This question-specific review guide is tied to the answer reasoning for a PracticeTestVault item. Use it after you answer the question so the review stays focused on what the prompt actually tested.
What this question is testing
Objective: Short selling
Prompt focus: Under Regulation SHO, before executing a short sale a broker-dealer must generally:
Why the correct answer works
Have reasonable grounds to believe the security can be borrowed and delivered, a locate requirement
Correct. Regulation SHO requires a reasonable belief that the security can be borrowed and delivered, the locate requirement.
Why the tempting wrong answer fails
The tempting wrong answer usually loses because it skips the key condition, priority, or evidence in the prompt.
Plain-language takeaway
Regulation SHO imposes a locate requirement. Before effecting a short sale, the firm must reasonably believe the security can be borrowed so that delivery can be made, helping to prevent failures to deliver.
Simple analogy
Think of short selling like following a short checklist: identify the clue, confirm the rule, and then make the move that fits this exact scenario.
How to review it before a retake
- Underline the command word and name what the question is asking before rereading the choices.
- Compare the correct answer against the closest distractor and write the exact detail that separates them.
- Retest this objective with a fresh question without looking at the rationale first.