What is the Threshold List
The threshold list is a daily public accounting of market settlement system failures (or "fails") published by securities exchanges in compliance with Securities and Exchange Commission (SEC) regulations. A market settlement failure occurs when delivery on a security is not made within the allotted settlement period.
Also referred to as the Regulation SHO Threshold Security List.
BREAKING DOWN Threshold List
According to the SEC, threshold securities are stocks that have a total "fail to deliver" position for:
1) five consecutive settlement days at a registered clearing agency (e.g., National Securities Clearing Corp.);
2) totaling 10,000 shares or more; and
3) equal to at least 0.5% of the issuer's total shares outstanding.
Securities on the threshold list are only issuers required to file reports with the SEC. If securities of issuers are not registered with the SEC, they would not be part of the threshold list.
The Rationale for the Threshold List
SEC's Regulation SHO establishes a framework to govern short sales. In a short sale, an investor sells a security he does not own and borrows the security from a broker-dealer to deliver to the buyer. The purpose of Regulation SHO is to reduce the number of failures to deliver by requiring broker-dealers to find a source of borrowable stock before executing a short sale on behalf of a client. The design of this rule is to minimize or eliminate abusive "naked" short selling that could be part of a scheme to manipulate the price of a stock. Note that the securities on the list should not automatically be regarded with suspicion, as there can be legitimate reasons for a delivery failure. For instance, an administrative error could delay delivery. The threshold list is published on a daily basis to provide transparency to securities that meet the criteria above. A threshold list is viewable on websites maintained by the Nasdaq Stock Market, New York Stock Exchange, Chicago Stock Exchange, BATS Exchange and FINRA.