What Failure to Deliver Means
A 'failure to deliver' (FTD) occurs when a seller in a securities transaction does not deliver the shares to the buyer by the settlement date. Regulation SHO — a key SEC rule governing short selling — requires broker-dealers to close out FTD positions within specified time frames to prevent continued naked short selling. Persistent FTDs can suppress a stock's price and harm long shareholders.
Reg SHO Requirements
Reg SHO requires broker-dealers that have FTD positions in certain securities ('threshold securities') to close out those positions within specified periods. Failure to do so — and continued short selling without closing out — is a violation of Reg SHO. Regulators have brought actions against multiple firms over the years for Reg SHO violations, and Citadel Securities' 2020 regulatory record includes such findings.
Citadel's 2020 Findings
According to public sources documenting Citadel's 2020 regulatory record, the firm was cited for failing to close failure-to-deliver positions. This finding was among the multiple censures Citadel received that year. The fine associated with this and other 2020 conduct was part of the total of slightly less than $1 million in fines for 2020.
Why This Matters to Retail Investors
Persistent failure-to-deliver positions can artificially suppress the price of stocks, affecting shareholders and the integrity of price discovery. For retail investors who hold long positions in stocks with elevated FTD rates, a market maker's failure to close its FTD positions can be directly harmful. This is one reason Reg SHO's close-out requirements exist.