Wednesday, September 24, 2008

Equity Regulatory Alert #2008 - 27
UPDATE: SEC Issues Further Guidance to Protect Investors Against “Naked” Short Selling

Please Route To:

Head Traders; Technical Contacts; Compliance Officers

What you need to know:

As stated in Regulatory Alert #2008-25, the Securities and Exchange Commission (SEC) issued further guidance to protect investors against "naked" short selling:

The SEC is "extending temporary Rule 204(a)'s close-out requirement for fails to deliver attributable to bona fide market making activities by registered market makers, options market makers, or other market makers obligated to quote in the over-the-counter market (collectively, "Market Makers")."

As a result, NASDAQ® Market Makers must "close out the fail to deliver position attributable to a Market Maker by no later than the beginning of regular trading hours on the morning of the third settlement day after the settlement date for the transaction that resulted in the fail to deliver position."

In order to receive such relief, a NASDAQ Market Maker to which a fail to deliver position at a registered clearing agency is attributable, must fill out and submit the attached form per security, per event to:

  1. attest in writing to the market on which it is registered that the fail to deliver position at issue was established solely for the purpose of meeting its bona fide market making obligation, and,
  2. describe the steps the Market Maker has taken in an effort to deliver securities to its registered clearing agency.

NASDAQ Market Makers wishing to invoke this temporary relief should fax the Written Attestation form to NASDAQ MarketWatch at +1 301 978 8511.

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