Series 27: Short Sales Against The Box

Short Sales Against the Box

When investors go short “against the box,” it simply means that the investors have shorted shares that they already own and have no intention of delivering their own shares on the settlement date. This practice is called against the box, because the owned shares are kept protected in the owner’s custody, while the borrowed shares are being sold.

Regulation T treats short sales against the box as long sales for computing required margin. In other words, these transactions have no initial margin requirement. However, FINRA does impose a 5% maintenance margin requirement on the market value of the long position and requires the short position to be marked to the market.

Example: Jenny has 100 fully paid for shares of XYZ that she has held for several years. The current price of XYZ is $30 per