Jan. 10 at 9:08 AM
$SLS THE REG SHO "INFINITE LOOP": How
$SLS Can Stay on the List for Months (And Why It’s Still Bullish)
Everyone is watching the calendar. "Day 13 is coming! The SEC will force a buy-in!"
I hate to be the bearer of bad news, but if you think the SEC computer automatically buys 40 million shares on Day 14, you are mistaken. History is full of companies that sat on the Regulation SHO Threshold List for weeks, months, or even years.
Overstock (
$OSTK): 861 consecutive trading days.
Bed Bath & Beyond (
$BBBY): 79 consecutive calendar days.
Mullen (
$MULN.X): Multiple stints lasting weeks while diluting.
How is this legally possible if Rule 204 says they must close out fails? Because Wall Street doesn't follow the "Spirit" of the law; they follow the "Letter" of the law. And the letter has loopholes big enough to drive a truck through.
Here is the breakdown of the Three Mechanisms they use to dodge the 13-day forced buy-in.
1. The "Hot Potato" Reset (CNS Netting)
Regulation SHO Rule 204 applies to a Broker, not the Stock.
- The Rule: If Goldman Sachs (Broker A) has a Fail-to-Deliver (FTD) for 13 days, they must buy in.
- The Loophole: On Day 12, Goldman Sachs doesn't want to buy. So they "borrow" shares from Morgan Stanley (Broker B) or do a "sham transaction" to swap the position.
The Result:
- Broker A’s books show the position is "closed" (Clock resets to Day 0).
- Broker B now has a new Fail-to-Deliver that starts at Day 1.
- The Stock:
$SLS stays on the Threshold List because the aggregate fails in the system haven't changed—they just moved from one desk to another.
Think of it like a game of Hot Potato. As long as they keep tossing the toxic FTDs to a new broker before the music stops (Day 13), the game continues.
2. The "Market Maker" Exemption (Bona Fide Hedging)
This is the most abused loophole in the book. Market Makers (like Citadel or Virtu) have a special exemption in Reg SHO. They are allowed to short stock without borrowing it first if they are engaging in "Bona Fide Market Making".
The Scam: They claim they aren't "shorting" to drive the price down; they are shorting to "provide liquidity" to you.
The Execution: When a buy order comes in, they fill it by selling a naked share (creating an FTD). They claim this FTD is temporary and part of their "market making" duties.
The Delay: They can technically keep these fails open longer than a standard hedge fund because they argue that closing them would "disrupt the market."
3. The "Borrowed Reset" (The Payday Loan)
The Mechanism: Instead of buying shares on the open market (which pushes price up), they borrow shares from a willing lender (Reg SHO allows borrowing to satisfy the close-out).
The Trade-off: They satisfy the SEC requirement for today by delivering borrowed shares. But now they are paying (60 - 505%) interest on that borrow.
Why do it? Because buying shares might spike the price to
$10. Borrowing costs them cash, but keeps the price at
$3-4. They are choosing "slow bleeding" over "instant death."
What This Means for
$SLS
Does this mean the Reg SHO list is useless? No. It means the "13-Day Clock" is a Pressure Cooker, not a Light Switch.
In 2024: They could reset the clock for free (Low CTB).
Now: They can still reset the clock, but it costs them 60% - 505% Interest to do it.
We don't need the SEC to enforce the law. We just need the Cost of Corruption to become too high.
Every time they pass the "Hot Potato" (Reset), they have to pay a transaction fee.
Every time they Borrow to reset, they pay 60%+ interest.
Conclusion: Expect
$SLS to stay on the Reg SHO list for Day 14, Day 20, maybe even Day 30. Do not get discouraged.
Every day it stays on the list is proof that they cannot find real shares. They are just paying millions of dollars to juggle the same fake ones.
Not Financial Advice - Do your own research and dd.
