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Definition of Threshold Securities

The self regulatory organizations (SROs) are responsible for the inclusion of securities on the threshold securities list. The SROs monitor reports from the National Securities Clearing Corporation (NSCC) to determine which securities meet the definition of a threshold security. The NSCC is the clearing intermediary through which clearing member firms reconcile their securities accounts A threshold security is an equity security that meets the following criteria:

  1. The security is registered under section 12 of The Securities Exchange Act of 1934
  2. There is an aggregate fail to deliver position at a clearing firm of 10,000 shares or more for five consecutive settlement days and such position represents 0.5% or more of the issuer’s outstanding securities
  3. The security has been included on the threshold securities list by an SRO and the list has been distributed by the SRO to its members

Applying "Threshold Securities" to Securities Exams:

A broker dealer who has a fail to deliver in a threshold security at a clearing firm for 13 consecutive settlement days must immediately close out the position by buying securities of a like kind and quantity. A broker dealer with a fail to deliver in a threshold security for 13 consecutive settlement dates may not accept an order to sell the security short from another person and may not sell the security short for its own account without having located the security until the fail to deliver has been closed out

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