July 30, 2009
On July 27, 2009, the Securities and Exchange Commission took several actions relating to short selling in anticipation of the expiration of interim final temporary Rules 10a-3T under the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 204T of Regulation SHO. The full text of the press release can be found here. The most significant development is that, after July 31, 2009, institutional investment managers will no longer be required to report short sale and short position information to the SEC on Form SH. The following is a summary of the SEC’s actions.
Expiration of Short Sale and Short Position Reporting
In October 2008, the SEC adopted interim final temporary Rule 10a-3T, which requires certain institutional investment managers to make disclosures on temporary Form SH concerning their short sales of and short positions in Exchange Act 13(f) securities (other than options). The Commission will let the rule expire this Friday, July 31.
We have confirmed with the SEC staff that institutional investment managers subject to Rule 10a-3T will file their last Form SH with the Commission on July 31, 2009 for short sales and short positions effected during the calendar week beginning July 19, 2009.
New Public Disclosure of Short Sale Data
In lieu of retaining Rule 10a-3T, the SEC is working with several self-regulatory organizations ("SROs") to increase the amount of publicly available information about short sales and fails to deliver. In particular, the SEC expects that the following information will be published within the next few weeks:
September Roundtable on Short Sale Transparency
The SEC is considering whether additional measures are needed to increase market quality and transparency, particularly in connection with short selling activity. Accordingly, the Commission will hold a public roundtable on September 30, 2009, and is in the early stages of determining potential panelists, who will include representatives of investors, issuers, financial services firms, SRO and academics.
General topics of discussion are expected to include:
As with prior SEC roundtables, there likely will be an opportunity to submit comment letters on these topics in advance of the meeting.
Rule 204 of Regulation SHO to Be Permanent Effective July 31
On July 31, 2009, Rule 204 becomes a permanent rule. The Commission’s action was largely expected in light of consistent staff comments, including recent remarks by James A. Brigagliano, Co-Acting Director of the SEC’s Division of Trading and Markets (the "Division"), before the Security Traders Association on May 5, 2009, regarding Rule 204T’s effectiveness in reducing fails to deliver.
The SEC modified Rule 204 only slightly, including by:
The Commission declined to exempt securities other than debt securities, but said it will consider on a case-by-case basis whether the provisions of Rule 204 and Regulation SHO more generally, should apply to particular securities, including various structured products.
No Decision on a Price Test or Circuit Breakers
In April 2009, the SEC published proposed amendments to Regulation SHO to adopt one of five alternatives for restricting short selling, including two variations of a price test, and three variations of circuit breaker restrictions. By the expiration of the comment period on June 19, 2009, the Commission had received in excess of 5000 comment letters. Not surprisingly, the Commission is continuing to actively consider proposals on a short sale price test and circuit breaker restrictions.
 See Release No. 34-60388, n141.
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