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Summary
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 Regulation SHO updates
SEC rules
on short sales
- Adopted in 2004
- Replaces
Rules 3b-3, 10a-1, and 10a-2
- Amends
Rule 105 of Regulation M
Key
provisions
- Short
sellers of equities must locate securities to borrow before selling short
- Imposes
strict delivery requirements to complete transactions
- To
address problems from naked short selling
- Especially by hedge funds;
particularly in small-cap, convertible and PIPEs issues (See PIPEs)
- One cent above consolidated best bid
- Replaces tick test
- Two-year
trial to suspend bid test
for specified liquid securities
SEC
summaries
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Developments
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SEC
adopts changes to Regulation SHO
SEC
amends short sale price test
- Proposal release 34-54891
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Rule 10a-1
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Short
Sales
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Regulation SHO
 Rule 200 -- Definition of "Short Sale" and Marking
Requirements-
Defines ownership and aggregation of securities positions
- Must mark all sell orders in all equity securities
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Rule 201 --
Price test [Reserved]
- Proposed rule would replace Rule 10a-1
- Apply a uniform price test for exchange-listed and NASDAQ
NMS securities based upon the consolidated best bid
- instead of the current tick test, which is based on the last
reported sale
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Rule 202T -- Temporary Short Sale Rule Suspension-
Allows the SEC to temporarily suspend the operation of the
current tick test in Rule 10a-1, and any short sale price test
of any exchange or national securities association, for
specified securities
- See Pilot Test
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Rule 203 -- Borrowing and Delivery Requirements
- Must first "locate" securities available for borrowing
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Imposes additional delivery requirements on broker-dealers
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Regulation
M - Rule 105
- Eliminates the shelf offering exception
- Provides interpretative guidance on sham transaction
designed to evade the rule
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Pilot Test
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First
Pilot
Order
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SEC release 34-50104
7.28.04
- Suspends short
sale rules for designated securities and time periods
- Applies to Rule 10a-1(a) and any short sale
price test of any exchange or national securities association
- Applies to one-third of stocks in the
Russell 3000 index
- Suspends Rule 10a-1(a) for the Russell 1000
index after 4:15 p.m.;
for all other securities after the close of the consolidated tape, and until
the open of the consolidated tape the next day
- See Appendix A for list
Second
Pilot Order 
Additional
Pilot Order
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SEC Releases
SEC_CODE_REF_0090001192884
SEC FAQs
NYSE / NASD Rules
SEC Enforcement
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Sandell
Asset Management Corp
- SEC charges New York hedge fund adviser with short sale violations in connection with
Hibernia-Capital One merger
- SEC press release
10.10.07
- C&D Order
Galleon
Mgmt, Oaktree Capital, DB Investment Managers
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Commentary
Related Topics
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