occurs, then the broker-dealer must “close out” its fail-to-deliver positions for long and short positions by the first business day following the settlement date.

If a participant can demonstrate that its failure to deliver resulted from a long sale, or if it relates to a bona fide market making activity in the over-the-counter market, close-out must be made by T + 5. If the fail is not closed out by the designated date, the broker-dealer is prohibited from any short sale activity in that security unless it first borrows the security or enters into a bona fide arrangement to borrow the security.

Regulation SHO and FINRA Rule 4320