Notice2026-09864
Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Adopt FINRA Rule 4321 (Allocations of Fail To Deliver Positions) and Amend FINRA Rule 4560 (Short-Interest Reporting)
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
May 18, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 95 (Monday, May 18, 2026)</title>
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[Federal Register Volume 91, Number 95 (Monday, May 18, 2026)]
[Notices]
[Pages 28699-28705]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-09864]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-105482; File No. SR-FINRA-2026-012]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Adopt
FINRA Rule 4321 (Allocations of Fail To Deliver Positions) and Amend
FINRA Rule 4560 (Short-Interest Reporting)
May 13, 2026.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on May 1, 2026, the Financial Industry Regulatory
Authority, Inc. (``FINRA'') filed with the Securities and Exchange
Commission (``SEC'' or ``Commission'') the proposed rule change as
described in Items I, II, and III below, which Items have been prepared
by FINRA. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to (1) amend FINRA Rule 4560 (Short-Interest
Reporting) to increase the frequency and granularity of the short
interest information collected and disseminated by FINRA, and (2) adopt
FINRA Rule 4321 (Allocations of Fail to Deliver Positions) to require
members to report to FINRA on a monthly basis their daily allocations
of fail to deliver positions to correspondent firms.
The text of the proposed rule change is available on FINRA's
website at <a href="http://www.finra.org">http://www.finra.org</a> and at the principal office of FINRA.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
FINRA is proposing amendments to improve the usefulness of the
short interest information reported to and published by FINRA, and to
improve FINRA's oversight of member compliance with SEC Regulation
SHO.\3\ Specifically, the proposed amendments would increase the
frequency and granularity of the short interest information reported to
FINRA pursuant to Rule 4560 and adopt new FINRA Rule 4321 to require
members to report to FINRA on a monthly basis their daily allocations
of SEC Regulation SHO Rule 204 \4\ fail to deliver positions to
correspondent firms, as further described below.
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\3\ 17 CFR 242.200-204.
\4\ 17 CFR 242.204. SEC Regulation SHO Rule 204 generally
requires broker-dealers to either deliver securities to the clearing
agency by settlement date (one business day after the trade date) or
the broker-dealer must close out the fail to deliver position by the
next settlement date (two business days after the trade date). If
the short position is not closed out, the broker-dealer and any
broker-dealer for which it clears transactions may not effect
further short sales in that security without borrowing or entering
into a bona fide agreement to borrow the security until the broker-
dealer purchases shares to close out the position (``pre-borrow
requirement'').
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I. Short Interest Reporting
Rule 4560(a) requires each FINRA member to maintain a record of
total short positions in all customer and proprietary firm accounts in
all equity securities (other than Restricted Equity Securities as
defined in Rule 6420) \5\ at the member and to regularly report such
information to FINRA in the manner prescribed by FINRA. The rule
provides that short interest reports must be received by FINRA no later
than the second business day after the reporting
[[Page 28700]]
settlement date designated by FINRA. The rule further specifies the
type of positions reportable to FINRA as short interest. Specifically,
Rule 4560(b) provides that members are required to record and report
all gross short positions existing in each individual firm or customer
account at the member, including the account of a broker-dealer, that
resulted from (1) a ``short sale'' as that term is defined in Rule
200(a) of Regulation SHO,\6\ or (2) where the transaction that caused
the short position was marked ``long,'' consistent with Regulation SHO,
due to the firm's or the customer's net long position at the time of
the transaction.\7\ FINRA aggregates the short positions reported by
members and publishes an industry-wide aggregate per security, free of
charge, on <a href="http://finra.org">finra.org</a>.\8\ FINRA is proposing the following changes to
its short interest reporting rules.
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\5\ ``Restricted Equity Security'' is defined in Rule 6420(k) as
``any equity security that meets the definition of `restricted
security' as contained in Securities Act Rule 144(a)(3).''
\6\ Rule 200 of SEC Regulation SHO provides that ``short sale''
means ``any sale of a security which the seller does not own or any
sale which is consummated by the delivery of a security borrowed by,
or for the account of, the seller.'' See Rule 200(a) of SEC
Regulation SHO, 17 CFR 242.200. SEC Rule 200 further provides, among
other things, that a person is deemed to own a security if: (a) the
person or his agent has title to it; (b) the person has purchased,
or has entered into an unconditional contract, binding on both
parties thereto, to purchase it, but has not yet received it; (c)
the person owns a security convertible into or exchangeable for it
and has tendered such security for conversion or exchange; (d) the
person has an option to purchase or acquire it and has exercised
such option; (e) the person has rights or warrants to subscribe to
it and has exercised such rights or warrants; or (f) the person
holds a security futures contract to purchase it and has received
notice that the position will be physically settled and is
irrevocably bound to receive the underlying security. See Rule
200(b) of SEC Regulation SHO.
\7\ Rule 4560(b) also specifies that members must report only
those short positions resulting from short sales that have settled
or reached settlement date by the close of the reporting settlement
date designated by FINRA.
\8\ See <a href="https://www.finra.org/finra-data/browse-catalog/equity-short-interest/data">https://www.finra.org/finra-data/browse-catalog/equity-short-interest/data</a>. FINRA publishes the aggregate short interest
data seven business days after the reporting settlement date. Such
publication includes, for each security: the reporting settlement
date, security name, security symbol, identity of the listing
exchange or indicates the over-the-counter market, the current
aggregate short interest position for the security, and information
regarding the change in the size of the short interest position
since the prior reporting settlement date. FINRA also provides
additional FINRA-calculated metrics for the security (the average
daily volume and a ``days to cover'' metric). ``Days to cover'' is a
FINRA-calculated metric representing the number of days of average
share volume required to buy all of the shares that were sold short
during the reporting cycle.
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A. Positions Resulting From ``Arranged Financing''
FINRA proposes to require reporting of additional position
information that reflects the kind of economic short interest sought to
be captured under Rule 4560--specifically, positions in each individual
firm or customer account at the member that results from arranged
financings, as further described below. As previously discussed,
currently, members' short interest reporting is limited to short
positions at the member that result from a ``short sale'' as defined in
SEC Regulation SHO or where the transaction that caused the short
position was marked ``long'' due to the member's or customer's net long
position at the time of the transaction. FINRA is proposing also to
require members to record and report to FINRA any position existing in
a customer account that resulted from a securities loan obligation in
connection with a customer's borrow of a security from a domestic or
foreign affiliate of the member, even where such position itself
neither resulted from a ``short sale,'' as described in Rule 4560(b)(1)
nor where the transaction that caused the short position was marked
``long,'' as described in Rule 4560(b)(2). In such instances, the
original short position, which typically resulted from a ``short
sale,'' has been replaced by the securities loan established through
the arranged financing program; nonetheless, the borrower remains
obligated to close the position in its account by purchasing shares to
satisfy the loan obligation. Therefore, the position, economically,
reflects the type of short interest that FINRA believes should be
captured by the rule to better represent short sentiment in the stock.
B. Timing and Frequency of Short Interest Data Reporting and
Dissemination
As stated above, FINRA Rule 4560(a) requires members to regularly
report short interest information to FINRA in such a manner as may be
prescribed by FINRA, and further provides for a two-business day
turnaround period such that the required reports must be received by
FINRA no later than the second business day after the reporting
settlement date designated by FINRA. Each calendar year, FINRA
publishes on its website a list of the relevant dates for its short
interest reporting program--specifically, all reporting settlement
dates for a calendar year (i.e., the dates on which short interest
positions must be captured), the short interest report due dates (i.e.,
the dates that are two business days after each short interest
settlement date), and the publication dates (i.e., the dates on which
the aggregate reports are made publicly available by FINRA on the FINRA
website).\9\
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\9\ See <a href="https://www.finra.org/filing-reporting/regulatory-filing-systems/short-interest">https://www.finra.org/filing-reporting/regulatory-filing-systems/short-interest</a>.
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FINRA is proposing to increase the frequency of both short interest
reporting under the rule and the subsequent public dissemination of
short interest data by (1) requiring members to submit short interest
reports on a weekly rather than a bi-monthly basis, and (2) reducing
the two business-day reporting turnaround period to one business day to
allow for a more streamlined and timely publication process for short
interest reports. If the proposed amendments are approved by the
Commission, FINRA will specify on its website a list of weekly short
interest reporting settlement dates, member reporting due dates (that
are one business day after the short interest reporting settlement
date), and the website publication date.
FINRA believes that these modifications--which together would allow
short interest data to be published weekly, five business days after
the reporting settlement date--would provide FINRA, other regulators,
investors, and other market participants with a more current view of
short interest information, better inform investors' and other market
participants' investment decisions, and provide more timely information
to FINRA for regulatory use, without substantially impacting the
quality of the data received and published by FINRA.
C. Short Interest Reporting for Securities With Deleted Symbols
FINRA is also proposing to amend Rule 4560 to ensure that FINRA
receives a final short interest report that includes short interest
position data for a security as of the last settlement date prior to
the deletion of its symbol by a self-regulatory organization (``SRO'')
(i.e., FINRA or a national securities exchange).\10\ Currently, if a
security no longer is assigned a security symbol as of a designated
short interest reporting settlement date, members do not include that
security in their reported short interest data (due to the absence of a
valid symbol on the date that short interest is assessed). To address
this data gap, FINRA is proposing to adopt Supplementary Material .01
under Rule 4560 to require that, where a symbol no longer exists on the
short interest reporting settlement date, members
[[Page 28701]]
must report their gross short positions in the security as of the last
settlement date for which a symbol was in effect. FINRA believes that
this proposed rule change would support the availability of more
complete information to regulators and market participants.
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\10\ A security may cease to be identified by a symbol for a
variety of reasons, including where the shares have been cancelled
by the issuer, the symbol has not been used for quoting or trading
for an extended period of time, or where the security no longer has
a valid CUSIP.
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D. Scope of Securities Subject to Short Interest Reporting Requirements
FINRA is proposing to clarify the scope of the securities that are
the subject of short interest reporting requirements. Currently, Rule
4560(a) applies to ``all equity securities (other than Restricted
Equity Securities as defined in FINRA Rule 6420).'' FINRA is proposing
to clarify that the rule applies to ``OTC Equity Securities,'' as
defined in Rule 6420,\11\ and securities listed on a national
securities exchange. These proposed amendments align with FINRA's short
interest reporting systems and existing reporting conventions (FINRA's
systems allow members to report short interest positions only in
securities that meet the definition of ``OTC Equity Security'' and
securities listed on a national securities exchange). Thus, the
proposal would not require members to make changes to their short
interest reporting.
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\11\ ``OTC Equity Security'' is defined in Rule 6420(f) as ``any
equity security that is not an `NMS stock' as that term is defined
in Rule 600(b)(47) of SEC Regulation NMS; provided, however, that
the term `OTC Equity Security' shall not include any Restricted
Equity Security.''
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II. Allocations of Fail To Deliver Positions--New Rule 4321
Rule 204 of SEC Regulation SHO \12\ generally requires that broker-
dealers either deliver securities to the clearing agency by the short
sale settlement date or close out the fail to deliver position on the
next settlement day. Under SEC guidance, a clearing firm is permitted
to reasonably allocate a portion of its fail to deliver position to a
correspondent firm based on that firm's activity (e.g., a clearing firm
with a 1,000 share fail to deliver position at a clearing agency in a
stock is permitted to allocate the 1,000 share fail (or relevant
portion thereof) to a correspondent firm whose activity is responsible
for the development of the fail position).\13\ If the clearing firm has
reasonably allocated the fail to deliver position to a correspondent
firm, the correspondent firm--rather than the clearing firm--must
comply with the requirements of Rule 204, including the pre-borrow
requirement, with respect to that position.
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\12\ 17 CFR 242.204.
\13\ SEC staff guidance states that: ``Rule 204(d) permits the
participant to reasonably allocate a portion of a fail-to-deliver
position to another registered broker or dealer for which it clears
trades or for which it is responsible for settlement, based on such
broker's or dealer's short position. If the participant has
reasonably allocated the fail-to-deliver position, the provisions of
Rule 204 relating to such fail-to-deliver position, including the
pre-borrow requirement, apply to such registered broker or dealer
that was allocated the fail-to-deliver position, and not to the
participant.'' See Division of Market Regulation: Responses to
Frequently asked Questions Concerning Regulation SHO, # 5.4 (October
15, 2015).
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FINRA reviews member compliance with Regulation SHO's Rule 204
close out obligations. However, because broker-dealers are not required
to report to FINRA when they have allocated a close out obligation to a
correspondent firm, FINRA is often unaware of which member bears
responsibility for a particular close out obligation under Rule 204.
Instead, when there has been a fail to deliver, FINRA requests
information on whether the fail to deliver has been allocated to a
correspondent firm and, if so, the identity of the correspondent firm.
Obtaining information from clearing firms on daily fail to deliver
allocations would allow FINRA to directly identify the member that is
responsible for a close out obligation without having to first request
this information from the clearing firm, thereby reducing
inefficiencies and potential delays in FINRA's surveillance and
reviews.
Therefore, FINRA is proposing to adopt new Rule 4321 to require
member clearing firms to submit to FINRA on a monthly basis a report of
their daily allocations of fail to deliver positions to correspondent
firms pursuant to Rule 204 of SEC Regulation SHO.\14\ Under new Rule
4321, members that have allocated fail to deliver positions would be
required to report, in the form and manner prescribed by FINRA, the
following information for each allocation:
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\14\ Allocation reports would be due 10 business days after the
end of each month. The information provided in the allocation report
would be used only for regulatory purposes and would not be publicly
disseminated.
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<bullet> Security name and symbol;
<bullet> Identity of the correspondent firm to which the fail was
allocated;
<bullet> Number of shares of the fail that are allocated to the
correspondent firm;
<bullet> Settlement date on which the allocated fail developed;
<bullet> Allocation date; and
<bullet> Other information specified by FINRA.
FINRA believes that the proposed rule change would provide FINRA
with important information in support of its SEC Regulation SHO
compliance program.
If the Commission approves the proposed rule change, FINRA will
announce the effective date of the proposed rule change in a Regulatory
Notice.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\15\ which requires, among
other things, that FINRA rules be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest.
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\15\ 15 U.S.C. 78o-3(b)(6).
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FINRA believes that the proposal to require members to report as
short interest outstanding stock borrows by customers in their arranged
financing programs would improve transparency about short interest
positions and better reflect short sentiment in a stock. FINRA believes
that the proposal to increase the frequency of reporting under Rule
4560, and subsequent public dissemination, of short interest
information would provide a more current view of short interest
information, better inform investors' and other market participants'
investment decisions, and provide more timely information to FINRA for
regulatory use. FINRA also believes that the proposal to require
members to report to FINRA the final short interest position in any
security whose symbol has been deleted by an SRO would provide
additional valuable information to regulators and investors. FINRA
further believes that the proposal to limit the scope of Rule 4560 to
OTC Equity Securities and securities listed on a national securities
exchange is appropriate and consistent with the Act in that it provides
for greater clarity with respect to members' existing obligations.
Finally, FINRA believes that the proposal to adopt new Rule 4321 to
require member clearing firms to submit to FINRA on a monthly basis a
report of their daily allocations of fail to deliver positions to
correspondent firms would improve regulatory efficiency and support
FINRA's oversight for member compliance with SEC Regulation SHO,
consistent with the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
[[Page 28702]]
Economic Impact Assessment
FINRA has undertaken an economic impact assessment, as set forth
below, to analyze the potential economic impacts, including anticipated
costs, benefits, and distributional and competitive effects, relative
to the current baseline, and the alternatives FINRA considered in
assessing how to best meet its regulatory objectives. The economic
impact assessment is organized into three separate sections covering
the frequency and timing of short interest reporting, changes to the
data collected, and reporting of allocations of fail to deliver
positions.
The proposed short sale-related reporting enhancements would
provide greater transparency regarding short sale activity.\16\
Generally, providing additional data furnishes market participants a
more complete view into the level of short interest in a particular
security and in aggregate across reporting firms. This may allow market
participants to better evaluate investment opportunities, encourage
greater market participation, and accelerate the incorporation of
potentially relevant information into price formation processes. These
enhancements and the proposed fail to deliver allocation reporting also
would allow FINRA to monitor more efficiently for compliance with
Regulation SHO.
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\16\ On October 13, 2023, the SEC adopted Exchange Act Rule 10c-
1a to increase the transparency and efficiency of the securities
lending market by, among other things, requiring covered persons to
report information about securities loans to a registered national
securities association (``RNSA''). See Securities Act Release No.
98737 (October 13, 2023), 88 FR 75644 (November 3, 2023) (File No.
S7-18-21) (Reporting of Securities Loans). On December 3, 2025, the
SEC issued a temporary exemption, pursuant to Section 36(a)(1) of
the Exchange Act, from compliance with SEA Rule 10c-1a to allow time
for the staff to consider potential changes to the proposal. See
Securities Exchange Act Release No. 104303 (December 3, 2025), 90 FR
56813 (December 8, 2025).
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At the same time, increasing transparency could create concerns
regarding potential disincentives for short selling. As short selling
is an important mechanism for incorporating negative information into
prices, such an outcome could reduce price efficiency. To the extent
that short selling provides liquidity to the market, changes in short
selling behavior could impact liquidity. The balance of these
incentives determines the primary market impact of the proposal.
Content of Short Interest Data
Loan Obligations Resulting From Arranged Financing
Loan obligations resulting from arranged financing are economically
equivalent to short interest positions but are currently not reported
as short interest and therefore are not available in the short interest
data to market participants nor to FINRA. Expanding the short interest
reporting requirement to capture loan obligations resulting from
borrowing shares through an arranged financing program would more fully
reflect short sentiment, thus allowing FINRA, market participants and
investors to more comprehensively understand market activity.
FINRA members would incur upfront costs associated with making
systems changes required to identify these loan obligations (including
sourcing information from affiliates as needed) for purposes of
including this information in reported short interest. Following the
upfront process and systems costs to facilitate reporting this
information, FINRA anticipates that the ongoing cost of including loan
obligations resulting from arranged financing in reported short
interest is expected to be minimal as firms currently incur costs for
existing short interest reporting.
FINRA understands the primary motivation for customers to use
arranged financing is to obtain increased leverage rather than to avoid
short interest reporting. To the extent this is true, this would limit
incentives to shift lending to non-FINRA members, including banks.
FINRA also understands that, although it is possible for customers to
obtain short exposure to a security through other means, it would be
impractical for entities other than affiliates of FINRA members to
offer a service substantially similar to arranged financing as
discussed in the proposed rule change.
Short Interest Reporting for Deleted Symbols
Given the current timeframe for reporting short interest to FINRA,
FINRA may not receive a short interest report that includes data for a
security that recently was no longer identified by an SRO-issued
symbol. Receiving a final short interest report in such a security
would allow FINRA to more efficiently monitor for compliance with
Regulation SHO.
FINRA estimates that 2,426 equity securities ceased to be
identified by an SRO-issued symbol in 2025, of which 722 were exchange-
listed equity securities and 1,704 were OTC equity securities. Of these
2,426 equity securities, 1,122 (46 percent) had outstanding short
interest positions as of their last short interest reporting date. For
these securities, the average time between the last short interest
reporting date and the last settlement date for which a symbol existed
was eight days.
FINRA does not expect that firms would incur substantial costs
associated with reporting this information because it would be a
continuation of the same data that they are required to report for
securities, although they may need to make an upfront system or process
change in order to report their gross short positions in the security
as of the last settlement date for which a symbol was in effect.
Frequency and Timing of Short Interest Position Reporting and Data
Dissemination
Based on current reporting requirements as noted above, twice a
month FINRA disseminates aggregate short interest information seven
business days after the reporting settlement date. However, changes in
short interest for OTC and exchange-listed equity securities between
reporting settlement dates (and thus dissemination) can be fairly large
relative to the average daily trading volume \17\ and, currently, there
are no other sources of the short interest information that FINRA
produces available on a more frequent basis, free of charge to
investors generally and retail investors in particular.\18\
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\17\ For each short interest reporting date between January 2025
and December 2025, FINRA analyzed the change in each security's
short interest from the previous reporting date. On an average
reporting date, 11,323 exchange-listed equity securities experienced
changes in short interest. The median change in short interest for
these securities amounts to 25 percent of the average daily trading
volume but rises to 56 percent by the 75th percentile and 183
percent by the 95th percentile. During the same time period, an
average of 7,118 OTC equity securities experienced changes in short
interest each reporting date. The median change in short interest
for these securities amounted to 60 percent of the average daily
trading volume but rises to 1,170 percent by the 75th percentile and
157,032 percent by the 95th percentile.
\18\ A 2025 study finds that vendor-derived short interest
estimates explain only up to 67 percent of the variation in actual
short interest changes. See Yong Chen, Minjae Kim, John McInnis, and
Wuyang Zhao, Interest in the Short Interest: The Rise of Private
Sector Data, 42(4) Contemporary Accounting Research 2424-2457
(2025). In addition, the cost of this data is substantial and likely
unaffordable for most retail investors.
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Increasing the reporting frequency to weekly would provide FINRA
and market participants with more current short interest information.
More frequent information could accelerate the incorporation of
potentially relevant
[[Page 28703]]
information into price formation processes.
The costs associated with accommodating more frequent reporting
with a faster turn-around time depends primarily on firms' reliance
upon manual processes in collecting, validating and reporting short
interest.\19\ Many firms like[sic] rely on manual processes to
determine whether a short position is reportable, as well as to
validate and verify their short positions.
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\19\ A total of 86 firms reported short interest for at least
one security in 2025.
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It is possible that more frequent public disclosure of short
interest positions could discourage short selling, which is an
important mechanism for price efficiency and for liquidity
provision.\20\ However, the five-business-day turnaround time between
the reporting settlement date and the dissemination of short interest
information, combined with aggregation across all accounts, should
mitigate concerns about information leakage and the impact on liquidity
and make any such outcome less likely.\21\
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\20\ Two studies that looked at short interest reporting in the
European Union and Japan found that daily short interest reporting
of large individual positions reduced short selling. The study
looking at the European Union found that this reduction slowed down
the incorporation of new information into prices as measured by the
Hou and Moskowitz (2005) measure. It also found short reporting
increased the Amihud illiquidity measure, which is calculated as the
ratio of absolute value of daily stock returns to daily dollar
trading volume and intended as a rough measure of price impact,
although quoted spreads narrowed. The study looking at Japan did not
directly examine price efficiency or liquidity but finds that after
adopting the reporting regime, the remaining short selling became
less informed and short-term price volatility increased. However,
both studies examine reporting requirements with higher frequency
and less aggregation than the instant proposal. See Charles M.
Jones, Adam V. Reed & William Waller, Revealing Shorts: An
Examination of Large Short Position Disclosures, 29(12) The Review
of Financial Studies 3278-3320 (2016) and Truong X. Duong, Zsuzsa R.
Huszar & Takeshi Yamada, The Costs and Benefits of Short Sale
Disclosure, 53 Journal of Banking and Finance 124-130 (2015).
FINRA received comments expressing concern that increasing the
frequency of short interest reporting could have negative impacts on
liquidity because short sellers, a source of market liquidity, may
limit their activity if they believe reporting reveals their trading
strategies or allows others to trade in a way that is detrimental to
their interests.
\21\ Studies have suggested that, while increasing dissemination
speed beyond a certain point may discourage short selling, more
moderate increases in dissemination speed can offset negative
impacts. Kahraman (2020) finds that, at the same level of
aggregation as the instant proposal, increasing the short interest
reporting frequency from monthly to bimonthly more than offset any
negative impact on short selling activity by accelerating the
incorporation of the information into prices. See Bige Kahraman,
Publicizing Arbitrage: Impact of Mandatory Disclosures, Journal of
Financial and Quantitative Analysis, 56, 789-820 (2020).
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Information on Allocations of Fail To Deliver Positions
FINRA is proposing to require member clearing firms to submit to
FINRA on a monthly basis a report of their daily allocations of fail to
deliver positions to correspondent firms pursuant to Rule 204 of
Regulation SHO. Currently, when there has been a fail to deliver, FINRA
must contact the clearing firm to learn whether the firm has allocated
the fail to deliver to a correspondent firm and if so, to which
firm.\22\
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\22\ Across settlement dates in 2025, the median number of
equity securities with any outstanding fail to deliver positions was
5,261. A total of 158 firms reported at least one fail to deliver
position in 2025.
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Requiring clearing firms to submit on a monthly basis a report of
their daily allocations would allow FINRA to conduct more efficient
investigations as FINRA would be able to identify which member has the
close-out obligation directly from the reported information. Member
clearing firms may also benefit from freeing up resources used to
respond to inquiries about allocations to correspondent firms.
FINRA members that are participants of a registered clearing agency
would incur costs associated with establishing a process to report to
FINRA daily allocations to correspondent firms. These member firms may
seek to amend their contracts with correspondent firms to shift these
costs.
Alternatives Considered
FINRA considered requiring short interest to be reported on a daily
rather than weekly basis. While more frequent availability of
information could be useful to market participants and to FINRA for
regulatory purposes because it would provide information about short
positions at members with less delay, reporting data daily also would
place a larger burden on reporting firms and may raise concerns
addressed above regarding potential impacts on price efficiency and
liquidity.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
In June 2021, FINRA published Regulatory Notice 21-19 (``Notice'')
seeking comment on potential enhancements to its short sale reporting
program. These potential enhancements included (1) modifications to the
short interest reporting requirements in Rule 4560, (2) adoption of a
new rule to require participants of a registered clearing agency to
report to FINRA information on allocations to correspondent firms of
fail to deliver positions, and (3) other potential enhancements related
to short sale activity.\23\ FINRA received 2,227 comment letters in
response to the Notice. A copy of the Notice is available on FINRA's
website at <a href="http://www.finra.org">http://www.finra.org</a>. A list of the comment letters and
copies of the comment letters received in response to the Notice are
available on FINRA's website.\24\
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\23\ In the Notice, FINRA did not solicit comment on the
proposed rule changes discussed in Item 3 of this rule filing
regarding the reporting of final short interest positions for
securities with deleted symbols or the clarification of the scope of
the securities subject to the reporting requirements of Rule 4560.
\24\ See <a href="https://www.finra.org/rules-guidance/notices/21-19#comments">https://www.finra.org/rules-guidance/notices/21-19#comments</a>.
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In general, the commenters supported some aspects of the potential
enhancements and raised concerns with others. A summary of the comments
FINRA received that are related to the instant proposed rule change and
FINRA's responses are discussed below.\25\
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\25\ Some comments raised concerns regarding broader issues,
such as (1) more stringent regulation of naked short selling and
fails to deliver, (2) allowing shares to be borrowed only once and
limiting the total amount of shares held short to no more than the
security's float, (3) increasing enforcement penalties and fines,
(4) the potential conflict of interest when a market maker also runs
a hedge fund, (5) lack of transparency and manipulation in the
context of dark pools, (6) requiring settlement on trade date, (7)
preventing payment for order flow, and (8) requiring disclosure of
synthetic long positions. These comments are outside the scope of
the instant proposed rule change and therefore are not addressed
herein.
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1. Positions Resulting From ``Arranged Financing''
FINRA received comments regarding expanding short interest
reporting to require members to report as short interest outstanding
stock borrows by customers in their arranged financing programs through
which a customer borrows shares from the firm's domestic or foreign
affiliate and uses those shares to close out a short position in the
customer's account.
Several commenters supported reflecting loan obligations resulting
from arranged financing in reported short interest.\26\ Angel, Better
Markets,
[[Page 28704]]
and CFA Institute stated that the proposal would provide greater
transparency regarding short interest. In addition, individual
investors generally supported increased granularity of short interest
information.
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\26\ See letter from James J. Angel, Ph.D., CFP, CFA, Associate
Professor of Finance, Georgetown University, McDonough School of
Business, to Jennifer Piorko Mitchell, Office of the Corporate
Secretary, FINRA, dated September 30, 2021 (``Angel''); letter from
Joseph R. Cisewski, Senior Derivatives Consultant and Special
Counsel, Better Markets, Inc., to Jennifer Piorko Mitchell, Office
of the Corporate Secretary, FINRA, dated September 30, 2021
(``Better Markets''); letter from Kurt N. Schacht, CFA, CFA
Institute Head of Advocacy, and Stephen Deane, CFA, CFA Institute
Senior Director--Advocacy, to Jennifer Piorko Mitchell, Office of
the Corporate Secretary, FINRA, dated September 24, 2021 (``CFA
Institute''); letter from Jennifer W. Han, Chief Counsel & Head of
Regulatory Affairs, Managed Funds Association, to Jennifer Piorko
Mitchell, Office of the Corporate Secretary, FINRA, dated September
30, 2021 (``MFA''); letter from Melanie Senter Lubin, NASAA
President, Maryland Securities Commissioner, North American
Securities Administrators Association, Inc., to Jennifer Piorko
Mitchell, Office of the Corporate Secretary, FINRA, dated September
30, 2021 (``NASAA'').
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Three commenters opposed reflecting loan obligations resulting from
arranged financing in reported short interest.\27\ Credit Suisse stated
that this change could result in ``false positives'' and potential
duplication in the data reported. Fidelity stated that the change would
shift borrowing activity away from FINRA member arranged financing
programs to swaps dealers, custody banks, or off-shore entities that
are not subject to similar reporting requirements. FIF stated that
there would be a significant undertaking involved in reporting this
information and that the information is available from other sources
such as The Depository Trust Company. One commenter neither supported
nor opposed this aspect of the proposal but asked that FINRA consider
the challenges firms would face obtaining the information from their
affiliates in addition to the significant implementation challenges
before proceeding to require that firms provide arranged financing
information in short interest.\28\
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\27\ See letter from Michael E. Moran, Managing Director, Head
of US Public Policy, Credit Suisse Holdings (USA), Inc., to Jennifer
Piorko Mitchell, Office of the Corporate Secretary, FINRA, received
September 30, 2021 (``Credit Suisse''); letter from Michael Lyons,
Chief Financial Officer, National Financial Services LLC (submitted
by Fidelity Investments), to Jennifer Piorko Mitchell, Office of the
Corporate Secretary, FINRA, dated September 30, 2021 (``Fidelity'');
letter from Howard Meyerson, Managing Director, Financial
Information Forum, to Jennifer Piorko Mitchell, Office of the
Corporate Secretary, FINRA, dated September 29, 2021 (``FIF'').
\28\ See letter from Robert Toomey, Managing Director, Associate
General Counsel, and Joseph Corcoran, Managing Director, Associate
General Counsel, Securities Industry and Financial Markets
Association, to Jennifer Piorko Mitchell, Office of the Corporate
Secretary, FINRA, dated September 30, 2021 (``SIFMA'').
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After considering the comments received, FINRA has determined to
propose amendments to Rule 4560(b) to require members to report as
short interest outstanding stock borrows by customers in their arranged
financing programs. FINRA believes that including in FINRA's short
interest data these positions, as specifically defined in the proposed
rule change, would not be duplicative and would better reflect the
actual short sentiment in an equity security. Because the reporting
member has made available the arranged financing program to its
customers and the position is reflected on the member's books, FINRA
believes it is reasonable to require the member to identify these
positions and include them in reported short interest, as contemplated
in the proposal. FINRA also believes that the primary motivation for
customers to use arranged financing is to obtain increased leverage
rather than to avoid short interest reporting, which, to the extent
this is true, would limit incentives to shift lending to non-FINRA
members, including banks. FINRA further understands that, although it
is possible for customers to obtain short exposure to a security
through other means, it would be impractical for entities other than
affiliates of FINRA members to offer a service substantially similar to
arranged financing. FINRA continues to believe that requiring members
to include these positions will improve the completeness of reported
short interest information, and notes that this information is not
reasonably ascertainable elsewhere; therefore, requiring members to
report this information is reasonable and appropriate.
2. Frequency and Timing of Short Interest Position Reporting and
Dissemination
In the Notice, FINRA requested comment on potentially increasing
the frequency of short interest reporting and dissemination.
Specifically, FINRA stated that it was considering increasing the
frequency of short interest reporting and dissemination from bi-monthly
to weekly or daily. In addition, FINRA noted that it was considering
shortening the timeframe for members to submit short interest reports
and reducing the amount of time FINRA takes to process the collected
information so that FINRA could disseminate short interest data more
quickly.
Eight commenters supported increasing the short interest reporting
frequency to weekly, noting that it would be more feasible than daily
reporting while still increasing transparency, providing investors with
timely information, and preserving the confidentiality of individual
firm investment and trading strategies.\29\ FIF, however, raised
concerns, including regarding the feasibility of shortening the
timeframe for members to submit short interest position reports to
FINRA after the designated settlement date.
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\29\ See letter from Stephen John Berger, Managing Director,
Global Head of Government & Regulatory Policy, Citadel Securities,
to Jennifer Piorko Mitchell, Office of the Corporate Secretary,
FINRA, dated September 30, 2021 (``Citadel''); letter from Sarah A.
Bessin, Associate General Counsel, and Nhan Nguyen, Assistant
General Counsel, Investment Company Institute, to Jennifer Piorko
Mitchell, Office of the Corporate Secretary, FINRA, dated August 31,
2021 (``ICI''); letter from Paul Wilson, Managing Director, Global
Head of Securities Finance, Equities Data & Analytics, IHS Markit,
to Jennifer Piorko Mitchell, Office of the Corporate Secretary,
FINRA, dated September 30, 2021 (``IHS Markit''); letter from
Matthew R. Cohen, Chief Executive Officer, Provable Markets LLC, to
Jennifer Piorko Mitchell, Office of the Corporate Secretary, FINRA,
dated September 30, 2021 (``PML''); letter from Thomas M. Merritt,
Deputy General Counsel, Virtu Financial, Inc., to Jennifer Piorko
Mitchell, Office of the Corporate Secretary, FINRA, dated September
30, 2021 (``Virtu''); letters from CFA Institute, FIF and MFA.
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Angel, Better Markets, NASAA, and several individual investors
supported daily reporting and dissemination of short interest data.
Better Markets and NASAA suggested that, if necessary, there should be
a suitable delay in daily dissemination to allow firms to compile short
interest data. NASAA further stated that daily short interest data
currently can be purchased and therefore this data can be compiled
without undue burden. CFA Institute also asked that FINRA consider
daily reporting if daily short interest data already is available
through other means.
Five commenters opposed increasing the frequency of short interest
reporting.\30\ Credit Suisse, Fidelity, and SIFMA stated that such a
change would be operationally challenging and a significant cost burden
on firms. Nasdaq asked that FINRA undertake a rigorous analysis on the
frequency of reporting, and publish the results of that analysis,
before increasing the frequency of short sale reporting. T. Rowe Price
stated that more frequent short interest reporting would negatively
impact liquidity.
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\30\ See letter from Jeffrey Davis, Senior Vice President, North
American Regulation, Nasdaq, Inc., to Jennifer Piorko Mitchell,
Office of the Corporate Secretary, FINRA, dated October 13, 2021
(``Nasdaq''); letter from Mehmet Kinak, Global Head of Systematic
Trading & Market Structure, Philip Nestico, Head of U.S. Equity
Trading, and Jonathan Siegel, Senior Legal Counsel--Legislative &
Regulatory Affairs, T. Rowe Price, to Jennifer Piorko Mitchell,
Office of the Corporate Secretary, FINRA, dated September 20, 2021
(``T. Rowe Price''); letters from Credit Suisse, Fidelity and SIFMA.
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After considering the comments received, FINRA is proposing to
increase the frequency of short interest reporting and dissemination
from bi-monthly to weekly and to reduce the turnaround time for the
submission of the reports from two business days to
[[Page 28705]]
one business day following the designated settlement date. FINRA
believes that these changes best balance the goals of improving
transparency and the usefulness of short interest data for regulators
and market participants with the burden on firms to provide such
information on a more frequent basis and concerns regarding potential
impacts on liquidity. FINRA believes that firms' current reporting
processes are well-established and that, following the initial process
and systems adjustments, members will be able to report data on a
weekly basis using current systems. In addition, FINRA believes that
the aggregate nature of the published short interest data and the five-
business-day turnaround time between the date of the short interest
data and its dissemination would largely mitigate concerns regarding
potential information leakage and impacts on liquidity.\31\
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\31\ Some comment letters also discussed FINRA's oversight
program with regard to the accuracy and completeness of firms' short
interest reporting. These commenters state that FINRA's inquiries,
which require manual efforts, would further complicate weekly
reporting. FINRA notes that the referenced process appears to be
part of the ongoing oversight process to ensure that members are
reporting their short interest data in compliance with FINRA rules
and guidance. FINRA believes that these oversight efforts have been,
and will remain, important elements of FINRA's regulatory program.
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3. Allocations of Fails To Deliver Positions
FINRA also received comments with respect to the proposal to adopt
a new rule to require members to submit to FINRA a report of daily
allocations of fail to deliver positions to correspondent firms
pursuant to Rule 204(d) of SEC Regulation SHO. Angel, Better Markets,
CFA Institute, FIF, and NASAA supported the adoption of such a rule.
FIF stated that, subject to the manner and timing of implementation, on
balance, the benefits of the proposed rule could outweigh the costs.
NASAA indicated that the proposed rule would benefit investors by
adding efficiencies to FINRA's market oversight with minimal impacts on
firms, as well as possibly increase the likelihood that firms would
comply with their settlement requirements in a timely fashion.
Fidelity and SIFMA opposed FINRA adopting such a rule, stating that
the costs would outweigh the benefits and increase the potential for
reporting errors. Fidelity further stated that FINRA should eliminate
the proposed data field requiring the time period for the applicable
close out obligation as the introducing firm rather than the clearing
firm is responsible for this information.
Having considered comments received, FINRA continues to believe it
is appropriate to propose new Rule 4321 to require members to report to
FINRA on a monthly basis their daily allocations of fail to deliver
positions to correspondent firms. FINRA believes that allocations of
these positions by clearing firms is a common occurrence and that a
report of daily allocations of fail to deliver positions to
correspondent firms would provide valuable information in support of
FINRA's surveillance program for compliance with SEC Regulation SHO.
FINRA believes that routinely obtaining this information would allow
FINRA to conduct more efficient investigations and that the anticipated
costs of the proposal are appropriate in light of the expected
regulatory benefits. However, FINRA has, in response to comments,
revised the proposal to omit the data fields pertaining to the close
out date and the applicable close out obligation, since clearing firms
will not necessarily know this information.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#ef9d9a838ac28c8082828a819b9caf9c8a8cc1888099"><span class="__cf_email__" data-cfemail="96e4e3faf3bbf5f9fbfbf3f8e2e5d6e5f3f5b8f1f9e0">[email protected]</span></a>. Please include
File Number SR-FINRA-2026-012 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2026-012. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the filing will be available for inspection and copying at
the principal office of FINRA. Do not include personal identifiable
information in submissions; you should submit only information that you
wish to make available publicly. We may redact in part or withhold
entirely from publication submitted material that is obscene or subject
to copyright protection. All submissions should refer to File Number
SR-FINRA-2026-012 and should be submitted on or before June 8, 2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2026-09864 Filed 5-15-26; 8:45 am]
BILLING CODE 8011-01-P
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