By:  Cydney Posner

Corporate Counsel today reported, as most of us predicted, that the SEC intends to announce an additional postponement of the deadline for compliance with SOX 404 by non-accelerated filers, including foreign private issuers that are non-accelerated filers. The current deadline for non-accelerated filers is the first fiscal year ending on or after July 15, 2007. It remains to be seen whether the additional postponement will be merely incremental or push compliance into 2008 for those with calendar-year fiscal years.

In addition, at an open meeting this morning, the SEC voted to propose modifications to Rule 203 of Reg SHO to address the problem of persistent "fails to deliver" with respect to naked short sales. (See my postings of 4/21/06, 5/19/05, 12/01/04, 7/29/04, 7/28/04, 6/23/04 and 11/03/03.) The SEC has been closely monitoring the effects of the Reg SHO pilot program. Although Reg SHO is considered to have significantly reduced many of the problems associated with abusive naked short sales, some manipulative conduct persists. Fails to deliver are particularly significant in the markets for thinly traded securities. The SEC believes that these problems arise out of Reg SHO's grandfather provision and the options market maker exception to the delivery requirement. As a result, the SEC is proposing amendments that eliminate the grandfather provision and narrow the market maker exception by limiting its duration (i.e., the maker would be subject to normal closing requirements once the market maker's hedge position has expired).

It was also noted at the meeting that the staff is currently studying the problem of over-voting of shares (a practice by some traders to affect the outcome of votes by borrowing a large volume of shares for a nominal fee and then using them to cast a corresponding number of votes). (See my posting of 4/17/06.)

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