Series 7 Exam Question 228: Answer and Explanation

Question: 228

Regulation SHO covers

• A. margin requirements for municipal and U.S. government securities
• B. the short sale of securities
• C. margin requirements for commodities
• D. portfolio margining rules

Correct Answer: B

Explanation:

B. Regulation SHO covers the rules for short sales. Under SHO rules, all order tickets must be marked as short sale as compared to long sale, which is when an investor is selling securities that are owned. In addition, all brokerage firms must establish rules to locate, borrow, and deliver securities that are to be sold short. All brokerage firms must make sure that the security can be located and delivered by the delivery date prior to executing a short sale.