Alert September 18, 2008

Chairman Cox Announces SEC’s Intention To Require Short Position Reporting

In a statement issued late last night, Chairman Cox announced that he intends for the SEC to consider adopting an additional emergency rule that would require “hedge funds and other large investors” to disclose their short positions.  Chairman Cox indicated that the emergency rule has already been drafted by the SEC Division of Investment Management and the Division of Corporation Finance and is designed to ensure transparency in short selling.  Notably, this new emergency rule would apparently only apply to institutional investment managers with more than $100 million invested in securities, which indicates that the rule would operate similarly to the current beneficial ownership reporting requirements of Exchange Act Section 13(f) and Rule 13f-1 thereunder.  However, Chairman Cox has noted on more than one occasion that these new short position reporting requirement would be required to be made on a daily basis, which makes the new requirements much more real-time and burdensome than the 13(f) filings that are only required to be made on a quarterly basis.  It is not clear at this point how soon this new emergency rule would be implemented, but if the rule is already drafted and will be issued pursuant to the SEC’s emergency powers under Exchange Act Section 12(k)(2) as indicated by Chairman Cox, it is conceivable that the rule could be implemented on an interim final or temporary basis relatively soon.  Also of note is the emphasis that Chairman Cox placed on hedge funds being the target of this new short position disclosure rule as it was announced in conjunction with a statement from the SEC’s Director of Enforcement that many significant hedge funds who have engaged in short selling during the recent market turmoil should be expecting subpoenas of their trading records.  A link to the press release is included below.

http://www.sec.gov/news/press/2008/2008-209.htm

OCIE’s Tips for Brokers on How to Avoid Failures to Deliver

The SEC Office of Compliance Inspections and Examinations (“OCIE”) last night issued “tips” to assist broker-dealers in complying with their delivery requirements.  A link to the tips is provided below.

http://www.sec.gov/about/offices/ocie/shortsaletips.pdf