Document ID: SEC-2008-1311-0001
Agency: sec
Document Type: Notice
Title: Amendment to Emergency Order Pursuant to Section 12(K)(2) of the Securities Exchange Act (of 1934): Taking Temporary Action to Respond to Market Developments
Posted Date: 2008-09-25T04:00Z

[Federal Register: September 25, 2008 (Volume 73, Number 187)]
[Notices]               
[Page 55556-55557]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25se08-83]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 58611]

 
Securities Exchange Act of 1934 Amendment to Emergency Order 
Pursuant to Section 12(k)(2) of the Securities Exchange Act of 1934 
Taking Temporary Action To Respond to Market Developments

September 21, 2008.
    Pursuant to Section 12(k)(2) of the Securities Exchange Act of 
1934,\1\ on September 18, 2008, the Securities and Exchange Commission 
(``Commission'') issued an Emergency Order (the ``Order'') related to 
short selling the publicly traded securities of certain financial 
firms.\2\ The Order was effective immediately. The Commission is 
issuing this amendment to address current and anticipated technical and 
operational concerns resulting from the requirements of the Order.
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    \1\ 15 U.S.C. 78l(k)(2).
    \2\ See Securities Exchange Act Release No. 58592 (Sept. 18, 
2008).
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A. Included Financial Firms

    The Order applies to the publicly traded securities of certain 
financial firms, which entities are identified in Appendix A to the 
Order (``Included Financial Firms''). We are amending the Order to 
modify the list of Included Financial Firms. As we stated in the Order, 
recent market conditions have raised concerns that short selling in the 
securities of a wide range of financial institutions may be causing 
sudden and excessive fluctuations of the prices of such securities in 
such a manner to threaten fair and orderly markets. Difficulties with 
the classification criteria led to the omission of financial 
institutions falling within these categories. In light of the 
familiarity of the exchanges listing financial institutions with the 
nature of their respective businesses, the Commission has determined to 
amend this Order to provide that the listing markets shall select the 
individual financial institutions with securities covered by the Order. 
The Commission expects each national securities exchange listing 
financial institutions to immediately publish a list, on its Internet 
Web site, of individual listed companies with common equity that will 
be covered by the Order's prohibition on short sales. The Commission 
expects these lists to cover banks, savings associations, broker-
dealers, investment advisers, and insurance companies, whether domestic 
or foreign, and the owners of any of these entities.
    To the extent an issuer chooses not to be covered by the Order's 
prohibition on short sales, we have authorized the applicable national 
securities exchange to exclude that issuer from its list of covered 
financial firms.
    It is therefore ordered that, pursuant to our Section 12(k)(2) 
powers, the Order applies to the publicly traded common equity 
securities of any issuer identified by any national securities exchange 
listing such securities as being a financial institution (each a 
``Covered Security'' and collectively, ``Covered Securities'').

B. Options and Futures Contract Expiration

    The Order includes an exception from its requirements to allow 
short sales that occur as a result of automatic exercise or assignment 
of an equity option held prior to effectiveness of the Order due to 
expiration of the option. We are amending the Order to also allow short 
sales that occur as a result of the expiration of futures contracts 
held prior to effectiveness of the Order.
    It is therefore ordered that, pursuant to our Section 12(k)(2) 
powers, the requirements of the Order shall not apply to any person 
that effects a short sale in any Covered Security as a result of 
automatic exercise or assignment of an equity option, or in connection 
with settlement of a futures contract, that is held prior to 
effectiveness of the Order due to expiration of the option or futures 
contract.

C. Options Assignments

    To allow for creation of long call options, we are amending the 
Order to except from its requirements, short sales that occur as a 
result of assignment to call writers upon exercise.
    It is therefore ordered that, pursuant to our Section 12(k)(2) 
powers, the requirements of the Order shall not apply to the writer of 
a call option that effects a short sale in any Covered Security as a 
result of assignment following exercise by the holder of the call.

D. Market Making and Derivatives

    In the Order we included an exception until 11:59 p.m. on September 
19, 2008 for any person that is a market maker that effects a short 
sale as part of bona fide market making and hedging activity related 
directly to bona fide market making in derivatives on the publicly 
traded securities of any Included Financial Firm. We are amending the 
exception so that it continues for the duration of the Order. In 
addition, we are clarifying that the exception applies to all market 
makers, including over-the-counter market makers, and that it applies 
to bona fide market making and hedging activity related directly to 
bona fide market making in exchange traded funds and exchange traded 
notes of which Covered Securities are a component. The purpose of this 
accommodation is to permit market makers to continue to provide 
liquidity to the markets.
    To help ensure that this hedging exception does not result in 
increased short exposure in Covered Securities, we are limiting the 
exception so that if a customer or counterparty position in a 
derivative security based on a Covered Security is established after 
12:01 a.m. E.D.T on September 22, 2008, a market maker may not effect a 
short sale in the Covered Security if the market maker knows that the 
customer's or counterparty's transaction will result in the customer or 
counterparty establishing or increasing an economic net short position 
(i.e., through actual positions, derivatives, or otherwise) in the 
issued share capital of a firm covered by this Order.
    It is therefore ordered that, pursuant to our Section 12(k)(2) 
powers, the requirements of this Order shall not apply to any person 
that is a market maker, including an over-the-counter market maker, 
that effects a short sale as part of a bona fide market making and 
hedging activity related directly to bona fide market making in (a) 
derivative securities based on Covered Securities, or (b) exchange 
traded funds and exchange traded notes of which Covered Securities are 
a component. Provided, however, if a customer or counterparty position 
in a derivative security based on a Covered Security is established 
after 12:01 a.m. E.D.T on September 22, 2008, a market maker may not 
effect a short sale in the Covered Security if the market maker knows 
that the customer's or counterparty's transaction will result in the 
customer or counterparty establishing or increasing an economic net 
short position (i.e., through actual positions, derivatives, or 
otherwise) in the issued share capital of a firm covered by this Order.
     All market makers relying on this exception to the limitation on 
short selling shall, as soon as operationally practicable, publish a 
notice on their Internet Web site that, pursuant to this

[[Page 55557]]

Order, the market maker may not knowingly effect a short sale as part 
of bona fide market making and hedging activity related directly to 
bona fide market making in a derivative security based on a Covered 
Security, if the customer's or counterparty's transaction will result 
in the customer or counterparty establishing or increasing an economic 
net short position (i.e., through actual positions, derivatives, or 
otherwise) in the issued share capital of a firm covered by the Order.

E. Sales of Restricted Securities

    We are also amending the Order to clarify that the Order does not 
apply to persons that effect sales of Covered Securities pursuant to 
Rule 144 of the Securities Act of 1933 (``Rule 144 Securities'').\3\ 
This accommodation is necessary because sales of Rule 144 Securities 
are sales of owned securities.
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    \3\ 17 CFR 230.144.
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    It is therefore ordered that, pursuant to our Section 12(k)(2) 
powers, the Order does not apply to any person that effects a sale 
pursuant to Rule 144 of the Securities Act of 1933 (17 CFR 230.144) in 
a Covered Security.
    We believe that these amendments are necessary in the public 
interest and for the protection of investors to maintain fair and 
orderly securities markets, and to prevent substantial disruption to 
securities markets.

    By the Commission.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-22502 Filed 9-24-08; 8:45 am]

BILLING CODE 8010-01-P