A security will be placed on the threshold list if it has a significant fail to deliver position for at least 5 business days. The threshold qualifications are different for SEC reporting issuers and non-SEC reporting issuers (see definitions). Reporting companies are governed by Reg SHO and non-reporting companies are governed by Rule 4320.
Regulation SHO defines threshold securities as any equity security of an issuer that is registered under Section 12, or that is required to file reports pursuant to Section 15(d) and where, for five consecutive settlement days:
- there are aggregate fails to deliver at a registered clearing agency of 10,000 shares or more per security; AND
- the level of fails is equal to at least one-half of one percent of the issuer's total shares outstanding
FINRA Rule 4320 defines threshold securities as any equity security of an issuer that is not an SEC reporting security and, for five consecutive settlement days, has:
- aggregate fails to deliver at a registered clearing agency of 10,000 shares or more; AND
- a reported last sale during normal market hours (9:30 a.m. to 4 p.m., ET) for the security on that settlement day that would value the aggregate fail to deliver position at $50,000 or more.