Document ID: SEC-2010-1713-0001
Agency: sec
Document Type: Rule
Title: Regulation SHO
Posted Date: 2010-11-09T05:00Z

[Federal Register: November 9, 2010 (Volume 75, Number 216)]
[Rules and Regulations]               
[Page 68702-68704]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09no10-11]                         

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 242

[Release No. 34-63247; File No. S7-08-09]
RIN 3235-AK35

 
Regulation SHO

AGENCY: Securities and Exchange Commission.

ACTION: Final rule; extension of compliance date.

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SUMMARY: The Commission is extending for a limited period of time the 
compliance date for the amendments to Rule 201 and Rule 200(g) of 
Regulation SHO under the Securities Exchange Act of 1934 (``Exchange 
Act''). Rule 201 adopts a short sale-related circuit breaker that, if 
triggered, will impose a restriction on the prices at which securities 
may be sold short (``short sale price test restriction''). The 
amendments to Rule 200(g) provide that a broker-dealer may mark certain 
qualifying short sale orders ``short exempt.'' The Commission is 
extending the compliance date for the amendments to Rule 201 and Rule 
200(g) to give certain exchanges additional time to modify their 
current procedures for conducting single-priced opening, reopening, and 
closing transactions for covered securities that have triggered Rule 
201's circuit breaker in a manner that is consistent with the goals and 
requirements of Rule 201. Further, the extended compliance period will 
give industry participants additional time for programming and testing 
for compliance with the requirements of the Rule.

DATES: The effective date for Rule 201 (17 CFR 242.201) and Rule 200(g) 
(17 CFR 242.200(g)) remains March 10, 2010. The compliance date for 
both Rules has been extended from November 10, 2010 to February 28, 
2011.

FOR FURTHER INFORMATION CONTACT: Josephine Tao, Assistant Director, or 
Angela Moudy, Attorney-Advisor, Division of Trading and Markets, at 
(202) 551-5720, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-6628.

SUPPLEMENTARY INFORMATION: 

I. Introduction

    On February 26, 2010, the Commission adopted amendments to Rule 201 
and Rule 200(g) of Regulation

[[Page 68703]]

SHO.\1\ Rule 201 requires that a trading center establish, maintain, 
and enforce written policies and procedures reasonably designed to 
prevent the execution or display of a short sale order of a covered 
security at a price that is less than or equal to the current national 
best bid if the price of that covered security decreases by 10% or more 
from its closing price as determined by the listing market for the 
covered security as of the end of regular trading hours on the prior 
day.\2\ In addition, the Rule requires that the trading center 
establish, maintain, and enforce written policies and procedures 
reasonably designed to impose this short sale price test restriction 
for the remainder of the day and the following day when a national best 
bid for the covered security is calculated and disseminated on a 
current and continuing basis by a plan processor pursuant to an 
effective national market system plan.\3\ The amendments to Rule 200(g) 
provide that broker-dealers may mark certain short sale orders ``short 
exempt.'' \4\
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    \1\ Exchange Act Release No. 61595 (Feb. 26, 2010), 75 FR 11232 
(Mar. 10, 2010) (``Rule 201 Adopting Release'').
    \2\ See 17 CFR 242.201(b)(1)(i).
    \3\ See 17 CFR 242.201(b)(1)(ii).
    \4\ See 17 CFR 242.200(g)(2).
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    Commission staff has been working with the markets and their 
participants since Rule 201 was adopted to resolve operational issues 
relating to implementation of the Rule. As part of these efforts, we 
have become aware that certain exchanges require additional time to 
address their procedures for conducting single-priced opening, 
reopening, and closing transactions (``single-priced transactions'') 
for covered securities that have triggered the Rule's circuit breaker. 
Specifically, we have been advised that certain exchanges may encounter 
difficulties in applying Rule 201, which uses the national best bid as 
a reference point, to their single-priced transactions. These 
transactions involve the queuing and ultimate execution of multiple 
orders at a single price, and the single equilibrium price determined 
through this process is based on orders on the exchange, without any 
reference to the national best bid at the time of execution. Due to 
potential operational concerns, we are providing additional time for 
exchanges that currently conduct single-priced transactions through a 
formalized and transparent process to address this issue in a manner 
that would be consistent with the requirements and goals of Rule 201's 
short sale price test restriction.\5\
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    \5\ A significant percentage of total trading volume can be 
executed in single-priced transactions. For example, one exchange 
executes approximately 25% of its total trading volume in its 
opening and closing transactions.
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    In addition, we believe that an extended compliance period may 
benefit industry participants by providing more time for programming 
and testing for compliance with the Rule's requirements. We have been 
informed that there have been some delays in the programming process, 
due in part to certain information, which was necessary to effectively 
program for compliance with Rule 201, being provided by various 
parties, including exchanges and data vendors, on dates that were later 
than originally anticipated. As a result, we have been informed that 
there may be an increased risk of technical or market problems if full 
implementation of Rule 201 is required by November 10, 2010.
    As a result of these considerations, and in order to avoid any 
potential adverse effects on the markets from implementation of Rule 
201 under the circumstances, we have determined to extend the 
compliance date to February 28, 2011 because we understand that this 
would provide the exchanges and other industry participants with 
sufficient time to resolve the issues surrounding implementation of 
Rule 201.

II. Conclusion

    For the reasons cited above, the Commission, for good cause, finds 
that notice and solicitation of comment regarding the extension of the 
compliance date set forth herein are impractical, unnecessary, or 
contrary to the public interest.\6\ The Commission notes that the 
compliance date is a few days away, and that a limited extension of the 
compliance date will facilitate the orderly implementation of Rule 201. 
In light of this time constraint, full notice and comment could not be 
completed prior to the November 10, 2010 compliance date. All industry 
participants will receive additional time to comply with Rule 201 and 
Rule 200(g) beyond the compliance date originally set forth in the Rule 
201 Adopting Release. Further, the Commission recognizes that it is 
imperative for industry participants to receive notice of the extended 
compliance date, and providing immediate effectiveness upon publication 
of this release will allow industry participants to adjust their 
implementation plans accordingly.\7\
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    \6\ See Section 553(b)(3)(B) of the Administrative Procedure Act 
(5 U.S.C. 553(b)(3)(B)) (stating that an agency may dispense with 
prior notice and comment when it finds, for good cause, that notice 
and comment are ``impractical, unnecessary, or contrary to the 
public interest''). This finding also satisfies the requirements of 
5 U.S.C. 808(2), allowing the rules to become effective 
notwithstanding the requirement of 5 U.S.C. 801 (if a federal agency 
finds that notice and public comment are ``impractical, unnecessary 
or contrary to the public interest,'' a rule ``shall take effect at 
such time as the Federal agency promulgating the rule determines''). 
Also, because the Regulatory Flexibility Act (5 U.S.C. 601-612) only 
requires agencies to prepare analyses when the Administrative 
Procedures Act requires general notice of rulemaking, that Act does 
not apply to the actions that we are taking in this release.
    \7\ The compliance date extensions set forth in this release are 
effective upon publication in the Federal Register. Section 
553(d)(1) of the Administrative Procedure Act allows effective dates 
that are less than 30 days after publication for a ``substantive 
rule which grants or recognizes an exemption or relieves a 
restriction.'' 5 U.S.C. 553(d)(1).
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    The Commission identified certain costs and benefits associated 
with the amendments to Rule 201 and Rule 200(g) of Regulation SHO in 
the Rule 201 Adopting Release. The extension of the compliance date for 
the amendments to Rule 201 and Rule 200(g) of Regulation SHO will delay 
the benefits of the Rules, but the Commission believes that the limited 
extension is necessary and appropriate because it will provide (1) 
certain exchanges additional time to modify their current procedures 
for conducting single-priced transactions for covered securities that 
have triggered Rule 201's circuit breaker in a manner that is 
consistent with the goals and requirements of Rule 201, and (2) 
industry participants additional time for programming and testing for 
compliance with the requirements of Rule 201 and Rule 200(g). The 
extension also will delay the costs of complying with the 
amendments.\8\ The Commission believes that the extension does not 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Exchange Act, because, as noted 
above, the extension will give exchanges additional time to modify 
certain of their current procedures, and industry participants 
additional time for programming and testing, in a manner that is 
consistent with the goals and requirements of the amendments to Rule 
201 and Rule 200(g) of Regulation SHO.
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    \8\ The Commission identified in the Rule 201 Adopting Release 
certain ongoing costs associated with the amendments to Rule 201 and 
Rule 200(g) of Regulation SHO. Because of the extension of the 
compliance date, such costs could be avoided from November 10, 2010 
to February 28, 2011.

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    By the Commission.

[[Page 68704]]

    Dated: November 4, 2010.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-28327 Filed 11-8-10; 8:45 am]
BILLING CODE 8011-01-P