Document ID: SEC-2008-1026-0001
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: 2008-07-23T04:00Z

[Federal Register: July 23, 2008 (Volume 73, Number 142)]
[Notices]               
[Page 42837-42838]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23jy08-78]                         

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 58190/July 18, 2008]

 
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

    Pursuant to Section 12(k)(2) of the Securities Exchange Act of 
1934,\1\ on July 15, 2008, the Securities and Exchange Commission 
(``Commission'') issued an Emergency Order (the ``Order'') related to 
short selling securities of certain specified substantial financial 
firms.\2\ The Order takes effect on July 21, 2008. The Commission 
delayed the effective date to create the opportunity to address, and to 
allow sufficient time for market participants to make, adjustments to 
their operations to implement the enhanced requirements. The 
anticipated operational accommodations necessary for implementation of 
the Order are addressed herein.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78l(k)(2).
    \2\ See Securities Exchange Act Release No. 58166 (July 15, 
2008) at http://www.sec.gov/rules/other/2008/34-58166.pdf
---------------------------------------------------------------------------

A. Bona Fide Market Makers

    The borrow and arrangement-to-borrow requirement of the Order does 
not apply to certain bona fide market makers. (The settlement date 
delivery requirement of the Order applies to these market makers.) The 
purpose of this accommodation is to permit market makers to facilitate 
customer orders in a fast-moving market without possible delays 
associated with complying with the borrow and arrangement-to-borrow 
requirement of the Order.
    It is therefore ordered that, pursuant to our Section 12(k)(2) 
powers, the

[[Page 42838]]

following entities are excepted from the requirement of the Order that 
any person effecting a short sale in the publicly traded securities of 
substantial financial firms, as identified in Appendix A to the Order 
(``Appendix A Securities''),\3\ using the means or instrumentalities of 
interstate commerce, must borrow or arrange to borrow the security or 
otherwise have the security available to borrow in its inventory prior 
to effecting the short sale: Registered market makers, block 
positioners, or other market makers obligated to quote in the over-the-
counter market, that are selling short as part of bona fide market 
making and hedging activities related directly to bona fide market 
making in: (a) Appendix A Securities; (b) derivative securities based 
on Appendix A Securities, including standardized options; and (c) 
exchange traded funds of which Appendix A Securities are a component.
---------------------------------------------------------------------------

    \3\ Appendix A incorrectly referenced ``HSI'' as a ticker symbol 
for HSBC Holdings PLC ADS. This reference to HSI is hereby removed 
from Appendix A. In addition, the reference to BNP Paribas 
Securities Corp. is hereby changed to BNP Paribas. See Appendix A 
attached as revised.
---------------------------------------------------------------------------

B. Documentation

    Rule 203(b)(1)(iii) of Regulation SHO requires a broker or dealer 
to document its compliance with the ``locate'' requirement contained in 
Rule 203(b)(1)(i) of the regulation.\4\ Brokers and dealers have 
developed processes and procedures to meet this documentation 
requirement. Because the borrow or arrangement-to-borrow requirement in 
the Order constitutes the Commission's ``locate'' requirement during 
the effectiveness of the Order, brokers and dealers need not change 
their processes and procedures used to document compliance.
---------------------------------------------------------------------------

    \4\ Rule 203(b)(1) of Regulation SHO provides: ``A broker or 
dealer may not accept a short sale order in an equity security from 
another person, or effect a short sale in an equity security for its 
own account, unless the broker or dealer has: (1) Borrowed the 
security, or entered into a bona-fide arrangement to borrow the 
security; or (2) Reasonable grounds to believe that the security can 
be borrowed so that it can be delivered on the date delivery is due; 
and (3) Documented compliance with this paragraph (b)(1).'' 17 CFR 
242.203(b)(1).
---------------------------------------------------------------------------

    It is therefore ordered that, pursuant to our Section 12(k)(2) 
powers, brokers and dealers must document compliance with the borrow 
and arrangement-to-borrow requirement of the Order and may use the same 
processes and procedures to document compliance with the Order as used 
for compliance with Regulation SHO, provided such processes and 
procedures would comply with Rule 203(b)(1) of Regulation SHO.

C. Sales of Restricted Securities

    The Order does not apply to short sales of Appendix A Securities 
effected pursuant to Rule 144 of the Securities Act of 1933.\5\ This is 
consistent with Rule 203(b)(2)(ii) of Regulation SHO and will permit 
the orderly settlement of such sales without the risk of causing market 
disruption due to unnecessary purchasing activity to meet the 
settlement date delivery requirement of the Order. Such sales, however, 
remain subject to the requirements of Regulation SHO.
---------------------------------------------------------------------------

    \5\ 17 CFR 230.144.
---------------------------------------------------------------------------

    It is therefore ordered that, pursuant to our Section 12(k)(2) 
powers, the Order does not apply to any person that effects a short 
sale pursuant to Rule 144 of the Securities Act of 1933 (17 CFR 
230.144) in an Appendix A Security.

D. Syndicate Offerings

    The Order does not apply to short sales by underwriters, or members 
of a syndicate or group participating in distributions of Appendix A 
Securities in connection with an over-allotment of securities, or any 
lay-off sale by such person in connection with a distribution of 
Appendix A Securities through a rights or a standby underwriting 
commitment. It is not necessary for the Order to apply to such selling 
activity because it is addressed in Regulation M under the Securities 
Exchange Act of 1934,\6\ an anti-manipulation rule, and does not raise 
the same concerns as ``naked'' short selling in secondary markets.
---------------------------------------------------------------------------

    \6\ 17 CFR 242.100 et seq.
---------------------------------------------------------------------------

    It is therefore ordered that, pursuant to our Section 12(k)(2) 
powers, the Order does not apply with regard to any sale by an 
underwriter, or any member of a syndicate or group participating in the 
distribution of an Appendix A Security, in connection with an over-
allotment of securities, or any lay-off sale by such person in 
connection with a distribution of Appendix A Securities through a 
rights or a standby underwriting commitment. In addition, the Order 
does not apply with respect to a net syndicate short position created 
in connection with a distribution of an Appendix A Security that is 
part of a fail to deliver position at a registered clearing agency in 
Appendix A Securities if action is taken to close out the net syndicate 
short position no later than the 30th day after commencement of sales 
in the distribution.
    The Commission believes 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.

Appendix A

------------------------------------------------------------------------
                  Company                         Ticker symbol(s)
------------------------------------------------------------------------
BNP Paribas...............................   BNPQF or BNPQY.
Bank of America Corporation...............   BAC.
Barclays PLC..............................   BCS.
Citigroup Inc.............................   C.
Credit Suisse Group.......................  CS.
Daiwa Securities Group Inc................   DSECY.
Deutsche Bank Group AG....................   DB.
Allianz SE................................   AZ.
Goldman, Sachs Group Inc..................   GS.
Royal Bank ADS............................   RBS.
HSBC Holdings PLC ADS.....................   HBC.
J. P. Morgan Chase & Co...................   JPM.
Lehman Brothers Holdings Inc..............   LEH.
Merrill Lynch & Co., Inc..................   MER.
Mizuho Financial Group, Inc...............  MFG.
Morgan Stanley............................  MS.
UBS AG....................................   UBS.
Freddie Mac...............................  FRE.
Fannie Mae................................  FNM.
------------------------------------------------------------------------

[FR Doc. E8-16863 Filed 7-22-08; 8:45 am]

BILLING CODE 8010-01-P