Document ID: SEC-2007-0159-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc., et al.
Posted Date: 2007-02-01T05:00Z

[Federal Register: February 1, 2007 (Volume 72, Number 21)]
[Notices]               
[Page 4756-4759]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01fe07-102]                         

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55170; 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; Notice of Filing of Proposed Rule Changes To Increase the 
Frequency of the Short Interest Reporting Requirements

January 26, 2007.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'')\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 4, 2006, December 7, 2006, and January 10, 2007, the 
National Association of Securities Dealers, Inc. (``NASD''), the New 
York Stock Exchange LLC (``NYSE''), and the American Stock Exchange LLC 
(``Amex'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule changes as described in Items I, II 
and III below, which Items have been prepared substantially by NASD, 
NYSE, or Amex. The Commission is publishing this notice to solicit 
comments on the proposed rule changes from interested persons.
---------------------------------------------------------------------------

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

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

[[Page 4757]]

I. Self-Regulatory Organizations' Statement of the Terms of Substance 
of the Proposed Rule Changes

A. NASD

    NASD is proposing to increase the frequency of the short interest 
reporting requirements under Rule 3360 from monthly to twice per month. 
No changes to the text of NASD rules are required by this proposed rule 
change.

B. NYSE

    NYSE is proposing 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 is proposing additional amendments to the Rule 
421.10's text in light of recent changes to NYSE organizational 
structure.
    The text of the proposed rule change is available at http://www.NYSE.com
, at the NYSE, and at the Commission's Public Reference 

Room.

C. Amex

    Amex proposes 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 text of the proposed rule change is available at http://www.Amex.com
, at Amex, and at the Commission's Public Reference Room.

II. Self-Regulatory Organizations' Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In filings with the Commission, NASD, NYSE, and Amex included 
statements concerning the purpose of and basis for the proposed rule 
changes and discussed any comments received on the proposed rule 
changes. The text of these statements may be examined at the places 
specified in Item IV below. NASD, NYSE, and Amex have prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant aspects of such statements.

A. Self-Regulatory Organizations' Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
A. NASD
    NASD is proposing to require members to record and report short 
interest position information to NASD twice per month. Currently, Rule 
3360, Short-Interest Reporting, requires members to maintain a record 
of total short positions \3\ in all customer and proprietary firm 
accounts in OTC Equity Securities \4\ and securities listed on a 
national securities exchange if not reported to another self-regulatory 
organization (``SRO'') and to regularly report such information in the 
manner prescribed by NASD.\5\
---------------------------------------------------------------------------

    \3\ Short positions required to be reported under Rule 3360 are 
those resulting from ``short sales'' as the term is defined in Rule 
200 of Regulation SHO, with the exception of positions that meet the 
requirements of subsections (e)(1), (6), (7), (8), and (10) of Rule 
10a-1 under the Exchange Act. See NASD Rule 3360(b)(1).
    As part of the Commission's approval of amendments to expand 
Rule 3360 to OTC equity securities, the Commission urged NASD to 
review these exceptions to short interest reporting to determine 
whether further rulemaking is appropriate. NASD is currently 
conducting such a review. If, based on this review, NASD concludes 
that further rulemaking is warranted, NASD will file a separate rule 
change with the Commission. See Exchange Act Release No. 53224 
(February 3, 2006), 71 FR 7101 (February 10, 2006).
    \4\ The term ``OTC Equity Securities'' refers to any equity 
security that is not listed on The Nasdaq Stock Market or a national 
securities exchange.
    \5\ Non-self-clearing broker-dealers generally are considered to 
have satisfied their reporting requirement by making appropriate 
arrangements with their respective clearing organizations. See 
Notice to Members 03-08 (January 2003).
---------------------------------------------------------------------------

    Specifically, Rule 3360 requires that members report short 
positions as of the close of the settlement date designated by NASD and 
that the data be received by NASD no later than the second business day 
following the reporting settlement date designated by NASD. Currently, 
the designated settlement date is the 15th of each month, unless the 
15th falls on a weekend or other non-settlement date, in which case the 
designated settlement date is the preceding settlement day.\6\ The 
aggregate short interest data is, in turn, made publicly available. 
Investors and other interested parties may obtain the aggregate short 
interest data from NASDAQ's Web site, the OTCBB Web site, other 
commercial Web sites and certain newspapers.
---------------------------------------------------------------------------

    \6\ A schedule of NASD's designated settlement dates can be 
found on NASD's Web site at http://www.nasd.com.

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

    NASD is proposing to require that members maintain and report to 
NASD short interest positions twice per month, such that the designated 
settlement dates would be the 15th (unless the 15th falls on a weekend 
or other non-settlement date, in which case the designated settlement 
date will be the preceding settlement day) and the last business day of 
each month. NASD will then make the short interest information publicly 
available twice per month. NASD believes that increasing the frequency 
of short interest reporting will provide additional and more timely 
information to public investors and other interested parties related to 
short selling.
    In recognition of the technological and systems changes the 
proposed rule change may require, the effective date will be six (6) 
months following Commission approval of the proposed rule change.
B. NYSE

Proposal to Increase Frequency of Short Interest Reporting Requirement

    NYSE Rule 421 requires that member organizations submit to NYSE 
periodic reports with respect to short positions in securities, 
covering such time period as may be designated by NYSE. NYSE makes 
available to the marketplace the total short interest in each 
individual stock and warrant traded on NYSE. NYSE releases this data 
each month to media outlets such as Dow Jones, The Wall Street Journal, 
The New York Times, The New York Daily News and Bloomberg Services. 
This information provides some indication of market sentiment with 
respect to securities listed on NYSE. To better inform the investing 
public, NYSE is proposing to increase the frequency of short interest 
reporting pursuant to Rule 421.10 from monthly to twice per month.
    Specifically, NYSE is proposing that member organizations be 
required to maintain and report to NYSE short interest positions twice 
per month, such that the designated settlement dates would be the 15th 
\7\ (unless the 15th falls on a weekend or other non-settlement date, 
in which case the designated settlement date will be the preceding 
settlement day) and the last business day of each month. Increased 
frequency of short interest reporting would provide additional and more 
timely information to public investors and other interested parties 
related to short selling. Upon Commission approval, NYSE membership 
would be notified of the new reporting requirement via Information 
Memo. NYSE proposes that this proposed rule change become effective 180 
days after Commission approval of the filing in order to allow firms 
sufficient time to make any systems changes necessary to comply with 
the new requirement.
---------------------------------------------------------------------------

    \7\ See ISG Regulatory Memorandum 95-01 (March 6, 1995), 
announcing, among other things, the adoption by the SROs of policies 
and procedures that require short interest position reporting for 
all securities traded in the United States as well as the frequency 
of reporting short interest positions to SROs.
---------------------------------------------------------------------------

Amendments to Update NYSE Rule 421

    NYSE is also proposing amendments that would update Rule 421.10 to 
reflect

[[Page 4758]]

the adoption of the Commission's Regulation SHO.\8\ Further, amendments 
are proposed to Rule 421.40 to update the rule by deleting subsections 
(2) and (3) which reference ``convertible bond margin accounts'' and 
``subscription accounts,'' \9\ because these types of accounts no 
longer exist. Rules 421.40(4) and (5) are accordingly repositioned as 
421.40(2) and (3).
---------------------------------------------------------------------------

    \8\ 17 CFR 242.200 through 242.203.
    \9\ In 1984, the Federal Reserve Board amended Regulation T to 
eliminate convertible bond margin accounts and subscription 
accounts.
---------------------------------------------------------------------------

    Further, NYSE is proposing amendments to Rule 421 that would delete 
all references to the terms ``member'' and ``allied member'' as 
categories of Exchange association. The term ``member'' no longer has 
the same regulatory meaning in the context of the NYSE/ARCA \10\ 
business model, which now authorizes ``licensees'' to trade on behalf 
of member organizations. Likewise, the term ``allied member'' has an 
incongruous connotation in the context of NYSE's current business 
model.
---------------------------------------------------------------------------

    \10\ See Release No. 34-53382 (February 27, 2006), 71 FR 11251 
(March 6, 2006) (order approving SR-NYSE-2005-77).
---------------------------------------------------------------------------

C. Amex
    Amex is proposing to formalize the requirement that member 
organizations record short interest position information and report it 
to Amex twice a month. Currently, the Amex requires members to maintain 
a record of total short positions in all customer and proprietary firm 
accounts in equity securities (stocks, ETFs and other equity products) 
and to regularly report such information in the manner authorized by 
Amex Rule 30 and described in the Amex Minor Rule Violation Fine 
Systems (Amex Rule 590, Part 3), Amex Information Circulars \11\ and an 
Intermarket Surveillance Group (``ISG'') Regulatory Memorandum.\12\ The 
proposed amendment would incorporate the short interest reporting 
requirements into new Amex Rule 30A as well as increase the frequency 
of public reporting from once to twice a month for all equity 
securities.
---------------------------------------------------------------------------

    \11\ See Amex Information Circulars 95-136 and 
98-0234.
    \12\ See ISG Regulatory Memorandum 95-01.
---------------------------------------------------------------------------

    Amex makes available to the marketplace the total short interest in 
each equity and equity-type security traded on Amex. Amex releases this 
data each month to major media outlets, such as Dow Jones, and posts it 
to Amex's Web site. This information provides some indication of market 
sentiment with respect to securities listed on Amex. Other exchanges 
and the NASD release comparable short interest information.
    As set forth in Amex Information Circular 95-136 and ISG 
Regulatory Memorandum 95-01, members must report short positions as of 
the close of the settlement dates designated by Amex and the data must 
be received by Amex no later than the second business day following the 
reporting settlement dates designated by Amex. Currently, the 
designated settlement date is the 15\th\ of each month, unless the 
15\th\ falls on a weekend or other non-settlement date, in which case 
the designated settlement date is the preceding settlement day, and, 
for ETFs only, a second designated settlement date is the last business 
day of the month.
    The aggregate short interest data is, in turn, made publicly 
available to major news sources, twice a month with respect to ETFs, 
and once a month with respect to stocks, warrants and other equity 
products.
    Amex is proposing to increase the frequency with which it makes 
short interest reporting information publicly available for stocks, 
warrants and other equity securities (in addition to ETFs) from once a 
month (settlement date of the 15th) to twice a month. As proposed, the 
increased frequency of public short interest reporting will provide 
additional and timelier information to public investors and other 
interested parties related to short selling.
    Implementation of the proposed new Rule 30A will formalize the 
authority Amex currently obtains from a broad rule (Amex Rule 30) 
concerning periodic reports and the informational notices referenced 
above.
    The effective date will be 180 days following Commission approval 
of the proposed rule change.
2. Statutory Basis
    NASD, NYSE, and Amex believe that the proposed rule changes are 
consistent with the provisions of Sections 6(b)(5) \13\ and 15A(b)(6) 
\14\ 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. NASD, 
NYSE, and Amex believe that the proposed rule changes will provide 
additional and more timely information related to short selling.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b)(5).
    \14\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

B. Self-Regulatory Organizations' Statement on Burden on Competition

    NASD, NYSE, and Amex do not believe that the proposed rule change 
will result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act.

C. Self-Regulatory Organizations' Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

A. NASD
    The proposed rule change was published for comment in NASD Notice 
to Members 05-63 (September 2005). Two comments were received in 
response to the Notice.\15\ A copy of the Notice to Members is attached 
as Exhibit 2a and copies of the comment letters received in response to 
the Notice are attached as Exhibit 2c to NASD's filing which is 
available at http://www.NASD.com, at NASD, and at the Commission's 

Public Reference Room.
---------------------------------------------------------------------------

    \15\ 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.
---------------------------------------------------------------------------

    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.\16\ The other commenter 
indicated that increases or decreases in short interest positions are 
significant indicators of investor sentiment.\17\ 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.\18\
---------------------------------------------------------------------------

    \16\ See supra note 14, Wulff Hansen & Co. letter.
    \17\ See supra note 14, Cognos Incorporated letter.
    \18\ Id.
---------------------------------------------------------------------------

    As noted above, in recognition of technological and systems changes 
that may be required to implement the proposed rule change, NASD has 
proposed an extended implementation period, which NASD believes will 
provide members adequate time to make any necessary changes.
B. NYSE
    NYSE has neither solicited nor received written comments on the 
proposed rule change.
C. Amex
    Amex has neither solicited nor received written comments on the 
proposed rule change.

[[Page 4759]]

III. Date of Effectiveness of the Proposed Rule Changes and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    The Commission notes that NASD, NYSE and Amex, are proposing an 
implementation period for the proposed rule changes. Specifically, the 
Commission notes that NASD, NYSE, and Amex are proposing that the 
proposed rule changes become effective 180 days (six months) after the 
Commission approval in order to allow firms sufficient time to make any 
systems changes necessary to comply with the new requirements. The 
Commission specifically requests comment regarding whether this 
implementation period could be shorter.
    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File Numbers SR-NASD-2006-131, SR-NYSE-2006-111, or SR-Amex-2007-05 as 
appropriate on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Numbers SR-NASD-2006-131, SR-NYSE-
2006-111, or SR-AMEX-2007-05, as appropriate.
    These file numbers should be included on the subject line if e-mail 
is used. To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). Copies of the submission, all subsequent amendments, 

all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Room. Copies of such 
filing also will be available for inspection and copying at the 
principal offices of NASD, NYSE or Amex, as appropriate.
    All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Numbers SR-NASD-2006-
131, SR-NYSE-2006-111, or SR-Amex-2007-05, as appropriate, and should 
be submitted on or before February 22, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-1584 Filed 1-31-07; 8:45 am]

BILLING CODE 8011-01-P