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To: H James Morris who wrote (25212)11/9/1998 5:26:00 PM
From: umbro  Respond to of 164684
 
Can someone explain this UPC thing in plain English?


In 1993, the U.S Securities and Exchange commission approved a new
section of the uniform Practice Code (UPC) requiring NASD members to
close out short sales in Nasdaq securities that meet a certain clearing
short position threshold. Under the rules, the short seller's
broker/dealer must close out a short sale of specific securities 10
days after the normal settlement date if delivery of the security has
not occurred and the transaction is not exempt. Securities subject to
the close-out requirement are those with an aggregate "clearing" short
position of 10,000 shares or more that equals or exceeds one half of
one percent of the total shares outstanding. The NASD will identify these securities daily.


Given about 50 mil. shares outstanding, then 1/2 of 1% would be about
500,000 shares. Now, does the regulation apply to each customer account, or to each brokerage account on a "net short" basis? I assume this is meant to apply on a broker-by-broker net-short basis, which would seem to imply that a smaller broker might give the short-seller a better deal in that the short sales would not be as likely to be forced to cover?



To: H James Morris who wrote (25212)11/9/1998 9:07:00 PM
From: Glenn D. Rudolph  Read Replies (1) | Respond to of 164684
 

William, I didn't also. I called DLJ and here's their response.
Cancel Changes
<Subj: Important Notice fro
Date: 98-11-09 15:11:58 EST
From: dljdirect@dljdirect.ips.aol.com

Dear Mr. Morris,

Good Afternoon|
Below is the information regarding the information we spoke of regarding UPC 11830.

In 1993, the U.S Securities and Exchange commission approved a new section of the
uniform Practice Code (UPC) requiring NASD members to close out short sales in
Nasdaq securities that meet a certain clearing short position threshold. Under the rules,
the short seller's broker/dealer must close out a short sale of specific securities 10 days
after the normal settlement date if delivery of the security has not occurred and the
transaction is not exempt. Securities subject to the close-out requirement are those with
an aggregate "clearing" short position of 10,000 shares or more that equals or exceeds
one half of one percent of the total shares outstanding. The NASD will identify these
securities daily.


James,

Thank you for the clarification from DLJ. I could not recall the exact rule. You saved me from looking it up.

The only question I had to DLJ is, why is this UPC warning exclusive to the 'Thing'?
DLJ's response was "Because it's so volatile"!
Does this mean that the other Internet stocks aren't?

I am speculating a bit so bear with me. I believe the market maker has to report a UPC 11830 when the SEC makes the restriction. DLJ makes a market in AMZN. The volatility answer I doubt is the real reason for the restriction on the thing. DLJ also makes a market in YHOO but I doubt one would see a UPC 11830. The float is still much larger. There is likely no correlation to the volatility although AMZN likely turns over the float reasonably quickly. How is that for a guess?

Glenn


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