By Cydney Posner

This morning, the SEC held an open meeting to consider various amendments to Reg SHO and voted to take the following actions:

  • Adopt amendments to the grandfather provision of Rule 203 of Reg SHO and the market decline limitation of Rule 200(e)(3).
  • Repropose amendments to the options market maker exception to the close-out requirement of Reg SHO and the marking requirements of Rule 200(g) of Reg SHO.
  • Adopt amendments to the short sale price test of Rule 10a-1 and the "short exempt" marking requirement of Reg SHO.

These amendments fine tune Reg SHO and are designed to eliminate short-selling abuses, including persistent "failures to deliver" (i.e., failures to close out and deliver securities following a short sale). Apparently, the grandfather and market-maker exceptions were being used for abusive practices. In addition, the amendments eliminate the price "tick" test, a requirement that has been on the books since 1938, for exchange-traded securities.

The SEC had been scheduled to consider amendments to Rule 105 of Reg M intended to further safeguard the integrity of the capital raising process and protect issuers from manipulative activity that could reduce issuers' offering proceeds and dilute security holder value, but those amendments were not covered today. See my email of 12/04/06 pasted below.

The press release regarding the meeting is available here.

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