On July 27, 2009, the SEC made permanent temporary Rule 204T (now Rule 204), which requires short sellers and their broker-dealers to deliver securities by the close of business on the settlement date for short sale transactions, and imposes penalties for the failure to do so. In the fall of 2008, the SEC had issued a series of orders and rules designed to curb “naked” short selling and to temporarily prohibit the short selling of stocks of certain financial companies because such practices have the potential to exacerbate market price movements. In a short sale transaction, a seller borrows a stock and sells it, with the understanding that the loan will be repaid by the seller by buying the stock on the open market. In a “naked” short sale transaction, the seller does not actually borrow the stock and fails to deliver it to the buyer. Noting that its temporary actions have largely had the intended effect of preventing substantial disruptions in the securities markets, the SEC adopted a permanent rule.
The SEC also allowed an interim final temporary rule requiring institutional investment managers (i.e., those who file or are required to file reports on Form 13-F) to report short sales of publicly-traded equity securities to expire on August 1, 2009. The rule required the filing of a Form SH on every Monday (or the first business day of the week if Monday is a federal holiday) with respect to any new short positions the manager had entered into during the prior seven-day period. The SEC indicated that it is working with self-regulatory organizations to make short sale volume and transaction data available through the organizations’ websites.