The SEC announced that it will hold a roundtable on securities lending and short sale issues on September 29 (securities lending) and September 30, 2009 (short sales).  The public is invited to the roundtable on first come, first served basis, and the roundtable discussion will be available via webcast on the SEC website.  The SEC has posted an agenda for the roundtable.  Panelists, who are expected to include investors, corporate issuers, financial services firms, beneficial owner lenders, lending agents, borrowers of securities, self-regulatory organizations, international regulators, and the academic community, will be announced prior to the roundtable.  The SEC will accept comments regarding issues addressed in the roundtable discussion until October 30, 2009.

The SEC announced that it is reopening the comment period on amendments to Reg. SHO discussed in SEC Release No. 34 59748 (Apr. 10, 2009), in which the SEC proposed two approaches to restrictions on short selling: one that would apply on a market-wide and permanent basis and one that would apply only to a particular security during a severe market decline in the price of that security.  Although the comment period is reopened on all aspects of the April proposals, the current request for comment focuses on use of the alternative uptick rule, which would restrict short selling market-wide on an ongoing basis by allowing short selling only at a price above the current national best bid.  The reopened comment period continues through the 30th day following publication of the announcement in the Federal Register.

Goodwin Procter issued a Client Alert discussing the SEC’s recent action making Rule 204 of Regulation SHO permanent, eliminating Form SH filing obligations for institutional investment managers and announcing plans to make short sale transactions and volume information publicly available through SRO websites.

Below is a link to a Client Alert (”Short Sale Update: SEC Makes Rule 204 of Regulation SHO Permanent, Eliminates Form SH Filing Obligations and Announces Plans to Make Short Sale Transaction and Volume Information Publicly Available Through SRO Websites”) prepared by the Financial Services Practice.

http://www.goodwinprocter.com/~/media/679709CB52E6408B9FC7237C5F8A8EA3.ashx

The SEC adopted Rule 10b-21 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), substantially as proposed in March 2008 (see the March 25, 2008 Alert), and as included in the SEC’s emergency order of September 17, 2008 (see the September 18, 2008 Alert), which expired on October 17, 2008.  Rule 10b-21 is intended to address failures to deliver securities sold short that have been associated with “naked” short selling.  Rule 10b-21 forbids “any person to submit an order to sell an equity security if such person deceives a broker or dealer, a participant of a registered clearing agency, or a purchaser about its intention or ability to deliver the security on or before the settlement date, and such person fails to deliver the security on or before the settlement date.”  Scienter (as understood under the existing anti-fraud standard of Exchange Act Rule 10b-5) is required for a violation of the Rule.  Similar to Regulation SHO, the Rule applies only to equity securities. [Read more →]

The SEC adopted interim final temporary Rule 204T, which (1) prohibits clearing brokers from failing to deliver shares on both long and short sales by the settlement date and (2) imposes penalties on both clearing brokers and the broker-dealers who send them trades for clearance and settlement, including market makers, when a clearing broker does not close out failures to deliver on long and short sales within the timeframes specified in the interim final temporary rule. The interim final temporary rule is in effect an extension of temporary Rule 204T as adopted in the SEC’s September 17, 2008 Emergency Order (see the September 18, 2008 Alert for more detail on this Emergency Order), which expired October 17, 2008, but includes some modifications to address operational and technical concerns raised with respect to the temporary rule adopted in the September Emergency Order. [Read more →]

The SEC amended Regulation SHO to eliminate the options market maker exception to the Regulation’s close out provisions for threshold securities (as defined in the Regulation).  The October 17, 2008 effectiveness of this amendment made permanent the temporary repeal of this exception effected by the SEC’s September 17, 2008 emergency order (the “September Emergency Order”) (as discussed in the September 18, 2008 Alert), which expired on October 17, 2008.

The SEC adopted new interim final Rule 10a-3T under the Securities Exchange Act of 1934, as amended.  The interim final rule requires certain large institutional managers (i.e., those with $100 million or more in assets under management) to report to the SEC on Form SH their short positions in “13f” securities, other than options.  Rule 10a-3T is in effect an extension of the emergency order issued by the SEC on September 17, 2008 (the “September 17th Order”, as amended on September 21, 2008), which required managers to file non-public Form SH reports with the SEC regarding short positions in 13f securities and which expired at midnight on October 17, 2008.  Rule 10a-3T became effective on Saturday, October 18th, 2008 and will continue through August 1st 2009. [Read more →]

The staff of the SEC (the “SEC staff”) issued guidance providing that securities out on loan will be deemed to be owned by the lender for purposes of the SEC’s short sale regulations, and therefore can be sold long, if the lender issues a bona fide recall of those securities within two days of the sale. Prior to the guidance, lenders were concerned that they would not be deemed to own securities on loan for purposes of the various SEC short sale regulations, including Regulation SHO as amended by new Rule 204T, the SEC emergency short sale order banning short sales of financial stocks, and the new temporary Form SH short sale position reporting requirements. [Read more →]