General Securities Sales Supervisor (Series10) Practice Exam

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What is the mandatory buy-in period for a security that is sold short and is not delivered on settlement under Rule 204 of Regulation SHO?

Opening on T+4
Closing on T+4
Opening on T+6
Closing on T+6

The correct answer is: Opening on T+4

Under Rule 204 of Regulation SHO, the mandatory buy-in period for a security that has been sold short and not delivered by the seller on settlement is particularly defined. A buy-in is a process where the lender of the securities can require the short seller to cover their position by purchasing the security in the market if it has not been delivered on the agreed settlement date. The correct answer, which states that the buy-in period opens on T+4, aligns with the regulatory requirements that stipulate that if a short sale does not settle by the settlement date (T+2), the buy-in must occur by T+4. This means that the seller is given until the morning of the fourth business day after the short sale to deliver the securities. If they have not delivered by that time, the mandatory buy-in process is initiated starting on that day. Understanding this rule is essential as it provides a framework to ensure market efficiency and that short selling obligations are fulfilled to prevent potential market manipulation and abuses associated with failure to deliver securities. This structure helps maintain the integrity of the market and protect investors.