The Securities and Exchange Commission voted this week to adopt several amendments to its short sale rules. These amendments would eliminate the grandfather provision currently contained in Rule 203 of Regulation SHO, which provides that the requirement to close-out fail to deliver positions in a threshold security that remain for 13 consecutive settlement days (the close-out requirement) does not apply to positions established prior to the security becoming a threshold security or prior to the effective date of Regulation SHO. Under the amended rule, previously excepted grandfather positions must be closed out within 35 settlement days of the effective date of the amendment. The amended rule also extends the close-out requirement from 13 to 35 consecutive settlement days for fails to deliver resulting from sales of threshold securities pursuant to Rule 144 of the Securities Act. These amendments will be effective 60 days from the date of their publication in the Federal Register.
The SEC has also voted to amend Rule 10a-1 to eliminate the so-called “tick test,” as well as any other short sale price test of any self-regulatory organization, and to eliminate the related “short exempt” marking requirement of Rule 200(g) of Regulation SHO. These amendments will be effective immediately upon publication in the Federal Register.
Finally, the SEC also proposed amendments to Regulation SHO to require that broker-dealers marking a sale as “long” document the present location of the securities being sold and to eliminate the options market maker exception to the close-out requirement. The comment period for these proposals will end 30 days after publication of the proposed rules in the Federal Register.