What is changing in Reg SHO?

In May 2010, the SEC adopted amendments to Reg SHO under the Securities Exchange Act of 1934. As outlined in Release Number 34-61595, the SEC is establishing a short sale-related circuit breaker that, if triggered, will impose a restriction on the prices at which securities may be sold short (“short sale price test” or “short sale price test restriction”).

Under the amended rule, the SEC requires that the U.S. exchanges establish procedures to prevent the execution or display of a short sale order of a covered security at a price that is less than or equal to the current national best bid when the price of that security decreases by 10% or more from the prior day’s adjusted closing price.

Once the price test restriction has been triggered, Rule 201 (also known as the Alternative Uptick Rule) would apply to short sale orders in that security for the remainder of the day as well as the following day.

How will NASDAQ OMX indicate when the SEC short sale-related circuit breaker has been triggered in a NASDAQ-listed security?

NASDAQ OMX will introduce a new Reg SHO Short Sale Price Test Restricted Indicator administrative message format on the UTP data feeds and select NASDAQ proprietary data feeds to indicate that an issue has breached the SEC Rule 201 short sale price test threshold. On the UTP data feeds, the new message will be identified as Message Category “A”, Message Type “V”. On the NASDAQ and BX proprietary data feeds, the new message will be identified as Message Type “Y”.

In addition to the real-time messages, NASDAQ OMX will add a spin of Reg SHO Price Test Indicator messages to its pre-opening processes on the UTP, NASDAQ and BX data feeds.

How will the new Reg SHO Price Test Indicator message format work?

The Reg SHO Short Sale Price Test Restricted Indicator message will include Issue Symbol and Reg SHO Action. The defined values for the Reg SHO Action field will be as follows:

If the last price for a security falls by 10% or more from the adjusted prior day’s NASDAQ Official Closing Price (NOCP) value, NASDAQ OMX will disseminate a Reg SHO Price Test Indicator message with an Reg SHO Action value of “1” (Short Sale Price Test Restriction In Effect Due to Intra-day Price Drop). Once disseminated, NASDAQ, BX and UTP participants will be prohibited by rule from executing or displaying any short sale orders priced less than or equal to the prevailing national best bid price. Under Rule 201, the short sale price test restriction will remain in effect for the remainder of the current trading day and for the next trading day.

NASDAQ OMX reserves the right to reverse the Reg SHO Price Test Indicator if it determines that the original trigger was based on a trade transaction that was subsequently ruled to be clearly erroneous or on an improperly adjusted prior day’s closing value. If NASDAQ OMX is reversing the short sale price test restriction for an issue, it will generate a Reg SHO Action message with the Reg SHO Action value of “0” (No Reg SHO Short Sale Price Test Restriction) or “2” (Reg SHO Short Sale Price Test Remains In Effect) depending on the Reg SHO status of the NASDAQ-listed issue prior to the error.

Given that the short sale price test restriction spans multiple days, NASDAQ OMX will disseminate Reg SHO Price Test Indicator messages for all NASDAQ-listed issues as part of its pre-opening processes on the UTP and NASDAQ proprietary data feeds. In the spin, NASDAQ OMX will indicate whether or not the issue is subject to the SEC Rule 201 short sale price test based on the prior day’s trading activity. For those issues for which the Rule 201 restriction remains in effect, the Reg SHO Action value will be “2”. For all other issues, the Reg SHO Action value will be “0”.

Please refer to the NASDAQ and UTP data feed specification documents for additional processing information.

Which data feeds will support the Reg SHO Price Test Indicator message format for NASDAQ-listed securities?

The UTP SIP plans to support the Reg SHO Short Sale Price Test Restricted Indicator (Category A – Type V) message format on all UTP data feeds.

NASDAQ OMX will also support the Reg SHO Short Sale Price Test Restricted Indicator (Type Y) message format on the equity symbology-compliant versions of its NASDAQ and BX proprietary data feed products listed below.

To access the revised data format specifications for this release, please click on UTP and NASDAQ data feed links below.

When will the Reg SHO Price Test Indicator message be implemented?

NASDAQ OMX will officially release the Reg SHO Price Test Indicator messages on the UTP and NASDAQ proprietary data feeds when the SEC’s amendments to Rule 201 of Reg SHO go into effect on November 10, 2010.

Prior to the release, NASDAQ OMX plans to offer a variety of testing opportunities. Once the testing schedule is confirmed, NASDAQ OMX will post a Data Technical News or UTP Vendor Alert with details.

Where can I find additional information?

• Refer to the SEC Release Number 34-61595.
• Refer to the Spotlight on Short Sales section of the SEC website.
• Contact NASDAQ OMX Global Data Products at +1 301 978 5307.