CCH Financial Reform News Center

Senators Say SEC Action Falls Short of Solving Naked Short Selling Concern

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

Senators Ted Kaufman and Johnny Isakson said that the partial action taken by the SEC will neither provide investors with the same protections as the uptick rule nor address the enforcement issues surrounding the current naked short selling rule. The SEC voted 3-2 to require short sellers, if a company’s shares fall 10 percent in one day, to exceed the prevailing bid for the remainder of the trading day and the following day in short sales of that security.

While encouraged that the SEC took some action to protect investors from manipulative short selling, adding that the circuit-breaker/bid test rule is a step forward, the senators said it will be of limited use, helping only in the worst-case scenarios that could occur during a terrorist attack or financial crisis. The uptick rule worked for 70 years as a systemic check on predatory bear raids; they emphasized, and this approach will not provide investors with the same protections as an always-on bid test.

Divided Commission Adopted Alternative Uptick Rule for Short Sales

This story appeared in Jim Hamilton's World of Securities Regulation.

In a 3-to-2 vote, the SEC adopted amendments to Rules 200(g) and 201 of Regulation SHO that will restrict short selling in instances where a company’s shares drop 10% or more in value in one day. The Commission originally proposed the alternative uptick rule last April, held a roundtable discussion on it in May and then issued an additional call for comments in August. The agency received more than 4,300 comment letters on the controversial issue.

CCH Briefing Paper Examines House Legislation

The CCH Editorial Staff of banking and securities law analysts has authored a detailed overview titled, "House Passes Wall Street Reform Act." From the introduction:

On December 11, 2009, the U.S. House of Representatives passed legislation to restructure the financial services regulatory system, the Wall Street Reform and Consumer Protection Act of 2009 (HR 4173), by a vote of 223-202. As discussed below, the sweeping array of reforms includes the Financial Stability Improvement Act, which would create a systemic risk regulator, strengthen regulation of depository institutions and bank holding companies, improve the asset-backed securitization process, and provide for an enhanced dissolution authority. The legislation also would create a Consumer Financial Protection Agency, reform the over-the-counter derivatives market, subject hedge funds to stricter scrutiny, impose new corporate governance mandates, adopt heightened requirements for credit rating agencies and expand regulatory enforcement powers. Among other measures, the legislation features expansive consumer mortgage protections and creates a Federal Insurance Office.

Download the briefing paper

Panelists Announced for Securities Lending and Short Sale Roundtable

This story appeared in Bank Digest.

The Securities and Exchange Commission has announced the panelists for its September 29 and September 30 roundtable in Washington, D.C., to discuss securities lending and short sale issues. Roundtable participants will include representatives of corporate issuers, financial services firms, beneficial owner lenders, lending agents, borrowers of securities, self-regulatory organizations, international regulators and the academic community.

http://www.sec.gov/news/press/2009/2009-207.htm

Japan FSA Extends Restrictions on Short Selling

This story appeared in Jim Hamilton's World of Securities Regulation

The Japanese Financial Services Agency extended its restrictions on short selling until October 31, 2009. The restrictions were to have expired on July 31, 2009. Thus, the regulatory measures on short selling currently in place will continue with regard to all listed stocks in Japan. In Japan, the short position reporting requirements cover only equity stock short positions.

Hong Kong Securities and Futures Commission Proposes Enhanced Short Position Reporting

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

The Hong Kong Securities and Futures Commission has proposed the enhanced transparency of short selling in line with the IOSCO principles for the regulation of short selling. More specifically, the proposal reflects the IOSCO principle that short selling be governed by a reporting regime that ensures timely information disclosure. The SFC sets out a number of approaches that may be taken and the issues that will have to be considered and addressed in formulating relevant requirements, including whether derivatives should be included and whether threshold or periodic reporting will be required.

SEC Acts to Curb Abusive Short Selling and Enhance Transparency

This story appeared in Jim Hamilton's World of Securities Regulation

The SEC made permanent a temporary rule reducing the potential for abusive naked short selling and acted to enhance the public availability of short sale information. Rule 204T was made permanent and new Rule 204 requires broker-dealers to promptly purchase or borrow securities to deliver on a short sale. The temporary rule, approved by the SEC in the fall of 2008, was set to expire on July 31.

The SEC is also working with several SROs to make short sale volume and transaction data available through the SRO websites. This effort will result in a substantial increase over the amount of information presently required by Temporary 10a-3T. That rule, which will expire on August 1, applies only to certain institutional money managers and does not require public disclosure.

German and UK Securities Regulators to Extend Prohibitions on Naked Short Selling; While Australia Lifts Ban

James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

The German Federal Financial Supervisory Authority (BaFin) has extended its ban on naked short selling in the shares of financial companies to January 31, 2010. This is BaFin’s third extension of the prohibition, which was adopted in September of 2008. The companies affected by the ban include Allianz SE, Commerzbank AG, and Deutsche Bank AG. BaFin promised to ppromptly lift the ban in the event of a far-reaching stabilization of the markets.

Schapiro Warns Against Concentration of Power With Systemic Risk Regulator

This story appeared in SEC Today.

Chair Mary Schapiro reviewed the SEC’s current initiatives and shared her views on an appropriate system of regulation in remarks at the Investment Company Institute’s recent membership meeting. She said the SEC has entered what will be one of the most active rulemaking periods in the agency’s history. This week, the SEC will consider a rule proposal to enhance the controls over investment adviser custody of customer assets.

The SEC recently proposed rules aimed at short selling abuses and will soon propose rules to improve investor access to corporate proxies. The staff is working on proposals for credit rating agencies, money market funds, target date funds and Rule 12b-1. That is just the beginning, according to Schapiro. She said there is a great deal of urgent work ahead.

SEC Announces Agenda and Panelists For Roundtable on Short Selling

This story appeared in Bank Digest.

The Securities and Exchange Commission has announced the agenda and panelists for its May 5 roundtable to discuss short sale price tests and short sale circuit breakers. Panel topics will include: discussions on investor confidence and the necessity and effectiveness of short sale price tests and short sale circuit breakers; the operational and compliance issues raised by the SEC's recently proposed regulatory approaches in the area of short selling; and what empirical data says about short sale price tests and short sale circuit breakers. http://sec.gov/news/press/2009/2009-101.htm