U.S. Short Sale Requirements
A short sale is 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.
A person owns a security if he or she has title to it; has purchased it but not received it yet; owns a security convertible into it and has tendered it for exchange; has an option to purchase it and has exercised the option; has warrants or rights to subscribe to it and has exercised those warrants/rights; or holds a security futures contract to purchase it and has received notice that the position will be physically settled.
Naked short selling, where the seller does not own or has not arranged a "locate" or "pre-borrow" of the shares sold short, is prohibited. Misrepresenting the ability to deliver shares for a short sale is considered fraudulent behavior (Rule 10-b21).
Fails to deliver by a participant of a registered clearing agency that are not closed out within the timeframes specified in Reg SHO (Rule 204) will result in the broker dealer not being allowed to accept short sale orders without first having borrowed the security or entered into a bona fide arrangement to borrow the security.