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SEC Offers Relief For Brokers That Traded Gluv Shares



By Judith Burns, Of DOW JONES NEWSWIRES

WASHINGTON -(Dow Jones)- Brokerage firms that bought and sold Gluv Corp. ( GVRP) stock before trading was suspended last month will get some relief from net-capital rules, preventing a further merry-go-round of trading when the number of available shares is in doubt.

A letter to NASD Regulation Inc. from the Securities and Exchange Commission's market-regulation division, released Friday, said the SEC staff will not recommend SEC enforcement action against brokerage firms that don't take capital charges based on trading in Gluv shares before the SEC ordered a trading halt.

Trading was halted on May 27 amid questions about the number of shares outstanding. On May 22, Gluv, a West Palm Beach, Fla., shell company traded on the Pink Sheets, announced a dividend payment that would provide three million shares for each share outstanding. SEC staffers said it appeared Gluv had only 11 shares outstanding at the time, but the issuance of three million shares before the dividend payment raised the prospect of trillions of shares flooding the market.

Billions of shares of Gluv had traded when the SEC announced a 10-day trading halt. Only a small amount of shares have changed hands since the trading suspension ended on June 10. The NASD, formerly the National Association of Securities Dealers, recently issued a special notice warning members to exercise "great caution" until they know if the Gluv shares are bona fide. However, some brokers worried they might face millions of dollars in capital charges on short positions in Gluv or on shares they failed to deliver or receive.

NASD regulators sought and received SEC staff assurances that net-capital requirements won't apply to trading in Gluv before May 27.

Brokers "must take all applicable net capital charges" for Gluv trading after June 10, the SEC staff letter states.

An NASD official, who spoke on condition of not being identified, said the SEC staff action means the prospect of capital charges will not rekindle a rush of trading in a stock at a time when it isn't clear how many shares are actually available.

"It resolves the concerns we had," the NASD official said. "Nobody needs to try to trade in a market that is uncertain."

A substantial number of trades in Gluv have yet to settle, but the NASD official predicted individual brokerage firms will try to resolve their obligations through informal arrangements, arbitration or litigation.

The letter from the SEC market-regulation division staff is posted on the SEC's Web site at http://www.sec.gov.

-By Judith Burns, Dow Jones Newswires; 202-862-6692; [e-mail]