Final answer:
Prior to effecting a short sale, per REG SHO, a BD (Broker-Dealer) must take certain steps to comply with regulations.
Step-by-step explanation:
These steps include:
- Locating and borrowing the stock to be shorted.
- Marking the order as a short sale.
- Executing the short sale with a security that meets the requirements for it to be shorted.
These requirements are outlined in Regulation SHO (Reg SHO), which is a set of rules created by the Securities and Exchange Commission (SEC) to regulate short sales in the stock market.