The Securities and Exchange Commission on Wednesday hit Morgan Stanley with a $5 million penalty resulting from violations of Regulation SHO, the agency’s regulations governing short sales.
Reg SHO generally requires firms, including broker-dealers, to aggregate their positions in a security to determine if they are “long” or “short,” and that sales only be marked long when the seller is deemed to own the security being sold. The SEC cited this as a practical example: “If a broker-dealer has a long position of 1000 shares in ABC stock and one trading desk sells 500 shares of ABC, the broker dealer’s long position would decrease to 500 shares. Then, if a different trading desk sells 1000 shares of ABC, the broker-dealer would have a short position of 500 shares.”
