Document ID: SEC-2007-0362-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc., et al.
Posted Date: 2007-03-12T04:00Z

[Federal Register: March 12, 2007 (Volume 72, Number 47)]
[Notices]               
[Page 11071-11072]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12mr07-144]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55406; File Nos. SR-NASD-2006-131; SR-NYSE-2006-111; 
SR-Amex-2007-05]

 
Self-Regulatory Organizations: National Association of Securities 
Dealers, Inc.; New York Stock Exchange LLC; American Stock Exchange 
LLC; Order Approving Proposed Rule Changes To Increase the Frequency of 
the Short Interest Reporting Requirements

March 6, 2007.
    On December 4, 2006, December 7, 2006, and January 10, 2007, 
respectively, the National Association of Securities Dealers, Inc. 
(``NASD''), the New York Stock Exchange LLC (``NYSE''), and the 
American Stock Exchange LLC (``Amex'') (collectively, the ``SROs''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'' or the ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ 
filed with the Securities and Exchange Commission (the ``Commission'') 
the proposed rule changes as described below:
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

    [cir] NASD proposed to increase the frequency of the short interest 
reporting requirements under NASD Rule 3360 from monthly to twice per 
month. Currently, NASD Rule 3360, Short-Interest Reporting, requires 
members to maintain a record of total short positions in all customer 
and proprietary firm accounts in OTC Equity Securities \3\ and 
securities listed on a national securities exchange if not reported to 
another self-regulatory organization and to regularly report such 
information in the manner prescribed by NASD.\4\ Thus, no changes to 
the text of NASD rules are required by this proposed rule change.
---------------------------------------------------------------------------

    \3\ NASD Rule 3360 provides that the term ``OTC Equity 
Securities'' refers to any equity security that is not listed on The 
Nasdaq Stock Market or a national securities exchange.
    \4\ Non-self-clearing broker-dealers generally are considered to 
have satisfied their reporting requirement by making appropriate 
arrangements with their respective clearing organizations. See NASD 
Notice to Members 03-08 (January 2003).
---------------------------------------------------------------------------

    [cir] NYSE proposed an amendment to NYSE Rule 421.10 (Short 
Positions), which would increase the frequency of the short interest 
reporting requirements under Rule 421.10 from monthly to twice per 
month. In addition, NYSE proposed additional amendments to the Rule 
421.10's text in light of recent changes to NYSE organizational

[[Page 11072]]

structure and to reflect the adoption of the Commission's Regulation 
SHO.\5\
---------------------------------------------------------------------------

    \5\ 17 CFR 242.200 through 242.203.
---------------------------------------------------------------------------

    [cir] Amex proposed to increase the frequency of the short interest 
reporting requirements from monthly to twice a month, and to codify the 
short interest reporting requirement authorized by Amex Rule 30. The 
proposed amendment would incorporate the short interest reporting 
requirements into new Amex Rule 30A.
    The SROs proposed an implementation date of 180 days (six months) 
following Commission approval of the filing in order to allow firms 
sufficient time to make any systems changes necessary to comply with 
the new requirements.
    The proposed rule changes were published in the Federal Register on 
February 1, 2007.\6\ The Commission received one comment, which was 
submitted in support of this proposal. Prior to the proposal, NASD had 
received two comments that also supported the proposal. This order 
approves the rule change.
---------------------------------------------------------------------------

    \6\ Securities Exchange Act Release No. 55170 (January 26, 
2007), 72 FR 4756 (February 1, 2007).
---------------------------------------------------------------------------

Discussion and Commission Findings

A. Comments

    The Commission specifically asked whether the proposed 180 day 
implementation period should be shortened. The Commission received one 
comment letter.\7\ The commenter supported the NYSE and NASD proposals 
\8\ because she favored regulation of short sales generally. However, 
the commenter believed that the implementation period should be 
shortened.
---------------------------------------------------------------------------

    \7\ Letter from Carol McCrory, Visitiing Assistant Professor of 
Legal Skils, Stetson University College of Law (Jan. 30, 2007) 
(commenting on SR-NASD-2006-131 and SR-NYSE-2006-111).
    \8\ See id. The letter did not comment on the Amex proposal.
---------------------------------------------------------------------------

    Prior to filing with the Commission, NASD solicited comments on its 
proposed rule change in NASD Notice to Members 05-63 (September 2005) 
and received two comments.\9\ Of the two comment letters received, both 
were in favor of the proposed rule change. One commenter noted that 
minimal programming and costs would be required to implement this 
proposal, but recommended six months for implementation of the 
proposal.\10\ The other commenter indicated that increases or decreases 
in short interest positions are significant indicators of investor 
sentiment.\11\ As such, the commenter stated that timelier reporting of 
short interest data provides additional relevant information and more 
accurate indications of changes in investor outlook.\12\
---------------------------------------------------------------------------

    \9\ Comments were received from the following: Lisa Morel-
Misener of Cognos Incorporated, dated October 27, 2005 and 
Christopher Charles of Wulff Hansen & Co., dated November 15, 2005.
    \10\ See supra note 9, Wulff Hansen & Co. letter.
    \11\ See supra note 9, Cognos Incorporated letter.
    \12\ Id.
---------------------------------------------------------------------------

    In response to these comments and in recognition of technological 
and systems changes that may be required to implement the proposed rule 
change, the Commission finds that the 180 day implementation period 
proposed by the SROs will provide members adequate time to make any 
necessary changes.

B. Related Issues

    Short positions required to be reported under the SROs' rules are 
those resulting from ``short sales'' as the term is defined in Rule 200 
of Regulation SHO,\13\ with certain exceptions related to Exchange Act 
Rule 10a-1.\14\ Commission staff has instructed the SROs to review 
these exceptions to short interest reporting to determine whether 
further rulemaking is appropriate.
---------------------------------------------------------------------------

    \13\ 17 CFR 242.200.
    \14\ 17 CFR 240.10a-1. NASD Rule 3360(b)(1) excludes positions 
that meet the requirements of subsections (e)(1), (6), (7), (8), and 
(10) of Rule 10a-1 and NYSE Rule 421.10 currently excludes positions 
resulting from sales specified in subsections (1), (6), (7), (8), 
(9) and (10) of paragraph (e) of Rule 10a-1. NYSE's proposal removes 
subsection (9). To conform with the NASD and NYSE rules, Amex Rule 
30A as proposed excludes positions resulting from sales specified in 
Rule 10a-1(e) (1), (6), (7), (8) or (10).
---------------------------------------------------------------------------

C. Commission Findings

    After a review of the rule proposals and the comments, the 
Commission finds that the proposed rule changes are consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to national securities exchanges and national securities 
associations, and in particular Sections 6(b)(5) \15\ and 15A(b)(6) 
\16\ of the Act, which require, among other things, that NASD, NYSE, 
and Amex rules must be designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
and, in general, to protect investors and the public interest. The 
Commission believes that the proposed rule changes will provide 
additional and more timely information related to short selling.\17\
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78f(b)(5).
    \16\ 15 U.S.C. 78o-3(b)(6).
    \17\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule changes (SR-NASD-2006-131; SR-NYSE-2006-111; SR-
Amex-2007-05) be, and it hereby are, approved.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-4293 Filed 3-9-07; 8:45 am]

BILLING CODE 8010-01-P