Short Sales: New Rules And Recent Enforcement Actions.

Extract

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Short Sales: New Rules And Recent Enforcement Actions.

Originally published December 7, 2004

Contents

Introduction

Regulation SHO

Definitional and Order Marking Requirements

Temporary Suspension of the Price Test

Locate, Borrowing, and Delivery Requirements

Enforcement Actions for Violations of Short Sale Regulations

Rule 105 of Regulation M

Elimination of The Shelf Offering Exception

Guidance As To What May Constitute a "Sham Transaction" under Rule 105 of Regulation M 5

Recent SEC Enforcement Actions for Violations of Rule 105 of Regulation M 6

Conclusion

Endnotes

Introduction

Over the past few years, regulators, issuers, investors, and other market participants have expressed increasing concerns regarding the real or perceived effects of short selling. For example, thinly capitalized issuers whose shares trade on the over-the-counter market often blame short sellers for declines in the prices of their stocks. Recently, these issuers' ire has focused on so-called "naked short sellers" - Rthat is, short sellers who do not locate or borrow shares before selling. Likewise, other market participants have expressed apprehension about conduct involving short sales that may be viewed as disruptive or manipulative. The Securities and Exchange Commis...

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