Elizabeth Gray, Daniel Schloendorn and Howard Kramer
The purpose of this paper is to explain and interpret the Securities and Exchange Commission's (SEC's) recently announced charges against 23 firms for violation of short selling…
Abstract
Purpose
The purpose of this paper is to explain and interpret the Securities and Exchange Commission's (SEC's) recently announced charges against 23 firms for violation of short selling restrictions set out in Rule 105 under Regulation M of the Securities Exchange Act of 1934.
Design/methodology/approach
The paper explains the requirements of and exceptions to Rule 105; shows how an increasing number of enforcement cases have had their origins in SEC staff inspections; and recommends internal training and policies and procedures to ensure that firms comply with the rule.
Findings
Rule 105 in general prohibits short selling a security within a specified period of time prior to the purchase of that security in a follow-on or secondary firm commitment offering.
Practical implications
Vigilance over internal compliance programs is increasingly important to avoid violating applicable legal requirements such as those set out in Rule 105 and, more importantly, a potential enforcement action over witting or unwitting compliance violations.
Originality/value
The paper provides practical guidance from experienced securities lawyers.
Details
Keywords
Roger D. Blanc, Daniel Schloendorn, Howard L. Kramer, Martin R. Miller and Matthew B. Comstock
The purpose of this article is to inform the various securities market participants about new Exchange Act Rule 13h‐1, its specifics and the requirements it may impose.
Abstract
Purpose
The purpose of this article is to inform the various securities market participants about new Exchange Act Rule 13h‐1, its specifics and the requirements it may impose.
Design/methodology/approach
The paper outlines the various requirements of the Rule and additional background information and some clarifications based on the SEC adopting release.
Findings
The Rule requires “large traders”, as defined in the Rule, to self‐identify to the SEC and to obtain from the SEC a large trader identification number (“LTID”) and provide the LTID to each US‐registered broker‐dealer through which it effects transactions in NMS securities. The Rule also requires US‐registered broker‐dealers to provide to the SEC, on request, data on large traders' transactions in NMS securities by the morning after the transactions are effected; and it requires US‐registered broker‐dealers to maintain books and records, and perform certain monitoring functions, with respect to these transactions. The SEC has also adopted Form 13H under Exchange Act Section 13(h). A large trader must submit to the SEC Form 13H as an “Initial Filing” to receive its LTID and file various periodic amendments thereafter.
Originality/value
The paper provides practical guidance from experienced securities lawyers. The authors hope the discussion in the paper will enable affected market participants, which include US‐ registered broker‐dealers as well as other persons within the Rule's definition of large trader, to be informed about and to prepare for compliance with the Rule.