Alert September 23, 2008

Collective Materials Relating to SEC Emergency Orders Concerning Short Selling Restrictions, Short Sale Position Reporting Requirements and Issuer Repurchases

As everyone is well aware, the SEC over the past five days has issued a flurry of press releases and emergency orders relating to short sales of public equities.  These emergency orders impose new delivery requirements on both long and short sales, introduce pre-borrow requirements on short sales following certain fails to deliver, ban short sales of specified financial stocks, and impose new short sale position reporting requirements on institutional investment managers.  Because the SEC issued these orders on an emergency basis, no notice or opportunity to comment was provided before they became effective.  Without pre-effective date review and feedback from market participants, the SEC did not have the benefit of market participants’ insights regarding some of the practical aspects of the orders, which resulted in the emergency orders being issued with some errors and omissions as well as many ambiguities that have caused considerable confusion and anxiety for market participants.  Recognizing this, the SEC amended certain of the emergency orders to correct errors and insert certain relief that had been included in the emergency short sale orders the SEC issued earlier in July of this year.  In addition, to address some of the interpretive questions raised by ambiguities in the emergency orders, the SEC has promised to issue Frequently Asked Questions (“FAQs”) to help market participants better understand their compliance obligations.  These FAQs are expected to issued sometime this evening.  We are anxiously awaiting the FAQs so that we can provide more practical guidance that our clients can rely upon, but in the meantime we are providing this cumulative collection of the emergency orders and related materials in a single location for ready reference.  We will issue more comprehensive practical guidance once the FAQs are available.

Duration:  Each of the emergency orders is limited in duration and has a specific termination date.  The SEC is authorized to extend each emergency order, but it can not extend any of the emergency orders for more than 30 calendar days in total duration.

Order Implementing Temporary Rule Requiring Delivery On Long And Short Sales And Imposing Penalties For Failures To Deliver

  • Effective at 12:01 am on Sept. 18, 2008; order terminates at 11:59 pm on Oct. 1, 2008 unless extended.
  • SEC Order (Sept. 17, 2008).
  • Goodwin Procter Financial Services Alert (Sept. 18, 2008).
  • Tips for broker-dealers on avoiding failures to deliver securities (Sept. 18, 2008).

Order Banning Short Selling of Financial Stocks

  • Effective immediately; order terminates at 11:59 pm on Oct. 2, 2008 unless extended.
  • Initial SEC Order  (Sept. 18, 2008).
  • Amended SEC Order with technical amendments (a) affecting exemptions for holders of certain derivative positions and for hedging activities by exchange and over-the-counter market makers in derivatives and (b) providing criteria by which listing exchanges select financial institutions covered by the order (Sept. 21, 2008).
  • SEC press release announcing Amended SEC Order and discussing manner in which companies are added to the banned list

Order Requiring Institutional Money Managers to Report New Short Sale Positions

(The amended order and revised form and instructions replace those issued on September 18, 2008.)

Order Easing Restrictions on Issuer Share Repurchases