[Federal Register Volume 64, Number 208 (Thursday, October 28, 1999)]
[Proposed Rules]
[Pages 57996-58004]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27879]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 240
[Release No. 34-42037; File No. S7-24-99]
RIN 3235-AH84
Short Sales
AGENCY: Securities and Exchange Commission.
ACTION: Concept release; Request for comments.
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SUMMARY: The Securities and Exchange Commission is seeking public
comment on the regulation of short sales of securities. In this
release, we seek comment on, among other things: lifting the limits on
short sales of exchange listed securities under advancing market
conditions; providing an exception for actively traded securities;
focusing short sale restrictions on certain market events and trading
strategies; removing short sale restrictions on hedging transactions;
revising short sale regulation in response to certain market
developments; revising the definition of ``short sale''; extending
short sale regulation to non-exchange listed securities; and
eliminating short sale regulation altogether.
DATES: Comments must be received on or before December 27, 1999.
ADDRESSES: Persons wishing to submit written comments should send three
copies to Jonathan G. Katz, Secretary, Securities and Exchange
Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. Comments
also may be submitted electronically at the following E-mail address:
rule-comments@sec.gov. All comment letters should refer to File No. S7-
24-99. Comments submitted by E-mail should include this file number in
the subject line. Comment letters received will be available for public
inspection and copying in the Commission's Public Reference Room, 450
Fifth Street, NW, Washington, DC 20549. Electronically submitted
comment letters will be posted on the Commission's Internet web site
(http://www.sec.gov).
FOR FURTHER INFORMATION CONTACT: Any of the following attorneys in the
Office of Risk Management and Control, Division of Market Regulation,
Securities and Exchange Commission, 450 Fifth Street, NW, Washington,
DC 20549, at (202) 942-0772: James Brigagliano, Alan Reed, or Michael
Trocchio.
SUPPLEMENTARY INFORMATION:
I. Introduction
The Securities and Exchange Commission (Commission) adopted Rule
10a-1\1\ (short sale rule or Rule) under the Securities Exchange Act of
1934 (Exchange Act) \2\ at a time when the securities markets had less
trading volume and simpler trading strategies than current markets.
Since the adoption of the short sale rule, securities trading has
increased drastically in volume, velocity, and complexity. There have
also been substantial improvements in market transparency and
surveillance mechanisms. Short sale regulation, however, has remained
fundamentally unchanged. This separation between Rule 10a-1 and the
markets has resulted in frequent requests for relief from the short
sale rule and suggestions for modification of it. Our goal is to
examine ways to modernize our approach to provide the most appropriate
regulatory structure for short sales.
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\1\ 17 CFR 240.10a-1.
\2\ 15 U.S.C. 78a et seq.
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Among other things, we propose to assess whether the restrictions
of Rule 10a-1 produce benefits to the markets that are proportionate to
the costs associated with those restrictions. We believe that a
comprehensive assessment of Rule 10a-1 is necessary to achieve this
goal. Therefore, we are seeking public comment on the regulation of
short selling. In particular, we solicit comment on eight concepts
related to the regulation of short sales of securities:
Suspending the short sale rule when the security or market
is above a threshold price;
Providing an exception for actively traded securities;
Focusing short sale restrictions on certain market events
and trading strategies;
Excepting hedging transactions from short sale regulation;
Revising short sale regulation in response to certain
market developments;
Revising the definition of ``short sale'';
Extending the short sale rule to non-exchange listed
securities; and
Eliminating Rule 10a-1.
The comments we receive will assist us in determining whether to
propose changes to the short sale rule and in tailoring the scope of
any such changes.
A. Background
A short sale \3\ is the sale of a security that the seller does not
own or that the seller owns but does not deliver. In order to deliver
the security to the purchaser, the short seller will borrow the
security, typically from a broker-dealer or an institutional investor.
The short seller later closes out the position by returning the
security to the lender, typically by purchasing equivalent securities
on the open market. In general, short selling is utilized to profit
from an expected downward price movement, or to hedge the risk of a
long
[[Page 57997]]
position in the same security or in a related security.
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\3\ Rule 3b-3 under the Exchange Act, 17 CFR 240.3b-3, defines a
short sale as ``any sale of a security which the seller does not own
or any sale which is consummated by the delivery of a security
borrowed by, or for the account of, the seller.'' Pursuant to Rule
3b-3, a seller of an equity security subject to Rule 10a-1 must
aggregate all positions in that security in order to determine
whether the seller has a ``net long position.'' Securities Exchange
Act Release No. 20230 (September 27, 1983), 48 FR 45119. See also
Letter regarding Rule 10a-1--Aggregation Units (November 23, 1998)
(permitting broker-dealers to net positions for ``aggregation
units'' (rather than firm-wide) for the purpose of complying with
Rule 10a-1).
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Short selling provides the market with two important benefits:
market liquidity and pricing efficiency. Substantial market liquidity
is provided through short selling by market professionals, such as
market makers, block positioners, and specialists, who facilitate the
operation of the markets by offsetting temporary imbalances in the
supply and demand for securities. To the extent that short sales are
effected in the market by securities professionals, such short sale
activities, in effect, add to the trading supply of stock available to
purchasers and reduce the risk that the price paid by investors is
artificially high because of a temporary contraction of supply.
Short selling also can contribute to the pricing efficiency of the
equities markets. Efficient markets require that prices fully reflect
all buy and sell interest. When a short seller speculates on a downward
movement in a security, his transaction is a mirror image of the person
who purchases the security based upon speculation that the security's
price will rise. Both the purchaser and the short seller hope to profit
by buying the security at one price and selling at a higher price. The
strategies primarily differ in the sequence of transactions. Market
participants who believe a stock is overvalued may engage in short
sales in an attempt to profit from a perceived divergence of prices
from true economic values. Such short sellers add to stock pricing
efficiency because their transactions inform the market of their
evaluation of future stock price performance. This evaluation is
reflected in the resulting market price of the security. Arbitrageurs
also contribute to pricing efficiency by utilizing short sales to
profit from price disparities between a stock and a derivative
security, such as a convertible security or an option on that stock.
For example, an arbitrageur may purchase a convertible security and
sell the underlying stock short to profit from a current price
differential between two economically similar positions.\4\
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\4\ Such arbitrage activity is specifically excepted from
compliance with the provisions of the short sale rule in paragraph
(e)(7) of Rule 10a-1. 17 CFR 240.10a-1(e)(7).
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Although short selling serves useful market purposes, it also may
be used as a tool for manipulation.\5\ One example is the ``bear raid''
where an equity security is sold short in an effort to drive down the
price of the security by creating an imbalance of sell-side interest.
Many people blamed ``bear raids'' for the 1929 stock market crash and
the market's prolonged inability to recover from the crash.\6\ Short
selling was one of the central issues studied by Congress before
enacting the Exchange Act, but Congress made no determinations about
its permissibility.\7\ Instead, Congress gave the Commission broad
authority to regulate short sales in order to stop short selling
abuses.\8\
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\5\ See, e.g., S.E.C. v. Gardiner, 48 S.E.C. Docket 811, No. 91
Civ. 2091 (S.D.N.Y. March 27, 1991) (alleged manipulation by sales
representative by directing or inducing customers to sell stock
short in order to depress its price).
\6\ See 7 Louis Loss and Joel Seligman, Securities Regulation
3203-04, note 213 (3d ed. 1989).
\7\ See 2 Securities and Exchange Commission, Report of Special
Study of Securities Markets, H.R. Doc. No. 95, 88th Cong., 1st Sess.
247 (1963) (Special Study).
\8\ Id.
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B. Current Regulation of Short Selling
1. Rule 10a-1
Section 10(a) of the Exchange Act gives the Commission plenary
authority to regulate short sales of securities registered on a
national securities exchange, as necessary to protect investors.\9\
After conducting an inquiry into the effects of concentrated short
selling during the market break of 1937, the Commission adopted Rule
10a-1 under that grant of authority.\10\ The core provisions of the
Rule are largely the same today as when they were adopted.
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\9\ 15 U.S.C. 78j(a).
\10\ See Securities Exchange Act Release No. 1548 (January 24,
1938), 3 FR 213. In this release, the Commission also adopted Rule
3b-3.
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Paragraph (a) of Rule 10a-1 generally covers short sales in any
security registered on a national securities exchange (listed
securities) if trades of the security are reported pursuant to an
``effective transaction reporting plan'' and if information as to such
trades is made available in accordance with such plan on a real-time
basis to vendors of market transaction information.\11\ Paragraph (b)
applies to short sales on a national exchange in securities that are
not covered by paragraph (a). Short sales of securities not registered
on an exchange and transactions in securities covered by paragraph (b)
that are effected in the OTC market are not subject to the Rule.\12\
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\11\ Rule 10a-1 uses the term ``effective transaction reporting
plan'' as defined in Rule 11Aa3-1 (17 CFR 240.11Aa3-1) under the
Exchange Act. See 17 CFR 240.10a-1(a)(1)(i).
\12\ The National Association of Securities Dealers, Inc. (NASD)
has adopted a short sale rule that applies to Nasdaq National Market
System (NMS) securities. See infra Section I.B.2.
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Rule 10a-1(a)(1) provides that, subject to certain exceptions, a
listed security may be sold short: (i) At a price above the price at
which the immediately preceding sale was effected (plus tick), or (ii)
at the last sale price if it is higher than the last different price
(zero-plus tick). Conversely, short sales are not permitted on minus
ticks or zero-minus ticks, subject to narrow exceptions. The operation
of these provisions is commonly described as the ``tick test.'' The
reference price for the tick test is either the last transaction price
reported pursuant to an effective transaction reporting plan \13\ or on
a particular exchange.\14\ Both the New York Stock Exchange, Inc.
(NYSE) and the American Stock Exchange LLC (Amex) have elected to use
the prices of trades on their own floors for the tick test.\15\
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\13\ 17 CFR 240.10a-1(a). An ``effective transaction reporting
plan'' is a plan approved by the Commission for collecting,
processing, and disseminating transaction reports in reported
securities. See 17 CFR 11Aa3-1(a)(3).
\14\ 17 CFR 240.10a-1(b).
\15\ NYSE Rule 440B and Amex Rule 7.
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The Commission adopted the tick test after considering the effects
of short selling in downward moving markets.\16\ In adopting this
approach, the Commission sought to achieve three objectives:
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\16\ The tick test replicated the approach used by the NYSE at
the time.
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(i) Allowing relatively unrestricted short selling in an advancing
market;
(ii) Preventing short selling at successively lower prices, thus
eliminating short selling as a tool for driving the market down; and
(iii) Preventing short sellers from accelerating a declining market
by exhausting all remaining bids at one price level, causing
successively lower prices to be established by long sellers.\17\
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\17\ See Securities Exchange Act Release No. 13091 (December 21,
1976), 41 FR 56530 (1976 Release).
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These objectives continue to be the foundation for Rule 10a-1. They
represent the Commission's goal to prevent short selling that could
manipulate or depress the market for a security, irrespective of the
intention of the short seller.\18\ Because Congress granted specific
statutory authority to regulate short sales, the Commission adopted a
rule that restricts certain types of short sales. Thus, a person can
violate the rule without manipulative or fraudulent intent.
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\18\ See, e.g., SEC v. Tudor Investment Corp., 62 S.E.C. Docket
2269, No. 96 CV 02119 (D.D.C. Sept. 12, 1996) (concentrated short
sales of stocks of the Dow Jones Industrial Average (DJIA) seen as
significant factor in a drop in value of the DJIA).
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A number of exceptions have been incorporated into Rule 10a-1 for a
range of activities that are not deemed to present the concerns that
the Rule was designed to address.\19\ The Commission
[[Page 57998]]
has also granted relief from the Rule in specific situations that did
not appear to present the opportunity for abuse that the Rule was
designed to prevent.\20\ Recently, the Commission has received a
variety of additional requests for relief from the Rule. Some of these
requests, if granted, would result in fundamental changes in the
operation of the Rule. We think public comment on these proposals would
assist us in evaluating them. Therefore, we have reflected the requests
in this release.
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\19\ See 17 CFR 240.10a-1(e)(1)-(13).
\20\ See, e.g., Letter regarding Instinet Corporation Crossing
Network, (1992) Fed. Sec. L. Rep. (CCH) para. 76,290 (July 1, 1992);
Letter regarding Portfolio System for Institutional Trading, (1991-
1992) Fed. Sec. L. Rep. (CCH) para. 76,097 (December 31, 1991);
Letter regarding Off-Hours Trading by the Amex, (1991) Fed. Sec. L.
Rep. (CCH) para. 79,802 (August 5, 1991); Letter regarding Operation
of Off-Hours Trading by the NYSE, (1991) Fed. Sec. L. Rep. (CCH)
para. 79,736 (June 13, 1991); Letter regarding Merrill Lynch,
Pierce, Fenner & Smith, Inc. (December 17, 1986), published with
modifications in Securities Exchange Act Release No. 27938 (April
23, 1990), 55 FR 17949 (Merrill Lynch Letter).
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2. Short Selling Over-the-Counter Securities
Rule 10a-1 only covers short sales of securities listed or traded
on an exchange.\21\ In 1986, the NASD commissioned a study of short
sales in the Nasdaq market.\22\ This study concluded that adopting
restrictions similar to the tick test for Nasdaq securities would
impose a restraint on trading. However, the NASD proposed a short sale
rule covering Nasdaq National Market System (NMS) securities,\23\
citing a competitive disadvantage between the NASD and the
exchanges.\24\ In 1994, the Commission approved the NASD's rule.\25\ It
is currently designated as NASD Rule 3350.\26\
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\21\ However, the Rule applies to transactions in exchange
listed securities whether effected on an exchange or in the OTC
markets.
\22\ See Irving Pollack, Short-Sale Regulation of NASDAQ
Securities (1986) (Pollack Study).
\23\ NMS securities are securities of issuers that meet a series
of standards similar to those required for listing on an exchange.
These securities are distinguished from securities traded on the
Nasdaq SmallCap market.
\24\ See Securities Exchange Act Release No. 34277 (July 6,
1994), 59 FR 34885.
\25\ Id. In the approval order, the Commission recognized that
exchange markets were able to attract customers with claims that
their markets protect against potential short selling abuses.
However, several commenters cited the Pollack Study, supra note 21,
to support their opposition to the NASD short sale rule. Originally
approved for only 18 months, the NASD and the Commission have
extended Rule 3350 numerous times. Most recently, the Commission
approved an extension of the rule until December 31, 1999.
Securities Exchange Act Release No. 41568 (June 28, 1999), 64 FR
36416.
\26\ NASD Manual, Conduct Rules, Rule 3350.
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NASD Rule 3350 prohibits short sales by NASD members in NMS
securities at or below the current best (inside) bid as shown on the
Nasdaq screen when that bid is lower than the previous best (inside)
bid (this is referred to as the ``bid test''). It contains certain
exemptions, including an exemption for qualified Nasdaq market makers,
options market makers, and warrant market makers. Rule 3350 also
includes exceptions similar to those provided under Rule 10a-1. The
NASD also requires members to report regularly to the NASD their total
short positions in all customer and proprietary firm accounts.\27\
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\27\ NASD Manual, Conduct Rules, Rule 3360.
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In 1996, the NASD produced a study of the economic impact of the
Nasdaq short sale rule.\28\ This study concluded that the Nasdaq short
sale rule is effective in restricting short sale activity at the inside
bid during large price declines and has no adverse effects on market
quality. It stated that ``the Nasdaq Short Sale Rule meets its intended
objective--to slow down the piling-on of short sales when prices fall--
with very little adverse impact on normal short sale activity on
Nasdaq.'' \29\
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\28\ The Economic Impact of the Nasdaq Short Sale Rule, Prepared
by D. Timothy McCormick and Lorraine Reilly (1996) (Nasdaq Economic
Study).
\29\Id. at 30.
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C. Previous Reviews of Short Selling
1. The 1963 Special Study
In 1963, the Commission included an examination of short selling in
response to the request by Congress for a study of the securities
markets.\30\ One purpose of the Special Study was to determine ``the
relationships between changes in short positions and subsequent price
trends.'' \31\ The Special Study observed that the ratio of short sales
to total volume increases in a declining market. It concluded that the
short sale rules did not prevent the harmful effects of short selling
that the rules were designed to prevent. The Special Study recommended
improvements in short sale data collection.
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\30\ Special Study, supra note 7, at 246-294.
\31\ Id. at 248.
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2. The 1976 Proposing Release
In 1976, the Commission ordered a public investigation and proposed
temporary rules related to short selling.\32\ The Commission stated
that the proceedings were ``intended to be the first step in a thorough
and comprehensive reexamination of short sale regulation in the light
of changing market and regulatory conditions and to provide a framework
for public discussion of the issues.'' \33\
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\32\ See 1976 Release, supra note 17.
\33\ Id. at 56530.
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These proposals were intended to enable the Commission to collect
data regarding the effects of unrestricted short-selling on the
markets. The 1976 Release noted the problems of insufficient data that
the Special Study faced in 1963. It added that ``the availability of
data with respect to short selling continues to be inadequate to
establish meaningful conclusions'' regarding the general effects of
short selling or the efficacy of short sale regulation.\34\ The
Commission believed that it was possible that no conclusive statistical
evidence regarding the short or long-term effects of short selling
could be gathered while Rule 10a-1 limited short selling activity, and
that some type of suspension of the existing short sale rules might be
necessary. Accordingly, the Commission proposed alternative temporary
rules that would have suspended the tick test in varying degrees.
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\34\ Id. at 56534.
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The Commission proposed three alternative temporary rules. The
first alternative would have suspended the operation of the short sale
rule for all securities registered, or admitted to unlisted trading
privileges, on a national securities exchange. The second alternative
would have suspended the operation of the tick test only for equity
securities (other than warrants, rights, or options) that are
registered, or admitted to unlisted trading privileges, on more than
one national securities exchange and for which transactions are
reported in the consolidated system. The final alternative would have
suspended the operation of the tick test only for the fifty most active
equity securities (other than warrants, rights, or options) during the
12 calendar months preceding the effective date of the rule.
The Commission received 12 comment letters in response to the 1976
Proposals.\35\ Eight commenters, including the NYSE and Amex, strongly
opposed any suspension of the tick test. The common sentiment against
the proposed changes was that the short sale rule provides important
protection for investors that should not be removed. The NYSE's reasons
for opposing any changes in short sale regulation are representative of
the comments against adopting any of the proposals. The NYSE believed
the most damaging consequences of the changes would be: (1) Wider day-
to-day price fluctuations; (2) disadvantages for public customers who
could not
[[Page 57999]]
withdraw limit orders to purchase before market professionals sold
short; (3) accelerated price declines and increased volatility; (4)
distortions in the markets for secondary and tertiary stocks; and (5)
impaired market liquidity because block positioners would be
discouraged from taking positions. Two commenters thought that the
Commission needed more information before eliminating the tick test.
AT&T, the only issuer to comment, opposed the revision or elimination
of Rule 10a-1 because of the potential increase in the volatility of
its stock. One commenter thought that all short sales should be
unregulated.\36\
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\35\ See Comment letters in Public File No. S7-665, available
for inspection and copying in the Commission's Public Reference
Room, 450 Fifth Street, NW., Washington, DC 20549.
\36\ Comment letter from Lynch, Jones & Ryan (March 23, 1977).
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In 1980, the Commission withdrew the proposals, principally due to
the public comments opposing the elimination of the tick test.\37\
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\37\ Securities Exchange Act Release No. 17347 (November 28,
1980), 45 FR 80834.
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3. 1991 Congressional Report on Short Selling
In 1991, the House Committee on Government Operations released a
report on short selling.\38\ The House Report stated that the ``effects
of short selling on the securities markets are not widely understood,''
and that ``(m)any people have questioned the effectiveness of the
present uptick rule and, by implication at least, question whether any
purpose would be served by implementing a similar rule for NASDAQ
trading.'' \39\
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\38\ Short-Selling Activity in the Stock Market: Market Effects
and the Need for Regulation (Part 1) (House Report), H.R. Rep. No.
102-414 (1991), reprinted in CCH Federal Securities Law Reports
Number 1483 Part II (1992).
\39\ Id. at 1. As discussed above, the NASD adopted its short
sale rule in 1994.
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The House Report made numerous findings and recommendations,
including that: (1) Short selling plays an important and constructive
functional role in the equity market; (2) The uptick rule acts as a
price stabilizing force and should be retained; (3) Short sale
regulation should be extended to the Nasdaq system; (4) Many complaints
about short selling are not soundly based and may be the result of a
poor understanding of short selling; (5) ``A pattern of abusive and
destructive rumor mongering, targeted specifically at companies in the
equity securities of which some short-selling investors have
established major short positions, appear(ed) to be occurring;'' (6) A
large part of the problem with equity securities targeted by short
sellers is the psychological misperception that short sellers possess
much greater manipulative power than they really do; (7) A method for
collecting daily short-selling activity and weekly short interest data
from broker-dealers should be developed and this information should be
available electronically to the market in aggregate form; and (8)
Congress should enact a reporting requirement for large individual
short positions.\40\
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\40\ Id.
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Since the House Report, a number of changes have occurred that
impact its findings. The NASD adopted a short sale rule covering NMS
securities. Both the NYSE and the NASD adopted rules requiring members
to report data on their short sale activities. In 1991, the Commission
published a concept release requesting comment on reporting material
short positions.\41\ The Commission has not taken any further action on
this matter.
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\41\ Securities Exchange Act Release No. 29278 (June 7, 1991),
56 FR 27280, 27281 (1991 Release).
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D. Recent Developments
Despite the many studies and recommendations, the basic provisions
of Rule 10a-1 have remained unchanged for 60 years. Developments in the
markets, however, may have diminished the need for the Rule in its
current form. Among other things, the national securities exchanges
today have high levels of transparency and regulatory surveillance.
Transparency helps market participants observe and evaluate market
price movements which limits the ability of short sales to unevenly
affect prices. The self-regulatory organizations (SROs) also have
sophisticated surveillance technologies that allow them to monitor
market activity on a real-time basis. This surveillance reduces the
risk of undetected manipulation and permits regulators to monitor the
types of activities that Rule 10a-1 is designed to prevent. As the
markets change, commentators continually question the relationship
between the objectives of Rule 10a-1 and its operation.\42\
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\42\ See, e.g., Jonathan R. Macey, Mark Mitchell, and Jeffry
Netter, Restrictions on Short Sales: an Analysis of the Uptick Rule
and its Role in View of the October 1987 Stock Market Crash, 74
Cornell L. Rev. 799 (1989); and J. Randall Woolridge and Amy
Dickinson, Short Selling and Common Stock Prices, Financial Analysts
Journal, January-February 1994.
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Short selling is instrumental to a growing number of sophisticated
investment models and instruments. For example, short sales are used to
hedge option positions and to engage in a variety of arbitrage
strategies.\43\ Short selling is also integral to other trading and
investment strategies that are not tied to individual securities, but
involve baskets of securities. The restrictions in the Rule may inject
unnecessary inefficiencies into such trading strategies. To accommodate
the developments, we have granted a number of requests for relief from
Rule 10a-1.\44\ The growing array of requests for relief indicate that
present short sale regulation may have become unduly burdensome and
possibly ill-suited for the present and future markets.
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\43\ Arbitrage can involve inherent relationships between
securities, such as convertible arbitrage, or statistical
relationships, as used in ``pairs trading.''
\44\ See, e.g., Letter regarding Optimark (October 31, 1997),
included in Public File No. S7-24-99, available for inspection and
copying in the Commission's Public Reference Room, 450 Fifth Street,
NW., Washington, DC 20549.
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II. Concepts Regarding Short Sale Regulation
In this section of the release, we present for public comment eight
concepts regarding short sale regulation: (1) Suspending the short sale
rule when the security or market is above a threshold price; (2)
Providing an exception for actively traded securities; (3) Focusing
short sale restrictions on certain market events and trading
strategies; (4) Excepting hedging transactions from short sale
regulation; (5) Revising the short sale rule in response to certain
market developments; (6) Revising the definition of ``short sale''; (7)
Extending the short sale rule to non-exchange listed securities; and
(8) Eliminating Rule 10a-1.
We seek comment on these concepts to assist our review of Rule 10a-
1 and short selling in the current market. We encourage commenters
addressing the concepts in this release to present data to support
their positions.
A. Suspending the Short Sale Rule When the Security or Market is Above
a Threshold Price
One objective of short sale regulation is to permit relatively
unrestricted short selling in an advancing market. The tick test in
Rule 10a-1, however, applies in all market conditions. Thus, even in a
generally advancing market, a short sale would be inhibited when the
price of the transaction does not permit the seller to meet the tick
test.\45\ This restriction may allow the prices of securities to
advance beyond the prices that the market would reflect if short
selling were unrestricted. Some argue that the restrictions contribute
to market volatility because prices move up
[[Page 58000]]
without the checks that unrestricted short selling would provide.
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\45\ See Alexander, Gordon J., and Mark Peterson, Short Selling
on the New York Stock Exchange and the Effects of the Uptick Rule,
Journal of Financial Intermediation, Vol. VIII, Issue 1 (June 1999)
(this article concludes that the short sale rule fails to meet its
objective to allow relatively unrestricted short selling in
advancing markets).
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In response to recent criticism of the Rule, we seek comment on
suspending the tick test when a security's price is above a
threshold.\46\ This alternative approach assumes that the current Rule
is unnecessarily restrictive in upward moving markets. By suspending
the tick test when the security or the market is above a threshold
price, short sellers could sell without regard to price movements. The
tick test would apply, however, at any time the price of the security
(or a market index) went below the threshold (i.e., the tick test would
apply at prices below the threshold). We request comment on this
concept to determine if such an alternative is consistent with the
Rule's objective to allow relatively unrestricted short selling in an
advancing market.
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\46\ This approach to short sale regulation has been suggested
by others. See Letter from David A. Rocker to Chairman Arthur Levitt
(March 5, 1998), included in Public File No. S7-24-99, available for
inspection and copying in the Commission's Public Reference Room,
450 Fifth Street, NW, Washington, DC 20549.
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We further request comment on what benchmark would be appropriate
for establishing the threshold price discussed in this alternative
approach. One possible benchmark is the previous day's closing price of
a security.\47\ Another possible benchmark could be a percentage
decline in the price of the security. For example, the threshold could
be 5 percent or 10 percent below the previous closing price of the
security. A general market indicator also could be used as a benchmark.
For example, the tick test's application could correspond to the
operation of SRO rules that impose limitations when markets experience
significant declines.\48\ Once the market indicators crossed the
threshold, the tick test would apply.
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\47\ Transaction prices in securities covered by Rule 10a-1 must
be reported in accordance with Rule 11Aa3-1. 17 CFR 240.10a-
1(a)(1)(i).
\48\ See, e.g., NYSE Rule 80A (which, among other things,
imposes certain trading restrictions when the Dow Jones Industrial
Average (DJIA) declines or advances by at least the ``two-percent
value'' as calculated in the rule from its previous closing level).
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Q1. Does Rule 10a-1 permit relatively unrestricted short selling in
an advancing market? If not, please provide specific examples to
demonstrate that this objective is not currently met.
Q2. Does more short selling occur in an advancing market or a
declining one?
Q3. Should the threshold price for suspending the tick test be the
previous closing price of the security?
Q4. Should the threshold price correlate to a point change or a
percentage change in the price of a security?
Q5. Would volatile markets create complexity for this structure as
short sellers must continually take into account the market price of
the security to determine whether short selling is restricted?
Q6. If the security's price moves below the threshold price, should
the tick test remain in effect during the trading session even if the
price subsequently moves above the threshold price?
Q7. Is there another price or manner of determining a more
effective threshold for this purpose?
Q8. Could a short seller initiate downward momentum on the price of
a security through short selling down to the threshold price? If so,
could this momentum cause the depressing effect on the market for a
security that Rule 10a-1 is intended to prevent?
Q9. Is it appropriate or preferable to base short sale regulation
on general market movements, rather than the price of individual
securities?
B. Providing An Exception for Actively Traded Securities
Some of the Commission's anti-manipulation rules assume that highly
liquid securities are less vulnerable to manipulation and abuse than
securities that are less liquid. For example, Rule 101 of Regulation M
has an exception for securities with a public float value of at least
$150 million and an average daily trading volume of at least $1
million.\49\ A similar approach may be effective for regulating short
sales.
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\49\ See 17 CFR 242.101(c)(1).
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Q10. Are highly liquid securities less vulnerable to the abuses
that Rule 10a-1 is designed to prevent?
Q11. Are the Regulation M requirements for liquidity under the
exception in Rule 101(c)(1) adequate standards for this purpose? If
not, what values would work better for this purpose?
Q12. Rule 10a-1 is not focused solely on preventing manipulative
activity. Is it appropriate to use these anti-manipulation approaches
in the short sale context?
C. Focusing Short Sale Restrictions on Certain Market Events and
Trading Strategies
Certain market events and trading strategies may make a security
more vulnerable to abusive short sale activity. The Commission
previously has recognized that certain events increase the potential
for short selling abuse.\50\ Specific market events related to an
issuer or a security (such as a pending merger or acquisition) may
cause this increased vulnerability. Also, there may be certain times in
a trading day when there is a heightened concern about
manipulation.\51\ We, therefore, request comment on whether short
selling should continue to be regulated or even prohibited during
specific market conditions.
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\50\ See Rule 105 of Regulation M (prohibiting a person from
purchasing securities in a distribution if he or she has sold that
security short within five days prior to the pricing of the
distribution). 17 CFR 242.105.
\51\ Cf. Securities Exchange Act Release No. 17222 (October 17,
1980), 45 FR 70890 (discussing certain time restrictions on issuer
repurchases at the opening and closing of trading sessions).
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Q13. Are there corporate events (e.g., mergers, acquisitions, or
tender offers) that make a security vulnerable to abusive short
selling?
Q14. Are there other cyclical, or regular market events (e.g.,
option expiration dates or the opening and closing of a trading
session) that make a security vulnerable to abusive short selling?
Q15. Are there other trading abuses or manipulations involving
short sales under unusual market conditions that Rule 10a-1 currently
does not address? If so, could the Rule be amended to prevent these
abuses?
Q16. Should short selling be prohibited for a period preceding a
significant corporate or market event?
Q17. If the Rule was eliminated, should restrictions continue to
apply preceding a significant corporate or market event?
D. Excepting Hedging Transactions From Short Sale Regulation
Today, short selling is integral to many complex trading strategies
involving a variety of sophisticated financial instruments. Short sales
are often used in these strategies to hedge a position in another
security or a related financial instrument. Short positions and short
sales related to such hedges are treated the same under Rule 10a-1 as
any other short activity. Complying with Rule 10a-1 potentially
increases transaction costs on persons using short hedging because of
delays caused by waiting for upticks. The risks of a particular
strategy, therefore, also may increase as a result of the Rule. We seek
comment on whether hedged short positions should be excluded from
calculating a person's net position. We also seek comment on whether we
should propose adding an exception to Rule 10a-1 that would cover short
sales conducted exclusively for the purpose of establishing a bona fide
hedge.\52\
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\52\ For the purposes of Rule 10a-1, the Commission has
described a bona fide hedge as largely a matter of custom and
practice, but it must involve long and short positions in related
securities where one security is exercisable, convertible, or
otherwise related by its terms to the other security, and
substantially offsets the risk of that security. To be considered
bona fide, the hedge must offset most or all of the risk of the
security being hedged. See, e.g., Securities Exchange Act Release
No. 30772 (June 3, 1992), 57 FR 24415, 24420 (1992 Release) (citing
Securities Exchange Act Release No. 15533 (January 29, 1979), 44 FR
6084). We request comment on whether this definition is appropriate
or adequate.
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[[Page 58001]]
Q18. Is the definition of ``bona fide hedge'' currently used by the
Commission appropriate and adequate?
We have received a number of inquiries seeking relief from Rule
10a-1 for short sales that are part of a bona fide hedge. Proponents
argue that it is unlikely that short sales used to create bona fide
hedges present a threat of manipulation because gains from the short
position would be offset by losses in an equivalent security, i.e.,
they are ``economically neutral.'' \53\ Rule 10a-1 currently may
inhibit such short sales even though they present little risk of the
abuses that it was designed to guard against. We have provided
exceptions from and interpretations of Rule 10a-1 for economically
neutral short sales that do not present an incentive for abuse.
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\53\ See Securities Exchange Act Release No. 20230 (September
27, 1983), 48 FR 45119, 45120 note 14.
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Rule 10a-1 presently provides exceptions for:
(i) Bona fide arbitrage \54\ undertaken to profit from a current
difference between a convertible security and the underlying common
stock; \55\ and
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\54\ Bona fide arbitrage is ``an activity undertaken by market
professionals in which essentially contemporaneous purchases and
sales are effected in order to `lock in' a gross profit or spread
resulting from a current differential in pricing.'' See, 1992
Release, supra note 51, at 6089.
\55\ 17 CFR 240.10a-1(e)(7).
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(ii) bona fide arbitrage undertaken to profit from a current
difference between the price of a security in the United States and its
price abroad.\56\
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\56\ 17 CFR 240.10a-1(e)(8).
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Both of these exceptions allow short sales without compliance with
the tick test, where the sales are to take advantage of temporary price
differentials between related securities or different markets.
Rule 10a-1 also has a limited exception for block positioning
activities by broker-dealers.\57\ This exception permits a broker-
dealer selling securities that it acquired as a block positioner to
disregard, in determining whether it is net long or net short,
proprietary short positions to the extent those short positions are the
subject of one or more offsetting positions created in the course of
bona fide arbitrage, risk arbitrage,\58\ or bona fide hedge activities.
The Commission relied upon the premise that the short positions
excluded from the calculation are not subject to the same potential for
abuse as short positions that are not linked to an offsetting position.
---------------------------------------------------------------------------
\57\ 17 CFR 240.10a-1(e)(13).
\58\ Risk arbitrage is a transaction effected with a view to
profit from the consummation of a merger, acquisition, tender offer
or other similar transaction involving a recapitalization.
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We recently granted relief for certain specialist activities that
expands on the aggregation relief discussed above.\59\ The exemptions
provide greater flexibility where short positions are subject to bona
fide hedges. As with the block positioner exception and the Merrill
Lynch Letter,\60\ the exemptions exclude hedged short positions from
the calculation of a net position. In addition, the short sales were
limited to the specialists' performance of obligatory market functions.
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\59\ See, e.g., Letter regarding Select Sector SPDRs II
(February 12, 1999); Letter regarding Select Sector SPDRs (December
28, 1998).
\60\ See Merrill Lynch Letter, supra note 20.
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Using a rationale similar to that underlying the limited exception
for block positioning activities, our staff took a limited no-action
position to facilitate unwinding certain index arbitrage positions with
a long stock component. This relief from the tick test applies to
broker-dealers unwinding long index arbitrage positions. As with block
positioners, this no-action position was limited to circumstances where
the sale of securities was deemed a short sale solely as a result of
the netting of the index arbitrage long position with one or more short
positions created in the course of arbitrage or hedging activities.
These securities positions were considered economically neutral, and
the unwinding of the index arbitrage position was not thought to
involve the types of abuses that Rule 10a-1 was designed to prevent. In
these contexts, the staff assumed that economically neutral
transactions do not present the incentive to engage in short sales in a
manner that would cause or accelerate a decline in the market, because
any gain from the short stock would be offset by a loss in the security
or securities making up the bona fide hedge or arbitrage position.\61\
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\61\ Securities Exchange Act Release No. 20230 (September 27,
1983), 48 FR 45119, 45120. See also Securities Exchange Act Release
No. 20715 (March 13, 1984), 49 FR 9414, 9415; 1992 Release at 24419.
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Q19. Should the Commission exclude hedged short positions for the
purposes of determining what a person's net position is under Rule 3b-
3?
Q20. Should long stock positions that are fully hedged be excluded
from the calculation of a person's net position in that stock?
In addition, we have received requests for relief from Rule 10a-1
to permit short sales that are part of trading strategies conducted to
establish bona fide hedges. Many of the strategies use statistical
formulas or relationships between or among securities to determine the
offsetting transaction for the hedge. For example, the purchaser of a
convertible security may short the underlying security to hedge against
a potential decline in the price of the underlying security. The short
sales used in these strategies are distinguishable from short sales
that reflect an opinion about the current or future market price of a
security.
A broad array of financial instruments can be hedged using short
sales of securities. These instruments may not be related to the
security sold short, but they nonetheless are economically equivalent.
Because of the potential variety of instruments that may be hedged with
short sales, we believe that an exception would have to be crafted
broadly enough to afford flexibility. For example, the Rule could
except short sales that are conducted to offset ``qualified financial
contracts'' (QFC), using the definition in the Federal Deposit
Insurance Corporation Act that includes ``any securities contract,
forward contract, repurchase agreement, swap agreement, and any similar
agreement. * * *'' \62\
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\62\ 12 U.S.C. 1821(e)(8)(D)(i).
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Q21. Should a broad exception covering short sales offset by
equivalent securities be proposed? If so, what securities should be
considered equivalent?
Q22. Is ``economic neutrality'' the proper basis for such an
exception? If not, what types of relationships (using a short hedge)
that appear to be economically neutral present a potential for
manipulation that Rule 10a-1 is designed to prevent?
The relationship between a short position and the instrument hedged
by the short position will vary according to custom and practice. Firms
that are more tolerant of risk may not fully hedge a position. Instead,
they may use a ratio hedge that reflects their tolerance of risk. Such
hedging techniques may be difficult for regulatory agencies to evaluate
and determine whether a particular hedge should be viewed as a bona
fide hedge.\63\
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\63\ See Securities Exchange Act Release No. 15533 (January 29,
1979), 44 FR 6084, at 6090.
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Q23. Should an exception for hedging transactions be limited to
transactions or positions that involve a complete
[[Page 58002]]
hedge? If so, how should a complete hedge be defined and measured?
Q24. What type of surveillance should the Commission consider for
monitoring short sales conducted as part of economically neutral
transactions?
E. Revising the Short Sale Rule in Response to Certain Market
Developments
If Rule 10a-1 is retained (in whole or in part), certain basic
adjustments may be required to keep pace with changes to the operation
of the national securities exchanges. We request comments on two
potential changes: Expansion of trading hours into after-hours trading
sessions and conversion to price quotations using a decimal format.
Please comment on any other changes to the operation of the national
securities exchanges or alternative trading systems (ATSs) that you
believe may affect the regulation of short selling.
1. After-hours Trading Sessions
Securities trading is rapidly expanding beyond the regular trading
hours of 9:30 a.m. to 4 p.m. This evolution is manifested by the
proliferation of trading in ATSs and consideration of extended trading
sessions by both the NYSE and Nasdaq. As in regular hours trading,
short sellers could add liquidity and contribute to pricing efficiency
in after-hours trading.
The tick test of Rule 10a-1 currently operates relative to the last
reported price on the Consolidated Tape. If the Consolidated Tape does
not operate after the close of regular trading hours, short sales can
only be executed at a price above the closing price on the Consolidated
Tape for the security (or, at the closing price if that price was an
uptick). This result could greatly limit the ability to execute short
sales in after hours trading.
We note that Rule 10a-1 permits exchanges to use the price of the
last transaction on the exchange, rather than the last price reported
to the Consolidated Tape, as the last reported price. Thus, an exchange
operating an after-hours session could rely on this provision. ATSs
cannot rely on this provision. Thus, short sales through ATSs must use
the last price reported to the Consolidated Tape.
Q25. If the Consolidated Tape does not operate during after hours
trading, should we consider adopting an exception to permit each ATS to
use the last transaction in its system as the reference price?
Q26. What impact would multiple permissible prices at which short
sales could be executed have on the effectiveness of short sale
regulation?
Q27. If a number of ATSs all operated using their internal prices
for Rule 10a-1 compliance, each could produce a different ``closing''
price at the close of trading on the ATS. How would multiple after-
hours ``last sale'' prices affect the first trade in the morning
trading session when the Consolidated Tape recommences operation?
2. Decimalization
We also note that the securities industry is targeting June 30,
2000, as the date when price quotations will be expressed in terms of
decimals rather than fractions. Decimal pricing may result in exchanges
setting the Minimum Price Variation (MPV) (i.e., the smallest amount by
which the price of a security can change), which today is \1/16\
($.0625) for most equity securities, at one cent or potentially even
smaller. A further result of the use of smaller MPVs is that the short
sale rule may be triggered by a change in price that, on a percentage
basis, could reflect an extremely small decrease in the price of the
security. For example, the average price per share traded on the NYSE
for June 1999 was approximately 45\7/8\. In an environment where the
MPV is \1/16\, a decrease in the share price by \1/16\ (.136%) would
trigger the short sale rule. In an environment where the MPV is one
cent, the short sale rule would be triggered by a decrease of the share
price by \1/100\ (.02%).
At least one study has analyzed the effects of smaller spreads on
the operation of Rule 10a-1.\64\ The study concludes that smaller
increments, such as one cent, would improve execution quality for
certain short sales and hurt others.
---------------------------------------------------------------------------
\64\ See Alexander, Gordon J. and Mark A. Peterson, Quote
Jumping, Minimum Tick Variation, and the Execution of Short Sell
Orders, 1999 working paper, included in Public File No. S7-24-99,
available for inspection and copying in the Commission's Public
Reference Room, 450 Fifth Street, NW, Washington, DC 20549.
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Q28. How did the recent decrease in the MPV from \1/8\ to \1/16\
affect short selling?
Q29. How will the potential use of a smaller MPV affect the
operation of Rule 10a-1?
Q30. Is a price change as small as one penny per share the type of
market impact that the short sale rule is designed to prevent?
Q31. Would the use of a smaller MPV support modifying or
eliminating Rule 10a-1?
Q32. Should Rule 10a-1 be altered to remain effective with respect
to smaller MPV?
F. Revising the Definition of ``Short Sale'' Under Rule 3b-3
The definition of ``short sale'' set forth in Rule 3b-3 is
integrally related to regulating short sales under Rule 10a-1. As with
Rule 10a-1, many developments in the securities markets have challenged
the current definition.
1. Aggregation
Short sellers are required to net all of their positions to
determine whether they are ``short'' under the definition in Rule 3b-3.
Continual netting is cumbersome and impractical for large, multi-
service firms. As a result, the staff of the Commission has granted
relief to these firms to ease the burdens of complying with Rule 10a-1,
while preserving the protections that the rule provides.\65\
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\65\ See supra note 2.
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Q33. Should we consider changing the definition of ``short sale''
to reduce the need to aggregate positions within a single entity?
Please describe other situations where an alternative to firm-wide
aggregation is justified.
2. Strategies for Creating a Temporary ``Long'' Position
Certain trading strategies have developed that may be used to avoid
the restrictions of the short sale rule. Traders employing such
strategies enter arrangements with a counterparty to create a position
in an equity security that technically is long, but gives the traders
no real economic stake in the equity security. Typically, these
strategies rely on the provision of Rule 3b-3 that provides that a
person has a long position in a security if he has ``entered into an
unconditional contract, binding on both parties thereto, to purchase
[the stock] but has not yet received it.'' \66\ Often, these strategies
involve the creation of a married put prior to, or simultaneous with, a
sale of the stock.\67\ Soon after creating this arrangement (i.e.,
later in the day), it is unwound when the market participant purchases
shares to return to the counterparty.
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\66\ 17 CFR 240.3b-3(2). See also 1992 Release, supra note 51.
\67\ Married puts can be used to hedge the price paid for a
stock through the simultaneous purchase of a stock and deep-in-the-
money puts for the stock.
---------------------------------------------------------------------------
A potential for abuse exists where the trader aggressively sells
the ``long'' stock position, destabilizing the price of the stock, and
soon after repurchases the stock in the market to return to the
counterparty. This type of strategy may present a heightened potential
for manipulation. While there are legitimate reasons to engage in
married puts (or
[[Page 58003]]
other similar arrangements), we are concerned that they may be used for
improper purposes.
Q34. Please describe examples of any manipulative strategies that
exploit the current definition of ``short sale,'' and whether
regulatory measures should be adopted to combat such strategies.
G. Extending the Short Sale Rule to Non-Exchange Listed Securities
Current short sale regulations cover securities that are either
listed on an exchange or traded in the Nasdaq NMS. As a result, they
cover securities that are generally characterized by high trading
liquidity. In addition, these markets have a relatively high degree of
transparency.
Securities traded in the OTC markets (e.g., Nasdaq Small Cap, the
NASD's OTCBB, the Pink Sheets) are not subject to short sale
restrictions. The staff frequently receives complaints alleging short
sale abuses involving securities in the OTC markets. As a corollary to
other concepts presented in this release, we seek comment on regulating
short sales in this market sector. We recognize that section 10(a) does
not grant specific authority to the Commission to regulate short sales
of securities not listed on a national exchange. Thus, regulations that
extend short sale regulation to new market sectors would have to be
adopted under other available statutory authority.
Q35. Should we consider extending short sale regulation to cover
non-exchange listed securities?
Q36. If so, how should the new regulation restrict short sales?
Does the current NASD short sale rule provide an applicable model for
this purpose?
H. Eliminating Rule 10a-1
As noted above, the need for short sale regulation has often been
debated. We believe that the developments in the securities markets
noted in this release warrant a general review of Rule 10a-1.
Therefore, we are also seeking comment on whether we should consider
eliminating Rule 10a-1 as a prophylactic measure and rely on the
antifraud and anti-manipulation provisions of the securities laws to
address abusive short selling.
One school of thought believes that unrestricted short selling can
involve abusive activity that influences market prices for securities.
This view was strongly expressed to Congress during its investigations
of the securities markets prior to enacting the Exchange Act, which
gave the Commission the authority to regulate short sales.\68\
Proponents of this view believe that successive short selling by
speculators may accelerate the impact of their bearish outlook for a
security.\69\ In 1963, the Special Study concluded that the aggravating
influence of short sales occurred even with regulatory restrictions
(which are still in place today).\70\ However, data about the actual
relationship between short selling and price movements in the
securities markets is scarce.\71\
---------------------------------------------------------------------------
\68\ See Special Study, supra note 7, at 247.
\69\ See Woolridge, supra note 42 (concluding that short sellers
do not enjoy unfair profits by forcing the price of a security down
through short sales).
\70\ Special Study, supra note 7, at 293-294.
\71\ See, e.g., 1976 Release, supra note 17, at 56534.
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In contrast, a number of commentators have argued that short sale
regulation prevents the market from reflecting the true or
``efficient'' price of a security.\72\ These commentators specifically
criticize Rule 10a-1 for imposing costs on market participants as they
wait for an uptick.\73\ We have considered these observations and
determined that the concept of eliminating the tick test deserves
analysis in light of recent market developments. If we eliminate the
Rule, short selling would only be subject to recordkeeping, reporting,
and the general antifraud and anti-manipulation rules.\74\
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\72\ See, e.g., Macey, supra note 42.
\73\ See Alexander, supra note 45.
\74\ E.g., 15 U.S.C. 78i(a) and 78j(b); 17 CFR 240.10b-5.
---------------------------------------------------------------------------
Q37. Are the objectives of Rule 10a-1 legitimate concerns in
today's markets?
Q38. Are the provisions of Rule 10a-1 necessary in the securities
markets? If so, please give specific examples that demonstrate this
need.
Q39. Does Rule 10a-1 continue to serve a valid purpose in a
declining market by preventing short sellers from accelerating declines
in securities prices, or ``depressing'' the market?
Q40. Does Rule 10a-1 prevent efficient pricing or slow the
incorporation of negative perceptions into an efficient price? Does the
need for more efficient pricing, if there is a need, outweigh the
protective benefits of Rule 10a-1?
Q41. Is Rule 10a-1 effective in preventing manipulative short
selling?
Q42. Would deregulation of short selling lead to an increase of
speculation in the market? If so, would this increase disadvantage
investors that are not engaged in speculation?
Q43. Does Rule 10a-1 limit price volatility in the securities that
it covers?
Q44. Would investors avoid securities, or classes of securities,
that they perceive to be vulnerable to abusive short selling? If so,
would this result be exacerbated by deregulation of short selling?
Q45. Would antifraud surveillance and enforcement actions be enough
to protect investors from abusive short selling?
Q46. If we rescind Rule 10a-1, should we reconsider a recordkeeping
and/or disclosure requirement for significant short positions? \75\
---------------------------------------------------------------------------
\75\ See 1991 Release, supra note 41.
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Q47. Would dissemination of aggregate open short positions on a
daily basis decrease the necessity of Rule 10a-1? What costs would be
associated with such a program?
Q48. If we rescind Rule 10a-1, should we consider adopting a rule
that requires a seller to identify a source of borrowable shares prior
to executing a short sale?
Q49. If we rescind Rule 10a-1, should SROs continue to regulate
short selling through their rules?
Q50. If the short sale rule is retained, should we consider ways to
regulate short sales of all securities, not just those listed on
exchanges (specifically, OTC securities, including those securities
quoted in the non-Nasdaq OTC markets)?
Q51. If the short sale rule is retained, should we consider
replacing the tick test with a bid test similar to NASD Rule 3350?
Typically, market professionals are able to act quickly in response
to news. Eliminating the short sale rule may enable short sellers to
act even more rapidly. Open public limit orders may be hit in rapid
succession at prices that no longer are attractive to the investors
that placed the orders. As a result, these orders may be hit before the
investors have the opportunity to cancel them.
Q52. Without the tick test, would market professionals have an
unfair advantage over public investor limit orders?
Q53. Would unrestricted short selling increase the risk for certain
trading strategies (e.g., block positioning)?
III. Conclusion
The securities markets and short selling activities have changed
significantly from the era in which Rule 10a-1 was adopted. We solicit
comment on alternative approaches to regulating short sales to
determine the appropriate response to these continuing developments.
By the Commission.
[[Page 58004]]
Dated: October 20, 1999.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-27879 Filed 10-27-99; 8:45 am]
BILLING CODE 8010-01-P
