Short-selling - Information and discussion Message Board

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Strategies & Market Trends : Short-selling - Information and discussion

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To: scion who wrote (47)	2/1/2004 2:27:09 PM
From: afrayem onigwecher	of 74

As you may know, the SEC in October 2003, proposed a new Regulation SHO governing short sales and proposing substantial changes with respect to the definition of "short sales". While detailed discussion of the proposed rule is beyond the scope of this brief memorandum* , Regulation SHO will place greater responsibility on brokers to make an affirmative determination with regard to short sales and the availability of covering securities. Pending the final SEC rule, we note that the issue of short sales is on the radar screen. The SEC and the US Attorneys Office have brought a high profile civil and criminal case against an investment manager with respect to short sales in a transaction in which he contractually agreed not to short. The theory of the case is that aggressive short selling is a form of market manipulation. Additionally, in January 2004, NASD amended Rule 3370 to require that NASD members must make an affirmative determination regarding that a sale is not a short sale when accepting orders from brokers and dealers who are not members of the NASD (generally Canadian dealers). _________________________________ * For example, under current Rule 3b-3 governing short sales , a person owns a security if the person has "purchased, or has entered into an unconditional contract, binding on both parties thereto, to purchase it but has not yet received it." The SEC is proposing that the unconditional contract specify the price and amount of securities to be purchased in order for a person to claim ownership of the securities underlying the contract. Under this formulation, certain conversions of securities based on future pricing will be deemed "short sales". The proposed rule and comment letters received by the SEC are available at www.sec.gov/rules/proposed.shtml.

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