1 C. There are remedies for manipulations perpetrated by naked short
2 sellers.
3
4 It should be borne in mind that the fact that plaintiffs’ claims are preempted
5 does not mean that there are no remedies for manipulation by naked short sellers.
6 These remedies include law enforcement actions against the wrongdoers by the
7 government and private actions against the wrongdoers for damages. If the
8 alleged problem is systemic rather than arising from isolated unlawful conduct, the
9 appropriate remedy is to amend the regulatory regime. The Commission has not
10 been unaware of allegations similar to those made by plaintiffs. See Order
11 Granting Approval of a Proposed Rule Change Concerning Requests for
12 Withdrawal of Certificates by Issuers, SEC Rel. No. 34-47978, 68 Fed. Reg.
13 35037, 35042 (June 11, 2003), Short Sales, SEC Rel. No. 34-50103, 69 Fed. Reg.
14 48008, 48016 n.85 (Aug. 6, 2004); Issuer Restrictions or Prohibitions on
15 Ownership by Securities Intermediaries, 69 Fed. Reg. 70852, 70856 n.53 (Dec. 7,
16 2004).
17 Moreover, the Commission recently adopted Regulation SHO, which took
18 effect a little over a year ago, to address its concern that naked short selling could
19 cause an excessive number of extended fails-to-deliver. See Regulation SHO
20 Proposing Release, SEC Rel. No. 34-48709, 68 Fed. Reg. 62972, 62975-78 (Nov.
21 6, 2003) (discussing problems potentially caused by naked short selling); Short
-28-
1 Sales, 69 Fed. Reg. at 48009 (explaining that certain provisions of Regulation
2 SHO are designed to reduce short selling abuses); 48013 n.53 (noting that most
3 commenters welcomed the regulation as a means to address naked short selling
4 manipulation).
5 Among other requirements, Regulation SHO (1) requires broker-dealers to
6 locate securities that are available for borrowing prior to effecting a short sale in
7 any equity security, and (2) requires clearing agency participants to close out fail
8 to deliver positions by purchasing securities of like kind and quantity for securities
9 that are identified by a formula established by the regulation as having a
10 substantial amount of fails. Short Sales, 69 Fed. Reg. at 48014, 48016-17.
11 The Commission also stated that it “intend[ed] to pay close attention to the
12 operation and efficacy of the provisions we are adopting * * *, and will consider
13 whether any further action is warranted.” Short Sales, 69 Fed. Reg. at 48018; see
14 id. at 48017 (“if the Commission believes that the rules as adopted are not having
15 the intended effects of reducing potentially manipulative behavior, we may
16 consider additional rulemaking”). The Commission has every intention of
17 following through on that statement and taking any steps that it finds are necessary
18 or appropriate in the future.
-29-
sec.gov |
