Short Sales, Selling Against the Box and Short Sale Restrictions – Florida Broker/Dealer and Investment Advisor FINRA Arbitration and Litigation Attorney

Short Sales, Selling Against the Box and Short Sale Restrictions:

Whether or not you are an investor, you have probably heard of the concept of short selling. The purpose of this post is to provide the reader with general educational information about this type of trading. Please keep in mind that any information contained herein is for educational purposes only and should not be considered as legal or investment advice. You should consult an experienced professional, if you have any questions concerning anything that you read on this page.

A short sale is the sale of a stock that an investor does not own or a sale which is consummated by the delivery of a stock borrowed by, or for the account of, the investor. Short sales are normally settled by the delivery of a security borrowed by or on behalf of the investor. The investor later closes out the position by returning the borrowed security to the stock lender, typically by purchasing securities on the open market.

Please keep in mind that the Securities and Exchange Commission and the Financial Industry Regulatory Authority rules place various restrictions on when you can sell short. Please make sure that you fully understand these rules before engaging in any form of short selling.

For example, in February 2010 the SEC adopted a new short sale price test restriction, which is commonly referred to as the “alternative uptick rule.” The alternative uptick rule is designed to restrict short selling from further driving down the price of a stock that has dropped more than 10 percent in one day compared to the closing price on the previous day.

Selling Short Against the Box:

A short sale against the box of a stock is where the seller actually owns the stock, but does not want to close out the position.

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