In 1993, the U.S. Securities and Exchange Commission approved a new section of the Uniform Practice Code (UPC) requiring FINRA members to close out short sales in NASDAQ® securities that meet a certain clearing short position threshold. Both NASDAQ National Market® and NASDAQ Small Cap Market securities can be restricted under UPC 11830. Under the rules, the short seller's broker/dealer must close out short sale of specific securities 10 days after normal settlement date if delivery of security has not accrued and the transaction is not exempt. Securities subject to close-out requirement are those with an aggregate "clearing" short position of 10,000 shares or more that equals or exceeds one half of one percent of the total shares outstanding. The FINRA will identify these securities daily based on data from National Securities and Clearing Corporation and compile a "restricted list." Any subsequent short-sale transaction in a security on the list that is not completed by delivery of shares within the prescribed time frames will be subject to mandatory close-out if a "fail-to-deliver" situation exists 10 days after normal settlement date.

The rule applies to customer and proprietary short sales, but exempts "bona fide" market making activities and short sales that results in a "bona fide" fully hedged or arbitraged position. For more information, please see FINRA Notice to Members 93-53.