They definitely know about NSS but seems some are getting around the laws!!GO FFGO!!!
Commission is rightly trying to increase investor confidence, current short sale regulations, including Rule 204 of Regulation SHO and Exchange Act Rule 10b-21, are sufficient to address the public’s concerns about potentially abusive short selling.93 A significant number of commenters, however, continue to urge the Commission to reinstate some form of short sale price test restriction because these commenters believe that such a measure will help to restore investor confidence.94 One commenter stated that “we Officer, Millennium Management LLC, dated June 19, 2009 (“Millennium”); letter from Citadel et al. (June 2009). 93 See e.g., letter from Tim Belloto, dated May 5, 2009; letter from MFA (June 2009); letter from SIFMA (June 2009); letter from Pershing Square; letter from Paul M. Russo, Managing Director and Head of U.S. Equity Trading, Goldman, Sachs & Co., dated June 19, 2009 (“Goldman Sachs (June 2009)”); letter from CBOE (June 2009); letter from Allston Trading (June 2009); letter from STANY (June 2009); letter from Citadel et al. (June 2009); letter from STA (Sept. 2009); letter from BATS (Sept. 2009). 94 See, e.g., letter from Herbert C. Roubidoux, dated May 4, 2009; letter from William K. Barnard, CEO, Equity Insight, Inc., dated May 4, 2009 (“Equity Insight”); letter from Henry J. Judd, CEO, Alethium Corp., dated May 6, 2009; letter from John Sook, dated May 6, 2009; letter from Boris Finkelstein, dated May 7, 2009; letter from John E. Detraz, dated May 8, 2009; letter from Joseph Giancola, dated May 8, 2009; letter from John W. Kozak, Chief Financial Officer, Park National Corporation, dated May 19, 2009 (“Park National”); letter from Robert S. Miloszewski, dated June 1, 2009; letter from Dr. George R. Arends, dated June 1, 2009; letter from Kent Hendrickson, dated June 4, 2009; letter from Dennis Nixon, Chairman and Chief Executive Officer, International Bancshares Corporation, dated June 9, 2009 (“IBC”); letter from Brian P. Hendey, dated June 9, 2009; letter from Catherine Mapen, dated June 15, 2009; letter from Jeffrey T. Brown, Senior Vice President, Office of Legislative and Regulatory Affairs, Charles Schwab & Co., Inc., dated June 18, 2009 (“Schwab”); letter from Michael Gitlin, Head of Global Trading, David Oestreicher, Chief Legal Counsel, Christopher P. Hayes, Sr. Legal Counsel, T. Rowe Price Associates, Inc., dated June 18, 2009 (“T. Rowe Price (June 2009)”); letter from Michael R. McAlevey, Vice President and Chief Corporate, Securities and Finance Counsel, General Electric Company, dated June 18, 2009 (“GE”); letter from Janet M. Kissane, Senior Vice President, Legal and Corporate Secretary, NYSE Euronext, dated June 19, 2009 (“NYSE Euronext (June 2009)”); letter from Ronald C. Long, Director, Regulatory Affairs, Wells Fargo Advisors, dated June 15, 2009 (“Wells Fargo (June 2009)”). In addition, prior to the Proposal, a number of commenters stated that they believe that reinstatement of some form of price test restriction would help restore investor confidence. See, e.g., letter from Richard F. Vulpi, dated Sept. 24, 2008; letter from Maureen Christensen, dated Oct. 9, 2008; letter from Peter B. Eckle, CEO Associate Arrangements, dated Oct. 11, 2008; letter from Joe Garrett, dated Oct. 15, 2008; letter from Jenna L. Spurrier, dated Oct. 24, 2008; letter from Scotland Settle, dated Oct. 27, 2008; letter from Patrick McQuaid, dated Oct. 29, 2008; letter from Lynn Miller, dated Nov. 13, 2008; letter from David Sheridan, dated Nov. 18, 2008; letter from W. Romain Spell, dated Nov. 19, 2008; letter from Phil Mason, dated Nov. 19, 2008; letter from Jeff Brower, dated Nov. 20, 2008; letter from Mike Abraham, dated Nov. 20, 2008; letter from Marvin Dingott, dated Nov. 20, 2008; letter from Josh Dodson, dated Nov. 21, 2008; letter from J. Geddes Parsons, dated Nov. 21, 2008; letter from Charles Rudisill, dated Nov. 21, 2008; letter from Mike Ryan, dated Nov. 21, 2008; letter from David B. Campbell and Natalie H. Win, dated Nov. 25, 2008; letter from Edward L. Yingling, American Bankers Association, dated Dec. 16, 2008; letter from Robert A. Lee, dated Feb. 10, 2009; letter from Robert Levine, dated Feb. 17, 2009; letter from Karl Findorff, dated Feb. 19, 2009; letter from Robert Lounsbury, dated Feb. 25, 2009; letter from Dr. Bill Daniel, dated Feb. 26, 2009; letter from Glenn A. Webster, dated Feb. 26, 2009; letter from Arleen Golden, dated Mar. 2, 2009; letter from Doug Cameron, dated Mar. 2, 2009; letter from Mike Rogers, dated Mar. 3, 2009; letter from George A. Flagg, dated Mar. 3, 2009; letter from 26 believe that a price test could have a real impact on investors’ and issuers’ confidence in the equities market.”95 Some commenters have stated that a lack of price test restrictions makes them question whether they should invest in the stock market.96 Other commenters have stated that they believe a short sale price test will aid small investors.97 In addition, some commenters have suggested that restricting the prices at which securities may be sold short will help address steep declines in securities’ prices.98 Some Members of Congress and representatives of one Kevin Girard, dated Mar. 4, 2009; letter from Briggs Diuguid, dated Mar. 5, 2009 (“Briggs Diuguid”); letter from Bob Young, dated Mar. 5, 2009; letter from Troy Williams, dated Mar. 6, 2009; letter from Paul Kent, dated Mar. 7, 2009; letter from Chris Baratta, dated Mar. 9, 2009 (“Chris Baratta”); see also letter from Professor Constantine Katsoris, Fordham University School of Law, dated Mar. 4, 2009 (stating that elimination of former Rule 10a-1 “hardly generates confidence on the part of a true investor who is entrusting his or her life’s savings…to the current market”). 95 Letter from NYSE Euronext (June 2009). 96 See, e.g., letter from Phil Koepke, dated May 5, 2009; letter from Joe Wells, dated May 29, 2009; letter from Michael Anderson, dated June 1, 2009 (noting “f the SEC fails to act in the best interest of all investors, then peopel (sic) like myself, will look at other investment alternatives than the Stock Market.”); letter from Anton Kleinschmidt, dated June 2, 2009 (noting that he “will not return to the equity markets” until he is “confident that the wide range of market predators such as unregulated short sellers are being effectively controlled”). In addition, prior to (and as cited in) the Proposal, commenters expressed similar concerns regarding a lack of price test restrictions. See, e.g., letter from Jeff Boyd, dated Feb. 10, 2009; letter from Tim Zanni, dated Feb. 19, 2009. 97 See, e.g., letter from Michael Anderson, dated June 1, 2009; letter from Carl H. Van Hoozier, Jr., dated June 3, 2009; letter from Kevin Adcock, dated June 3, 2009 (noting that “[w]ithout this reinstatement the market will never be judged as fair, balanced or worth the unfair risks created by the SEC removing a tried and tested 70+ year old rule”); letter from Fran Mazenko, dated June 4, 2009; letter from Daniel H. Owings, dated June 4, 2009 (noting “the elimination of the uptick rule…prevented the small investor from equal treatment in the market”); letter from Kathleen Jardine, dated June 4, 2009. In addition, prior to (and as cited in) the Proposal, commenters expressed similar statements regarding short sale price tests aiding small investors. See, e.g., letter from Chris Baratta (noting that while price test restrictions could not reasonably be expected to prevent market downturns, they would, in his opinion, “give the little investor a chance” in the current conditions); see also letter from Paul D. Mendelsohn, President, Windham Financial Services, Inc., dated Mar. 6, 2009 (stating that he believes former Rule 10a-1 “protected” the markets and that “suspension of the uptick rule has opened a security hole into our financial system”); letter from Bob Young, dated Mar. 5, 2009 (suggesting that reinstatement of the uptick rule “will not be a quick or total fix, but it will help”). 98 See, e.g., letter from Grant D. Wieler, dated May 8, 2009; letter from John J. Piccitto, Managing Director, John Piccitto Consulting Ltd., dated May 7, 2009 (noting that “ecause the decline of the value of a stock can be very steep and very fast indeed, the ensuing ‘feeding frenzy’… should be addressed by regulators. Slowing the cascade of short selling would create both the fact and the appearance of regulatory control…”); letter from Mucho Balka, Esq., dated May 30, 2009; letter from George A. Mitchell, dated June 1, 2009; letter from Jason Sturm, dated June 1, 2009; letter from Erin Chieffi , dated June 2, 2009; letter from Paul Rivett, Vice President and Chief Legal Officer, Fairfax Financial Holdings Ltd., dated June 17, 2009 (“Fairfax Financial”); letter from GE; letter from Michael Lamanna, dated June 17, 2009; letter from Stanyarne Burrows, dated June 17, 2009; letter from William R. Harker, Senior Vice President, General Counsel and Corporate Secretary, Sears Holdings 27 SRO have also continued to express support for reinstatement of price test restrictions.99 One such SRO representative noted that over 95% of its issuers who participated in a survey believed that the market would function better with one of the proposed short sale price test restrictions.100 As we noted in the Proposal, some researchers have also indicated that they believe that they have collected data that establishes a possible association between the recent market Corporation, dated June 19, 2009 (“Sears”); letter from Glen Shipway, dated Sept. 21, 2009 (“Glen Shipway (Sept. 2009)”). In addition, the American Bankers Association noted that its members, “both large and small, have told us that short sellers were taking advantage of the uptick rule’s absence; that their stock prices were experiencing excessive downward pressure unrelated to actual conditions of the firm . . . .” and that its members expressed “that measures needed to be taken, including reinstating the uptick rule in some format, to reduce the avenues for abusive trading practices and to restore investor confidence.” Letter from Sarah A. Miller, Senior Vice President, Center for Securities, Trust and Investments, American Bankers Association, dated July 1, 2009 (“Amer. Bankers Assoc.”); see also letter from Paul Tudor Jones II, Tudor Investment Corporation, dated Oct. 10, 2008 (stating that he believes that one way to “immediately stem the decline” in the stock market would be to reinstate the uptick rule); letter from James F. Kane, Jr., dated Feb. 6, 2009 (stating that he believes that reinstating “the Up-tick Rule will go a long way in preventing speculators from ganging up on a particular stock and forcing it down”); letter from Briggs Diuguid (stating that while short sellers “make efficient markets,” he is nonetheless concerned that short selling may be a tool of manipulators when short sales are “piled on” a particular company). 99 See e.g., letter to Mary Schapiro, Chairman, from Kirsten Gillibrand, United States Senator, dated June 5, 2009; joint statement of Ted Kaufman, United States Senator, and Johnny Isakson, United States Senator, dated Sept. 29, 2009. In addition, prior to (and as cited in) the Proposal, several current and former Members of Congress have called for reinstatement of short sale price test restrictions. See, e.g., letter to Christopher Cox, Chairman, from Hillary Rodham Clinton, former United States Senator, dated Sept. 17, 2008; letter to Christopher Cox, Chairman, from Bill Sali, Member of Congress, dated Oct. 1, 2008; letter to Christopher Cox, Chairman, from Peter T. King, Member of Congress, dated Oct. 7, 2008; letter to Mary Schapiro, Chairman, from Gary L. Ackerman, Member of Congress, dated Jan. 27, 2009; letter to Mary Schapiro, Chairman, from Rep. Barney Frank and other Members of the House Financial Services Committee, dated Mar. 11, 2009; Proposal, 74 FR at 18046-18047 (noting statements by a Member of Congress and a former U.S. Senator asking the Commission to reinstate former Rule 10a-1 or some other form of short sale price test restriction). See also letter to Mary Schapiro, Chairman, from Carolyn Maloney, Member of Congress and Chairman of the Joint Economic Committee, dated Mar. 23, 2009. We note, however, that other Members of Congress have expressed concerns regarding our adopting a short sale price test restriction. See, e.g., letter to Mary Schapiro, Chairman, from Michael Crapo, United States Senator, Jim Bunning, United States Senator, David Vitter, United States Senator, Michael Enzi, United States Senator, and Mel Martinez, former United States Senator, dated June 17, 2009. With respect to comments by SRO representatives, see, e.g., letter from Janet M. Kissane, Senior Vice President, Legal and Corporate Secretary, NYSE Euronext, dated Sept. 21, 2009 (“NYSE Euronext (Sept. 2009)”); letter from NYSE Euronext (June 2009); statement of Larry Leibowitz, Group Executive Vice President and Head of Global Technology and US Executions, NYSE Euronext, dated May 5, 2009 (“NYSE Euronext (May 2009)”). In addition, prior to (and as cited in) the Proposal, one senior SRO representative endorsed the reinstatement of a short sale price test restriction. See Edgar Ortega, Short-Sale Rule Undermined as Bernanke Backs Review, Bloomberg News Service, Mar. 4, 2009 (noting comments by Duncan Niederauer, CEO, The NYSE Euronext Group, Inc., that imposing a measure such as former Rule 10a-1, “would go a long way to adding confidence” in our markets). 100 See letter from NYSE Euronext (June 2009). 28 downturn and the elimination of former Rule 10a-1.101 Commenters also submitted data or referenced studies they believe support the contention that a price test restriction would have a positive impact on the market.102 In addition, there have been reports of significant short selling in connection with the use of credit default swaps (“CDS”), particularly in the securities of significant financial institutions,103 and it has been suggested that the interaction between and amplifying effects of CDS and short selling may be a reason to reinstate a short sale price test.104 Further, as we stated in the Proposal, questions and comments have been raised about the role that short selling, and in particular potentially abusive short selling, may have had in connection with the recent price fluctuations and disruption in our markets.105 As such, prior to issuing the Proposal, in the latter part of 2008, we took a number of other short sale-related actions aimed at addressing these concerns. For example, due to our concerns that false rumors spread by short sellers regarding financial institutions of significance in the U.S. may have fueled market volatility in the securities of some of these institutions, on July 15, 2008, we issued an 101 See Proposal, 74 FR at 18047, n.64; see also letter from Yavni Bar-Yam, New England Complex Systems Institute, dated June 23, 2009 (“Yavni Bar-Yam”); Dion Harmon and Yaneer Bar-Yam, April 2009, Technical Report on SEC Uptick Rule Proposals, New England Complex Systems Institute. 102 See, e.g., letter from NYSE Euronext (June 2009); letter from Schwab; letter from Richard J. Adler, Managing Director, European Investors, Inc., dated June 19, 2009 (“European Investors (June 2009)”); letter from Richard J. Adler, Managing Director, European Investors, dated Sept. 21, 2009 (“European Investors (Sept. 2009)”); letter from William Furber, High Street Advisors, L.P., dated June 18, 2009 (“High Street Advisors”); letter from Park National; letter from IBC; letter from Daniel P. Amos, Chairman and CEO, Aflac Incorporated, dated June 23, 2009 (“Aflac”); letter from J. Austin Murphy, Ph.D., Professor of Finance at Oakland University, School of Business Administration, dated Apr. 9, 2009 (“Prof. Murphy”); letter from Martin B. Napor, dated June 17, 2009 (“Martin Napor”); see also infra Section II.D. (discussing empirical data submitted in response to the Proposal and the Re-Opening Release). 103 See Proposal, 74 FR at 18047, n.65 (referring to an article by George Soros, The Game Changer, available at http://www.ft.com/cms/s/0/49b1654a-ed60-11dd-bd60-0000779fd2ac.html). Similarly, in response to the Proposal, commenters raised concerns about CDS and short selling. See, e.g., letter from Edward D. Herlihy, Theodore A. Levine, Wachtell, Lipton, Rosen & Katz, dated June 17, 2009 (“Wachtell”); letter from GE. 104 See Proposal, 74 FR at 18047, n.66 and accompanying text. 105 See Proposal, 74 FR at 18047-18048. 29 emergency order (“July Emergency Order”)106 pursuant to Section 12(k)(2) of the Exchange Act107 which imposed borrowing and delivery requirements on short sales of the equity securities of certain financial institutions. We noted in the July Emergency Order that false rumors can lead to a loss of investor confidence. Such loss of investor confidence can lead to panic selling, which may be further exacerbated by “naked” short selling. As a result, the prices of securities may artificially and unnecessarily decline well below the price level that would have resulted from the normal price discovery process.108 If significant financial institutions are involved, this chain of events can threaten disruption of our markets.109 Due to our concerns regarding the impact of short selling on the prices of financial institution securities, on September 18, 2008, we issued another emergency order prohibiting short selling in the publicly traded securities of certain financial institutions.110 Our concerns, however, were not limited to financial institutions, given the importance of confidence in our markets and the rapid and steep declines in the prices of securities that generally we were seeing at that time.111 Such rapid and steep price declines can give rise to questions about the underlying financial condition of an institution, which in turn can erode confidence, even without 106 See Exchange Act Release No. 58166 (July 15, 2008), 73 FR 42379 (July 21, 2008). 107 15 U.S.C. 78l(k)(2). 108 See July Emergency Order, 73 FR 42379. 109 See id. 110 See Exchange Act Release No. 58592 (Sept. 18, 2008), 73 FR 55169 (Sept. 24, 2008) (“Short Sale Ban Emergency Order”). 111 See, e.g., July Emergency Order, 73 FR 42379; Short Sale Ban Emergency Order 73 FR 55169; Exchange Act Release No. 58572 (Sept. 17, 2008), 73 FR 54875 (Sept. 23, 2008) (“September Emergency Order”). 30 an underlying fundamental basis.112 This erosion of confidence can impair the liquidity and ultimate viability of an institution, with potentially broad market consequences.113 These concerns resulted in our issuance on September 17, 2008 of an emergency order under Section 12(k)(2) of the Exchange Act, in part targeting short selling in all equity securities.114 Pursuant to the September Emergency Order we imposed enhanced delivery requirements on sales of all equity securities under Rule 204T of Regulation SHO.115 Rule 204T, among other things, required participants of a registered clearing agency to close-out fails to deliver resulting from short sales of any equity security by purchasing or borrowing the security by no later than the beginning of trading on the day after the fail to deliver occurred. We adopted the provisions of the September Emergency Order as an Interim Final Temporary Rule in October 2008 because of our continued concern about the potentially negative market impact of large and persistent fails to deliver.116 Our adoption of Interim Final Temporary Rule 204T followed a series of other steps aimed at reducing such fails to deliver and addressing potentially abusive short selling. These steps included eliminating the “grandfather” and options market maker exceptions to Regulation SHO’s close-out requirement,117 and proposing and subsequently adopting a “naked” short 112 See Short Sale Ban Emergency Order, 73 FR 55169; September Emergency Order, 73 FR 54875. 113 See id. 114 See September Emergency Order, 73 FR 54875. 115 See id. In addition, we issued an emergency order, and subsequent Interim Final Temporary Rule, Rule 10a-3T, to require disclosure of short sales and short positions in certain securities. The temporary rule expired on August 1, 2009. See Exchange Act Release No 58591 (Sept. 18, 2008) 73 FR 55175 (Sept. 24, 2008); Exchange Act Release No. 58785 (Oct. 15, 2008), 73 FR 61678 (Oct. 17, 2008). 116 See Exchange Act Release No. 58773 (Oct. 14, 2008), 73 FR 61706 (Oct. 17, 2008) (“Interim Final Temporary Rule 204T”). 117 See Exchange Act Release No. 56212 (Aug. 7, 2007), 72 FR 45544 (Aug. 14, 2007) (eliminating the “grandfather” exception to Regulation SHO’s close-out requirement); September Emergency Order, 73 FR 54875 (eliminating the options market maker exception to Regulation SHO’s close-out requirement). 31 selling anti-fraud rule, Rule 10b-21.118 Although we recognize that fails to deliver can occur for legitimate reasons, we remained concerned about the impact of large and persistent fails to deliver on market confidence. Results from Staff analysis indicate that our actions to further reduce fails to deliver are having their intended effect. For example, these results indicate that fails to deliver in all equity securities have declined significantly since the adoption of Interim Final Temporary Rule 204T.119 To help further our goal of reducing fails to deliver by maintaining the reductions in fails to deliver achieved by the adoption of Interim Final Temporary Rule 204T, as well as other actions taken by the Commission, we adopted the substance of Interim Final Temporary Rule 204T as a permanent rule, Rule 204, in July 2009.120 Despite the significant decline in fails to deliver and the more recent stability in the securities markets, concerns persist about rapid and steep price declines in securities and erosion of investor confidence in our markets. Thus, we continued to examine whether there are other actions that the Commission should take, including re-evaluating whether a short sale price test should be reintroduced or a circuit breaker rule should be imposed. As we stated in the Proposal, when we eliminated all short sale price test restrictions in July 2007, we acknowledged that circumstances may develop that could warrant relief from the Following the issuance of the September Emergency Order, we adopted amendments making permanent the elimination of the options market maker exception. See Exchange Act Release No. 58775 (Oct. 14, 2008), 73 FR 61690 (Oct. 17, 2008) (“Options Market Maker Elimination Release”). 118 See Exchange Act Release No. 58774 (Oct. 14, 2008), 73 FR 61666 (Oct. 17, 2008); September Emergency Order, 73 FR 54875; Exchange Act Release No. 57511 (Mar. 17, 2008), 73 FR 15376 (Mar. 21, 2008). 119 See Memorandum from the Staff Re: Impact of Recent SHO Rule Changes on Fails to Deliver, Nov. 4, 2009 at http://www.sec.gov/spotlight/shortsales/oeamemo110409.pdf (stating, among other things, that the average daily number of aggregate fails to deliver for all securities decreased from 2.21 billion to 0.25 billion for a total decline of 88.5% when comparing a pre-Rule to post-Rule period); Memorandum from the Staff Re: Impact of Recent SHO Rule Changes on Fails to Deliver, Nov. 26, 2008 at http://www.sec.gov/comments/s7-3008/ s73008-37.pdf; Memorandum from the Staff Re: Impact of Recent SHO Rule Changes on Fails to Deliver, Mar. 20, 2009 at http://www.sec.gov/comments/s7-30-08/s73008-107.pdf. 120 See Exchange Act Release No. 60388 (July 27, 2009), 74 FR 38266 (July 31, 2009) (“Rule 204 Adopting Release”). Rule 204 contained some modifications to address commenters’ concerns. See id. 32
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