Grandfather Clause Removal Results - NSS stocks

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DATES: Effective Date: October 15, 2007.

FOR FURTHER INFORMATION CONTACT: James A. Brigagliano, Associate
Director, Josephine J. Tao, Assistant Director, Victoria L. Crane,
Branch Chief, Elizabeth A. Sandoe, Branch Chief, Joan M. Collopy,
Special Counsel, and Lillian S. Hagen, Special Counsel, Office of
Trading Practices and Processing, Division of Market Regulation, at
[phone], at the Securities and Exchange Commission, 100 F
Street, NE., Washington, DC 20549-6628.

SUPPLEMENTARY INFORMATION: We are amending Rules 200 and 203 of
Regulation SHO [17 CFR 242.200 and 242.203] under the Exchange Act.

I. Introduction

Regulation SHO, which became fully effective on January 3, 2005,
sets forth the regulatory framework governing short sales.\1\ Among
other things, Regulation SHO imposes a close-out requirement to address
persistent failures to deliver stock on trade settlement date \2\ and
to target potentially abusive ``naked'' short selling \3\ in certain
equity securities.\4\ While the majority of trades settle on time,\5\
Regulation SHO is intended to address those situations where the level
of fails to deliver for the particular stock is so substantial that it
might impact the market for that security.\6\ Although high fails
levels exist only for a small percentage of issuers,\7\ we are
concerned that large and persistent fails to deliver may have a
negative effect on the market in these securities. For example, large
and persistent fails to deliver may deprive shareholders of the
benefits of ownership, such as voting and lending. In addition, where a
seller of securities fails to deliver securities on trade settlement
date, in effect the seller unilaterally converts a securities contract
(which should settle within the standard 3-day settlement period) into
an undated futures-type contract, to which the buyer may not have
agreed, or that may have been priced differently. Moreover, sellers
that fail to deliver securities on trade settlement date may enjoy
fewer restrictions than if they were required to deliver the securities
within a reasonable period of time, and such sellers may attempt to use
this additional freedom to engage in trading activities that
deliberately and improperly depress the price of a security.
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\1\ 17 CFR 242.200. See also Exchange Act Release No. 50103
(July 28, 2004), 69 FR 48008 (Aug. 6, 2004) (``Adopting Release''),
available at http://www.sec.gov/rules/final/34-50103.htm. For more

information on Regulation SHO, see ``Frequently Asked Questions''
and ``Key Points about Regulation SHO,'' available at http://www.sec.gov/spotlight/shortsales.htm
.