**GAO-09-483**                      Published: May 12, 2009. Publicly Released: Jun 03, 2009.                  

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## Highlights

The Securities and Exchange Commission (SEC) adopted Regulation SHO to, among other things, curb the potential for manipulative naked short selling in equity securities. Selling a security short without borrowing the securities needed to settle the trade within the standard 3-day period, can result in failures to deliver (FTD), and can be used to manipulate (drive down) the price of a security. To further address this concern, SEC recently issued an order amending Regulation SHO. This report (1) provides an overview of Regulation SHO and related SEC actions, (2) discusses regulators' and market participants' views on the effectiveness of the rule, and (3) analyzes regulators' efforts to enforce the rule. To address these objectives, GAO reviewed SEC rules and draft industry guidance, analyzed FTD data, reviewed SEC and self-regulatory organization (SRO) examinations, and interviewed SEC and SRO officials and market participants.

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## Topics

Justice and Law Enforcement

Brokerage industryFederal regulationsFinancial analysisFinancial institutionsFinancial markets regulationFinancial regulationIndependent regulatory commissionsInternal controlsNoncompliancePolicy evaluationProgram abusesProgram evaluationRegulatory agenciesRequirements definitionSecuritiesSecurities regulationStandardsStandards evaluationStock exchangesTrade policiesTrade regulationPolicies and proceduresU.S. government securities