On August 17, 2009, the SEC announced that it has reopened the comment period for its proposed "Amendments to Regulation SHO" for 30 days to allow additional feedback on the alternative uptick rule, an alternative short selling price test that would allow short selling only at a price above the current national best bid.
In its original "Amendments to Regulation SHO," proposed April 2009 in Securities Exchange Act Release No. 59748, the SEC proposed two approaches to restrictions on short selling: the "short sell price test," which would apply on a market-wide and permanent basis; and the "circuit breaker," which would apply only to a particular security during a severe market decline in the price of that security. The SEC also sought comment on the alternative uptick rule in its April 2009 proposal, including whether it would be preferable to the "short sell price test," and whether it would be more effective as a market-wide permanent price test restriction or in conjunction with the "circuit breaker" approach.
The SEC received almost 4,000 comments to its April 2009 proposal, and there was some evidence of support for the alternative uptick rule. As such, to ensure that investors and industry professionals have a full opportunity to comment on the alternative uptick rule, the SEC has published a supplemental request for comment specifically on the rule.
Click here for the SEC's complete notice of re-opening of the comment period and its supplemental request for comment.
Showing posts with label Regulation SHO. Show all posts
Showing posts with label Regulation SHO. Show all posts
Thursday, August 27, 2009
Tuesday, August 4, 2009
NEW SEC SHORT-SALE RULES ALREADY IMPACTING MAJOR STOCK EXCHANGES
On July 31, 2009, we briefly discussed the SEC's decision to make permanent its temporary Rule 204T, which attempts to curb short-sale abuses by strengthening the close-out requirements of Regulation SHO for failures to deliver securities resulting from investor short-selling in the securities market. As we noted, since the SEC's adoption of temporary Rule 204T, there has been a significant decline in the number of "failures to deliver" resulting from short-selling.
A recent article by the Wall Street Journal indicates that the SEC's permanent enactment of Rule 204T is already having an impact on the nation's largest stock exchanges. Specifically, "[b]oth NYSE Euronext (NYX) and Nasdaq OMX Group Inc. (NDAQ) are now aggregating daily company-by-company short-sale data on all trades that take place on their exchanges." According to the article, Nasdaq plans to eventually seek SEC approval to charge for this information, a request which seems clearly inconsistent with the SEC's purpose behind Rule 204T.
Our attorneys have more than two decades of combined experience in the areas of securities regulation and securities fraud litigation.
Click here to read the entire Wall Street Journal article.
A recent article by the Wall Street Journal indicates that the SEC's permanent enactment of Rule 204T is already having an impact on the nation's largest stock exchanges. Specifically, "[b]oth NYSE Euronext (NYX) and Nasdaq OMX Group Inc. (NDAQ) are now aggregating daily company-by-company short-sale data on all trades that take place on their exchanges." According to the article, Nasdaq plans to eventually seek SEC approval to charge for this information, a request which seems clearly inconsistent with the SEC's purpose behind Rule 204T.
Our attorneys have more than two decades of combined experience in the areas of securities regulation and securities fraud litigation.
Click here to read the entire Wall Street Journal article.
Friday, July 31, 2009
SHORT-SELLING GETS A LONG-TERM OVERHAUL
In an effort to curb abusive short sales and provide public investors with greater disclosure, the SEC made permanent the amendments contained within Interim Final Temporary Rule 204T of Regulation SHO. The temporary rule, enacted in 2008, was originally set to expire on July 31, 2009. However, due to the documented success of Rule 204T, the SEC decided to adopt the rule long-term with some minor modifications.
Short selling is a form of advanced trading whereby a trader essentially bets on the failure, at least in the short-term, of a company. In a typical scenario, an investor sells borrowed securities to a particular buyer for full ownership, with the intent to buy back equivalent shares once the price has declined. The seller then returns the equivalent shares to the lender, thus satisfying any obligations to the lender and profiting from the decline in share price.
In a second and more problematic scenario, an investor sells securities to a particular buyer without having first arranged to borrow the shares which the investor sold. In essence, the investor sells securities in which he or she has no rights with the hope that the investor will then be able to purchase equivalent securities at a diminished price prior to the clearing time period at which delivery to the buyer must be made. This type of trading is commonly known as “naked” short-selling.
Abusive short-selling, and particularly naked short-selling, has been of particular concern to the SEC in that the practice often results in a “failure to deliver,” whereby an investor is unable to deliver the shares he or she has borrowed or sold within the specified time frame. A “failure to deliver” can create a misleading impression of the market for investors, and can have the effect of depriving rightful shareholders of the benefits of ownership.
As such, in 2005 the SEC enacted Regulation SHO, which targets abusive “naked” short-selling by attempting to reduce failures to deliver. Rule 204T, adopted on a temporary basis in October 2008, strengthens the close-out requirements of Regulation SHO for failures to deliver securities resulting from investor short-selling in the securities market. The SEC’s permanent enactment of Rule 204T provides strong evidence of the SEC’s determination to tackle the problems associated with abusive short-selling.
Short selling is a form of advanced trading whereby a trader essentially bets on the failure, at least in the short-term, of a company. In a typical scenario, an investor sells borrowed securities to a particular buyer for full ownership, with the intent to buy back equivalent shares once the price has declined. The seller then returns the equivalent shares to the lender, thus satisfying any obligations to the lender and profiting from the decline in share price.
In a second and more problematic scenario, an investor sells securities to a particular buyer without having first arranged to borrow the shares which the investor sold. In essence, the investor sells securities in which he or she has no rights with the hope that the investor will then be able to purchase equivalent securities at a diminished price prior to the clearing time period at which delivery to the buyer must be made. This type of trading is commonly known as “naked” short-selling.
Abusive short-selling, and particularly naked short-selling, has been of particular concern to the SEC in that the practice often results in a “failure to deliver,” whereby an investor is unable to deliver the shares he or she has borrowed or sold within the specified time frame. A “failure to deliver” can create a misleading impression of the market for investors, and can have the effect of depriving rightful shareholders of the benefits of ownership.
As such, in 2005 the SEC enacted Regulation SHO, which targets abusive “naked” short-selling by attempting to reduce failures to deliver. Rule 204T, adopted on a temporary basis in October 2008, strengthens the close-out requirements of Regulation SHO for failures to deliver securities resulting from investor short-selling in the securities market. The SEC’s permanent enactment of Rule 204T provides strong evidence of the SEC’s determination to tackle the problems associated with abusive short-selling.
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