SEC Announces Charges against Four Former Clearing Firm Officials for Reg. SHO Violations
The SEC announced charges against four former officials at the clearing firm, Penson Financial Services ("Penson"), for their roles in Regulation SHO ("Reg. SHO") violations.
According to the SEC Orders, when Penson loaned securities held in customer margin accounts to third parties and the margin customers sold those securities, it waited until the settlement date (T+3) to recall the stock loans. Rule 204 under Reg. SHO ("Close-Out Requirement") required Penson to purchase or borrow sufficient shares to close out those failures to deliver no later than at the beginning of regular market hours on the sixth business day after the sale (T+6).
The SEC's Orders state that Penson's securities lending personnel knew about Reg. SHO's close-out requirements but determined not to comply and instead allowed the firm-level failures to deliver to persist often until T+6.