When a securities broker accepts an order to sell shares on the spot market, the broker shall confirm whether the order quantity exceeds the aggregate sum of the balance of those securities deposited in the principal's depository account and the quantity of the principal's cash purchases of the securities executed the same day. If the order exceeds that sum, the securities broker also shall confirm that it has a sufficient quantity of the securities, for the broker to lend to the principal for settlement purposes in the event that the principal fails to complete an opposite purchase to close out the day trade.
Where the quantity of sold spot securities reported by the dealing department of a securities firm (securities trading account number: 000000-0) exceeds the aggregate sum of the balance of the securities in the depository account which it keeps and the quantity of cash purchases of the securities executed the same day, the securities firm shall confirm with the brokerage department that it has a sufficient quantity of the securities for transfer into the account for settlement purposes in the event that an opposite purchase to close out the day trade is not completed.
The sources of securities for lending or transfer out of the account by a securities broker as referred to in paragraphs 1 and 2 shall be limited to securities borrowed by said broker from a customer, proprietary securities transferred by the dealing department of said broker, or securities borrowed through securities lending business conducted by said broker; or securities borrowed from another securities broker that borrows the securities from its own customers, proprietary securities transferred by the dealing department of such other broker, or securities borrowed through securities lending business conducted by such other broker; and relent to the securities broker.
A public company's directors, supervisors, managerial officers, and greater than 10 percent shareholders (including their spouses, minor children, and any other persons in whose names they hold shares) may not borrow or lend stock of that public company under paragraphs 1 and 2 herein. Stock of that public company placed in trust by those persons also may not be lent.
The rate charged for lending of securities to cover a shortfall in securities deliverable in day trading under paragraphs 1 and 2 shall not exceed 7 percent of the closing price of the securities on the day of their sale. Subject to the shortfall in securities deliverable in day trading being made up, the securities firm may borrow from those with confirmed intent to lend, in ascending order of lending rate. A securities firm shall borrow from a customer first if the lending rate charged by the internal personnel of the securities firm is the same as that by the customer.