SEC adopts amendments to Regulation SHO

Abstract

Purpose

The purpose of this paper is to summarize and explain amendments to SEC Regulation SHO adopted on June 13, 2007

Design/methodology/approach

The paper explains elimination of “grandfather” exception to Reg SHO close‐out requirement, explains proposed amendments to options market maker exception and long locate requirement, and explains elimination of all price tests that were designed to restrict short selling in bear markets.

Findings

The paper finds that, in June 2007, the Securities and Exchange Commission (SEC) adopted and proposed amendments to the short sales rules under the Securities Exchange Act of 1934 (the “Exchange Act”). The SEC: adopted amendments to Rules 200 and 203 of Regulation SHO to: the eliminate the “grandfather” exception to the “close out” requirement, extend the current close out requirement of 13 consecutive settlement days for securities sales pursuant to Rule 144 under the Exchange Act to 35 settlement days, and update the market decline limitation relating to index arbitrage trading activity;proposed and re‐proposed amendments to Regulation SHO to eliminate the “option market maker” exception to the close out requirement, and to require broker‐dealers making a sale as “long” to document the present location of the securities being sold; and adopted amendments to Rule 10a‐1 and Regulation SHO to repeal all price tests, including the “tick” test, and to provide that no price test, including any price tests of any self‐regulatory organization (“SRO”), shall apply to short sales of any securities. The adopted amendments to Rule 10a‐1 and Regulation SHO to repeal all price tests took effect on July 3, 2007. The other adopted amendments to Regulation SHO will take effect 60 days after publication in the Federal Register.

Originality/value

The paper provides a concise, practical summary by lawyers who specialize securities markets regulations.

Citation

Kaswell, S.J., Rosenblat, A. and Ha, C.S. (2007), "SEC adopts amendments to Regulation SHO", Journal of Investment Compliance, Vol. 8 No. 4, pp. 39-43. https://doi.org/10.1108/15285810710839534