does this apply to BKMP
Text of New Rule to the Uniform Practice Code
(Note: New language is underlined.)
Sec. 71. Mandatory Close-Out for Short Sales
A contract involving a short sale in Nasdaq securities described in subparagraph (a) below, for the account of a customer or for a member's own account, which has not resulted in delivery by the broker-dealer representing the seller within 10 business days after the normal settlement date, must be closed by the broker-dealer representing the seller by purchasing for cash or guaranteed delivery securities of like kind and quantity.
(a) This requirement shall apply to Nasdaq securities, as published by the Association, which have clearing short positions of 10,000 shares or more and that are equal to at least one-half (1/2) of one percent of the issue's total shares outstanding.
(b) This mandatory close-out requirement shall not apply to bona fide market making transactions and transactions that result in bona fide fully hedged or bona fide fully arbitraged positions.
Text of Amendment to Article III, Section 1 of the NASD Rules of Fair Practice Interpretation of the Board of Governors on Prompt Receipt and Delivery of Securities
(5) "Bona Fide Fully Hedged" and "Bona Fide Fully Arbitraged"
In determining the availability of the exemption provided in Section (2)(b) above and in Section 71 of the Uniform Practice Code from short sale requirements for "bona fide fully hedged" and "bona fide fully arbitraged" transactions, the following guidelines shall apply. These guidelines are for illustrative purposes and are not intended to limit the Association's ability to determine the proper scope of the terms "bona fide fully hedged" or "bona fide fully arbitraged" pursuant to this provision, on a case-by-case basis.
(a) Bona fide fully hedged
The following transactions shall be considered bona fide fully hedged:
1. Short a security and long a convertible debenture, preferred or other security which has a conversion price at or in the money and is convertible within ninety days into the short security.
Example: Long ABCD Company 9% convertible subordinated debentures due 1998. Each debenture is convertible into common at $27.90 per share of common equal to 35.842 shares of common per IM debenture.
With the price of the ABCD at 8 3/4 - 9 and a short position of 100 shares of ABCD the short position would not be exempt.
If the price of ABCD was $28 with a short position of 100 shares, 35 shares would be exempt and the remaining 65 shares would not be exempt.
2. Short a security and long a call which has a strike price at or in the money and which is exercisable within 90 calendar days into the underlying short security.
Example: Long 1 call of EFGH (44 1/8) with a strike price of 40 expiring within 90 calendar days.
With the circumstances as above 100 shares would be exempt.
If the strike price was 50 a short position of 100 shares would not be exempt.
With any strike price and the call expiring in more than 90 days any short of the common would not be exempt.
3. Short a security and long a position in warrants or rights which are exercisable within 90 days into the short security. To the extent that the long warrants or rights are "out of the money" then the short position shall be exempt up to the market value of the long warrants or rights.
Example: Long 100 warrants of IJKL (IJKLW: 2 1/4 - 2 3/4). Each warrant is exercisable into 1 share of common at $2. (IJKL: 4 - 4 1/2).
With the circumstances as above a short position of 100 shares would be exempt.
If the price of IJKL is $1.50 and the market value of long warrants is 1/4, a short position of 16 shares would be exempt.
(b) Bona fide fully arbitraged
The following transactions shall be considered bona fide fully arbitraged:
1. Long a security purchased in one market together with a short position from an offsetting sale of the same security in a different market at as nearly the same time as practicable for the purpose of taking advantage of a difference in price in the two markets.
Example: Purchase 100 shares of EFGH on the London Stock Exchange and simultaneously effect a short sale of 100 shares of EFGH on Nasdaq.
Under the above circumstances, the 100 share short position would be exempt.
2. Long a security which is without restriction other than the payment of money exchangeable or convertible within 90 calendar days of the purchase into a second security together with a short position from an off-setting sale of the second security at or about the same time for the purpose of taking advantage of a concurrent disparity in the prices of the two securities.
Example: Long 100 shares of MNOP (MNOP: 51 - 51 1/4) which is being acquired by ORST Corp. (ORST: 52 1/8 - 52 3/8) at the rate of 1.15 shares per MNOP share.
If the exchange is to take place within 90 days then a short of 115 shares of ORST would be exempt from the mandatory buy-in. Also, if the exchange was to take place at a date later than 90 days, all short positions in the above example would be subject to the mandatory buy-in.
(c) The transaction date of the shortsale shall govern when a fully hedged or fully arbitraged position exists.
