PAIRING OFF

An illegal practice of a brokerage firm offsetting short and long positions between house accounts by collecting cash payments without physically delivering the securities.

Pairing off can occur only by brokerage firms colluding with one another. Proper settlement of short and long positions require the delivery of physical securities be made within three business days after the transaction. By settling these positions with cash payments, the brokerage firms are able to manipulate the market by trading non-existent shares and circumventing settlement regulations.