Imported from previous forum
[ original email was from Tom Vasak - tom.vasak@citi.com ]
In the current environment where regulators of equities markets are imposing constraints on short selling (naked and/or covered), we are looking at mechanisms within FIX that allow buy-side clients to specify that their equity order is covered by a lending agreement.
One option we see is:
- Using Tag 54 (side) = 5 sell short
- Using Tag 113 (LocateReqd) = Y/N
Where 54=5 and 113=Y, this would imply that the short sell is covered (at least if the receiving broker can locate the stock).
Where 54=5 and 113=N, this doesn’t disambiguate naked short selling from the case of covered short selling where the receiving broker does not need to provide stock borrow (i.e. seller has other lending agreement in place).
Is there another option? Tag 203 (CoveredOrUncovered) doesn’t appear applicable to cash equities.
–
Tom
Tom,
I cannot speak for the actual spirit of the recent short selling ban; I don’t know if simply submitting 54=5 and 114 (not 113 by the way) would satisfy the regulation.
Ideally, when shorting (let’s leave the naked scenario out for now) and having an agreement with a broker or two in place I would send:
54 = 5
114 = N
5700 = [broker who located]
This is a common implementation of Reg SHO.
If you get 114=Y, 5700 should not be required as you are now asked (required?) to provide the merchandise.
Tag 203 is indeed meant for Options, but maybe it could be “repurposed” in your environment?
I have seen a few cases where the customer simply states “covered short sell” in the text field.
–ws
In the current environment where regulators of equities markets are
imposing constraints on short selling (naked and/or covered), we are
looking at mechanisms within FIX that allow buy-side clients to specify
that their equity order is covered by a lending agreement.One option we see is:
- Using Tag 54 (side) = 5 sell short
- Using Tag 113 (LocateReqd) = Y/N
Where 54=5 and 113=Y, this would imply that the short sell is covered
(at least if the receiving broker can locate the stock).Where 54=5 and 113=N, this doesn’t disambiguate naked short selling
from the case of covered short selling where the receiving broker does
not need to provide stock borrow (i.e. seller has other lending
agreement in place).Is there another option? Tag 203 (CoveredOrUncovered) doesn’t appear
applicable to cash equities.–
Tom
One more update after looking at this further -
There were some discussions regarding the concept of affirmative determination. Generally, “affirmative determination” means that your client affirms the ability to borrow securities in good deliverable form within three business days. I brought this up a long time ago, see also here:
http://www.fixprotocol.org/discuss/read/87f2eaa5
Having said that, Instinet, at some point, had an option to send 54=7 to denote a short sell without affirmative determination, which sounds like a naked short to me. Therefore, 54=5 would imply the short is covered. This is of course a matter of agreement, and 54=7 is not actually intended for this purpose either.
–ws
Tom,
I cannot speak for the actual spirit of the recent short selling ban; I
don’t know if simply submitting 54=5 and 114 (not 113 by the way) would
satisfy the regulation.Ideally, when shorting (let’s leave the naked scenario out for now) and
having an agreement with a broker or two in place I would send:54 = 5 114 = N 5700 = [broker who located]
This is a common implementation of Reg SHO.
If you get 114=Y, 5700 should not be required as you are now asked
(required?) to provide the merchandise.Tag 203 is indeed meant for Options, but maybe it could be “repurposed”
in your environment?I have seen a few cases where the customer simply states “covered short
sell” in the text field.–ws
In the current environment where regulators of equities markets are
imposing constraints on short selling (naked and/or covered), we are
looking at mechanisms within FIX that allow buy-side clients to
specify that their equity order is covered by a lending agreement.One option we see is:
- Using Tag 54 (side) = 5 sell short
- Using Tag 113 (LocateReqd) = Y/N
Where 54=5 and 113=Y, this would imply that the short sell is covered
(at least if the receiving broker can locate the stock).Where 54=5 and 113=N, this doesn’t disambiguate naked short selling
from the case of covered short selling where the receiving broker does
not need to provide stock borrow (i.e. seller has other lending
agreement in place).Is there another option? Tag 203 (CoveredOrUncovered) doesn’t appear
applicable to cash equities.–
Tom
For your information, this is the document that FPL published which details the high-level mapping of changes that were made to FIX in order to comply with Regulation SHO: http://www.fixprotocol.org/documents/1004/FPL%20Americas%20REG%20SHO%20(2).pdf.
One more update after looking at this further -
There were some discussions regarding the concept of affirmative
determination. Generally, “affirmative determination” means that your
client affirms the ability to borrow securities in good deliverable
form within three business days. I brought this up a long time ago, see
also here:http://www.fixprotocol.org/discuss/read/87f2eaa5
Having said that, Instinet, at some point, had an option to send 54=7 to
denote a short sell without affirmative determination, which sounds like
a naked short to me. Therefore, 54=5 would imply the short is covered.
This is of course a matter of agreement, and 54=7 is not actually
intended for this purpose either.–ws
Tom,
I cannot speak for the actual spirit of the recent short selling ban;
I don’t know if simply submitting 54=5 and 114 (not 113 by the way)
would satisfy the regulation.Ideally, when shorting (let’s leave the naked scenario out for now)
and having an agreement with a broker or two in place I would send:54 = 5 114 = N 5700 = [broker who located]
This is a common implementation of Reg SHO.
If you get 114=Y, 5700 should not be required as you are now asked
(required?) to provide the merchandise.Tag 203 is indeed meant for Options, but maybe it could be
“repurposed” in your environment?I have seen a few cases where the customer simply states “covered
short sell” in the text field.–ws
In the current environment where regulators of equities markets are
imposing constraints on short selling (naked and/or covered), we are
looking at mechanisms within FIX that allow buy-side clients to
specify that their equity order is covered by a lending agreement.One option we see is:
- Using Tag 54 (side) = 5 sell short
- Using Tag 113 (LocateReqd) = Y/N
Where 54=5 and 113=Y, this would imply that the short sell is
covered (at least if the receiving broker can locate the stock).Where 54=5 and 113=N, this doesn’t disambiguate naked short selling
from the case of covered short selling where the receiving broker
does not need to provide stock borrow (i.e. seller has other lending
agreement in place).Is there another option? Tag 203 (CoveredOrUncovered) doesn’t appear
applicable to cash equities.–
Tom