Market Making and Short Selling
Market makers routinely take short positions as part of managing inventory risk. When a market maker sells shares to a buyer but doesn't yet hold those shares in inventory, it creates a short position that must be covered. Regulation SHO governs the rules for market maker short positions, including locate requirements and close-out obligations.
Citadel's 2020 Short Sale Findings
Citadel Securities' 2020 regulatory record includes findings related to short-sale practices — specifically, failures to accurately report short-sale indicators and to close failure-to-deliver positions. These are documented regulatory findings from public records. The specific details are available in FINRA's public BrokerCheck system.
Reg SHO Market Maker Exception
Regulation SHO provides a limited exception for bona fide market-making activities, allowing market makers to short sell without a locate in specific circumstances. This exception is designed to facilitate legitimate market-making liquidity provision. However, the exception has limits and cannot be used for speculative short selling or to avoid close-out obligations.
Short Selling Transparency
Short interest data — the aggregate short positions in individual securities — is disclosed periodically through FINRA short interest reporting. Individual short sale transactions are marked on trade reports. This transparency allows investors and regulators to monitor short selling activity, including by market makers like Citadel Securities.