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Securities and Exchange Commission Extends Effective Dates of Emergency Actions Regarding Short Sales and Issuer Repurchases
October 3, 2008
Marty Dunn,
Erin Jaskot,
Rebekah Toton
The U.S. Securities and Exchange Commission has extended the effectiveness of its emergency orders issued on September 17 and 18, 2008 relating to short selling and issuer repurchases. We previously issued client alerts discussing these emergency orders, which are available here.
Extended Expiration Dates of Emergency Orders
- Prohibition of Short Selling in Financial Companies: The SEC extended the emergency order prohibiting any person from effecting short sales in publicly traded securities of certain financial firms. The order now expires on 11:59 pm ET on the third business day following the President's signing of the Emergency Economic Stabilization Act of 2008 (H.R. 1424). Today, October 3, 2008, President Bush signed H.R. 1424 into law. Therefore, this emergency order will expire at 11:59 pm ET on October 8, 2008.
- Short Sale Reporting Requirement for Institutional Money Managers: The relevant emergency order requires institutional investment managers who filed or were required to file a Form 13F for the calendar quarter ended June 30, 2008 under Section 13(f) of the Exchange Act and Exchange Act Rule 13f-1(a) to file a report on Form SH with the Commission disclosing short positions. The Form SH must be filed on the first business day of every calendar week immediately following a week in which the institutional investment manager effected short sales.
The expiration date for this emergency order has been extended to 11:59 p.m. ET on October 17, 2008. Therefore, institutional investment managers must now file Forms SH on October 6 and October 14, 2008.
In extending the expiration date for the emergency order, the SEC made a significant change to its prior statements regarding Form SH -- as revised, disclosure that is made pursuant to the emergency order, including the Form SH that was due on September 29, 2008, will remain non-public. As such, the SEC has reversed its prior statement that the information in Form SH would be publicly available two weeks after filing.
The SEC intends to convert this emergency order to an interim final rule and will seek comments on the anticipated rulemaking.
- Issuer Repurchases: The relevant emergency order temporarily changed the timing and volume conditions in Rule 10b-18 to provide additional flexibility and certainty to issuers considering repurchases. Specifically, the SEC revised Rule 10b-18 so that its safe harbor is available if the issuer or an affiliated purchaser meets all of the conditions in Rule 10b-18, subject to certain exceptions. The SEC is extending the expiration date of this emergency order to 11:59 p.m. ET on October 17, 2008.
- Close-Out Requirement for Naked Short Selling and Mandatory Pre-Borrow: Pursuant to its emergency order, the SEC adopted temporary Rule 204T requiring short sellers and their broker-dealers to deliver securities by settlement date. If a short-sale violates this requirement, the broker-dealer acting on behalf of the short seller is prohibited from additional short sales in this security unless the shares are pre-borrowed.
In addition, the emergency order also (1) amended Rule 203(b)(3) of Regulation SHO to eliminate the exemption allowing options market makers to maintain fail positions; and (2) adopted Rule 10b-21 under the Exchange Act making it fraudulent for short sellers to deceive broker-dealers or any other market participants about their intention or ability to deliver securities in time for settlement.
The SEC is extending the expiration date of this emergency order to October 17, 2008, but believes the order will be converted to an interim final rule and will seek comments on the anticipated rulemaking.
Conclusion
Please contact any of the attorneys listed below if you have any questions regarding the SEC 's emergency orders.
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