SEC Tightens Short-Sale Rules, Calls For Firm Close-Out
Last update: 9/17/2008 10:01:06 AM
By Judith Burns
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--The Securities and Exchange Commission announced measures Wednesday to curb abusive "naked short sales" by imposing a firm close-out requirement on short sellers and their brokers.
Short sellers and brokers must deliver securities borrowed for short sales on the trade settlement date, three days after the transaction, or face penalties if they do not, the SEC said.
The tighter delivery requirement was adopted by the SEC as an interim final rule, and will take effect for all public-company securities starting at 12:01 a.m. EDT on Thursday.
Additionally, the SEC finalized two other changes it had previously proposed. One eliminates an exception from the close-out requirements for options market makers, making them subject to the same rules as everyone else. Regulators said that change will take effect five days after it is published in the Federal Register.
The SEC also approved a new anti-fraud rule targeted to short sellers who lie about the ability to deliver borrowed securities. That change takes effect immediately, the SEC said.
Short sellers aim to profit from declining stock prices by borrowing shares to sell and replacing them later at a lower price. So-called "naked" short sellers do not borrow shares before engaging in short sales and may never do so, a practice that can have punishing effects on a stock's price.
SEC Chairman Christopher Cox said in a statement that the changes "make it crystal clear that the SEC has zero tolerance for abusive naked short selling."
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