What Is a Threshold List?

A threshold list, also known as a Regulation SHO Threshold Security List, is a list of securities whose transactions failed to clear during the previous trading days. Threshold lists are published in accordance with regulations set out by the Securities and Exchange Commission (SEC). Regulators review this information as part of their efforts to detect market manipulation.

Key Takeaways

  • A threshold list is a list of securities that failed to settle in the previous five trading days.
  • They are published by various exchanges in accordance with SEC regulations.
  • These settlement failures may be indicative of naked short selling, although they may also be caused by benign factors, such as administrative errors.

Understanding Threshold Lists

The SEC implemented Regulation SHO in Jan. 2005, in an effort to reduce naked short selling practices. This type of transaction consists of shorting shares that the trader does not in fact own. When naked short selling occurs, the associated transactions will often fail to clear, since the shares in question were never really in the trader's account. By requiring that these failed transactions are regularly reported on a threshold list, the SEC and other regulators can identify clues that naked short selling may have occurred.

Threshold lists can be freely accessed by the public through websites maintained by the Nasdaq Stock Market, (NASDAQ), the New York Stock Exchange (NYSE), the Better Alternative Trading System (BATS), and the Financial Industry Regulatory Authority (FINRA).

It is important to note, however, that there are also legitimate reasons why a particular trade may appear on a threshold list. In order to appear on a threshold list, the security must be registered with the SEC and have had five or more consecutive days of failed settlement. The failed settlements must also be of a size totaling 10,000 shares or more, or at least 0.5% of the security's shares outstanding. Securities that meet these criteria and are included on the list are known as threshold securities.

Although some of these failures may be due to naked short selling, they may also be due to mundane reasons, such as technical anomalies or human error. Therefore, the securities on the threshold list should not automatically be viewed with suspicion.

Example of a Threshold List

On Nov. 15, 2019, Nasdaq's threshold list revealed 12 threshold securities. Some examples from this list, which represent a range of industries and regions, include the following companies:

  • China Ceramics Co (CCCL), a $5 million Chinese manufacturer of ceramic tiles.
  • VTV Therapeutics (VTVT), a $95 million American biotechnology company.
  • Synthesis Energy Systems (SES), a $9.5 million American energy company producing synthesis gas.

Although the list does not specify the cause of the failed settlements, it does provide regulators with a starting point from which to research the source of the failures. Meanwhile, the NYSE has its own threshold list, which as of March 27, 2020, includes a number of stocks, including AMC Entertainment (AMC), GameStop (GME), and Blue Apron Holdings (APRN).