The SEC adopted interim final temporary Rule 204T, which (1) prohibits clearing brokers from failing to deliver shares on both long and short sales by the settlement date and (2) imposes penalties on both clearing brokers and the broker-dealers who send them trades for clearance and settlement, including market makers, when a clearing broker does not close out failures to deliver on long and short sales within the timeframes specified in the interim final temporary rule. The interim final temporary rule is in effect an extension of temporary Rule 204T as adopted in the SEC’s September 17, 2008 Emergency Order (see the September 18, 2008 Alert for more detail on this Emergency Order), which expired October 17, 2008, but includes some modifications to address operational and technical concerns raised with respect to the temporary rule adopted in the September Emergency Order. The interim final temporary rule also incorporates some of the guidance provided by the SEC staff in Frequently Asked Questions (“FAQs”) regarding temporary Rule 204T, which were issued subsequent to the September 17, 2008 Emergency Order (see the September 23, 2008 Alert for discussion of those FAQs). The interim final temporary rule is effective from October 17, 2008 until July 31, 2009. Because Rule 204T is an interim final temporary rule, the SEC must act no later than July 31, 2009 if it intends to maintain requirements the same as, or similar to, those in the interim final temporary rule, thereafter. The SEC has requested comment on the interim final temporary rule. Comments should be received on or before December 16, 2008.
Alert October 21, 2008