Division of Trading and Market Offers Guidance on Sale of Loaned but Recalled Securities

If a person who has loaned a security to another person sells that security, and a bona fide recall is initiated within two business days, the sale should be treated as "long" for purposes of the SEC's recent emergency orders. According to the Division of Trading and Market Offers, the person who loaned the security would be deemed to own it for purposes of Rule 200(g)(1) and Rule 200(b) of Regulation SHO.

The sale would not be treated as a short sale for purposes of 1) new Form SH; 2) the orders halting short selling in financial stocks; or 3) Rule 204T concerning naked short-selling. Under the energency orders, a broker-dealer may mark such orders "long" and the close-out requirement for long sales under Rule 204T would apply to sales of such securities.

The guidance is available here.