On July 27, 2009, the Securities and Exchange Commission (“SEC” or “the Commission”) issued a press release stating that it will not renew or otherwise extend interim final temporary Exchange Act Rule 10a-3T (“Temporary 10a-3T”), which required institutional investment managers to report short sales and short positions on Form SH. Thus, the rule will expire on August 1, 2009.
The last Form SH filing will be due on July 31, 2009, reporting short sales and short positions from Sunday, July 19, 2009, through Saturday, July 25, 2009.
In its press release, the Commission announced that instead of renewing Rule 10a-3T, it is working with several self-regulatory organizations (“SROs”) to “substantially increase the public availability of short sale-related information through a series of other actions.” The three specific initiatives identified by the SEC are:
- The daily publication by the SROs on their websites of aggregate short-selling volume in each individual equity security for that day;
- The publication by the SROs on their websites, on a one-month delayed basis, of information regarding individual short sale transactions in all exchange-listed securities; and
- The publication by the Commission on its website twice monthly of data on “fails to deliver” for all equity securities regardless of the fail levels.
Currently, NYSE and FINRA member firms are required to report their proprietary and customer account short interest positions in all securities (including Nasdaq, Amex, NYSE, Arca and over-the-counter), on a security-by-security basis, to FINRA twice a month. FINRA compiles the short interest data and provides it to the media for publication on the eighth business day after the reporting settlement date.
The SEC indicated, in its press release, that it expects the expanded information on both aggregate and individual short-selling to be made available to the public within the next few weeks. However, the agency did not provide details as to what “information regarding individual short sale transactions,” would be published. Informal guidance from SEC staff indicates that individual investor identification is not currently contemplated under the current SRO proposals for individual transaction disclosure. The SEC indicated it will be giving further consideration to disclosure of individual short positions, noting that subject as one of the topics for a Roundtable the Commission will be hosting on September 30, 2009. The Roundtable also will focus on issues related to securities lending, pre-borrowing and possible other short sale disclosures.
The Commission also announced that it has made permanent temporary Rule 204T, which it imposed last fall, requiring a “T+3 hard close out” of fail to deliver short sale positions. Like the temporary rule, new permanent Rule 204 enhances the delivery requirements of Regulation SHO by requiring that broker-dealers deliver securities by settlement date or, if they have not delivered securities by the settlement date, resulting in a fail to deliver, that they immediately purchase or borrow securities to close out the fail to deliver position by no later than the beginning of regular trading hours on the settlement date following the day they incurred the fail to deliver position.