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harmonising short sales rules September 22, 2008

Posted by Bradley in : Uncategorized , trackback

There’s a new SEC announcement (dated yesterday) on technical amendments to the current short selling rules:

The technical amendments keep in place the exception contained in the original order for short selling related directly to bona fide market making in derivatives in the securities of any Included Financial Firm. However, this exception now requires that, for new positions, a market maker may not sell short if the market maker knows a customer or counterparty is increasing an economic net short position in the shares of the Included Financial Firm.
The technical amendments thus incorporate concepts included in the limitations on increasing net short positions imposed by the U.K. Financial Services Authority (FSA) in its response to short selling. The provisions are not identical because unlike the FSA, the Commission does not have statutory authority over swap contracts and other non-security over-the-counter derivatives.
The technical amendments also provide criteria by which the listing exchanges will select the individual financial institutions with securities covered by the Order. The categories include banks, savings associations, broker-dealers, investment advisers, and insurance companies, whether domestic or foreign, and the owners of any of these entities. Issuers can opt out by notifying the exchange to exclude their securities from the list.

The CESR document noted earlier shows some convergence among market regulators, but this announcement of substantial conformity with the approach of the FSA is quite striking, given that the SEC used to hold itself very much apart from non-US regulators who didn’t know how to do securities regulation. Other regulators are also in the game. See, for example, ASIC’s new rules and guide, and Ontario’s temporary order.

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