[Federal Register Volume 60, Number 49 (Tuesday, March 14, 1995)]
[Notices]
[Pages 13744-13745]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-6163]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35450; File Nos. SR-NYSE-94-39; SR-Phlx-94-29; SR-PSE-
94-34; SR-BSE-94-15; SR-CHX-94-28; SR-NASD-94-67; SR-CBOE-94-55]
Self-Regulatory Organizations; New York Stock Exchange, Inc.,
Philadelphia Stock Exchange, Inc., Pacific Stock Exchange, Inc., Boston
Stock Exchange, Inc., Chicago Stock Exchange, Inc., National
Association of Securities Dealers, Inc., and Chicago Board Options
Exchange; Supplemental Order Regarding Recently Adopted Rules for Short
Position Reporting
March 7, 1995.
I. Background
The New York Stock Exchange, Inc. (``NYSE''), on October 27, 1994,
the Philadelphia Stock Exchange, Inc., (``Phlx''), on October 20, 1994,
the Pacific Stock Exchange, Inc. (``PSE''), on November 23, 1994, the
Boston Stock Exchange, Inc. (``BSE''), on November 28, 1994, the
Chicago Stock Exchange, Inc. (``CHX''), on December 12, 1994, the
National Association of Securities Dealers, Inc. (``NASD'`), on
December 2, 1994\1\ and the Chicago Board Options Exchange (``CBOE''),
on January 3, 1995, (collectively, ``self-regulatory organizations'' or
``SROs'') submitted to the Securities and Exchange Commission (``SEC''
or ``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'')\2\ and Rule 19b-4 thereunder,\3\
proposed rule changes to facilitate uniform short position reporting
requirements.\4\
\1\In addition, the NASD filed Amendment No. 1 on January 11,
1995, to clarify who must report to the NASD, what the entities must
report, and the mechanics of how to transmit such report. Because
the Amendment did not substantively change the proposal, the
Commission did not publish it for comment. See letter from Joan C.
Conley, Secretary, NASD, to Mark Barracca, Attorney, SEC, dated
January 11, 1995.
\2\15 U.S.C. 78s(b)(1) (1988).
\3\17 CFR 240.19b-4 (1991).
\4\``Short'' positions to be reported are those resulting from
``short'' sales as defined in SEC Rule 3b-3, but excludes positions
resulting from sales specified in clauses (1), (6), (7), (8), (9)
and (10) of paragraph (e) of SEC Rule 10a-1. Also to be excluded are
``short'' positions carried for other members and member
organizations reporting for themselves.
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The proposed rule change filed by the CBOE was published for
comment in Securities Exchange Act Release No. 35227 (January 13,
1995), 60 FR 4208 (January 20, 1995). In addition, all of the other
proposed rule changes were published for comment in Securities Exchange
Act Release No. 35147 (December 23, 1994), 60 FR 518 (January 4, 1995).
No comments were received on [[Page 13745]] the proposal from either
notice publication.
The Commission issued an order on January 27, 1995, approving the
proposed rule changes referenced above.\5\
\5\Securities Exchange Act Release No. 35287 (January 27, 1995),
60 FR 6743 (February 3, 1995) (``Approval Order'').
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II. Discussion
As explained in the Approval Order, the purpose of the rule changes
is to ensure that all broker-dealers registered in the United States
report open short positions to an SRO. The proposed rule changes
emanated from an initiative by the SROs, as Intermarket Surveillance
Group (``ISG'') members, to ensure uniform short position reporting in
U.S. traded securities.
Substantively, the new reporting requirements will continue to
include stocks and warrants, including odd-lots, in each such security
traded on a United States securities exchange or association. Further,
the reports will continue to include both customer and proprietary
positions.
At the time the Approval Order was published, the Commission
understood that broker-dealers with multiple proprietary accounts
netted such accounts for purposes of reporting their short positions.
In the interim, however, it has come to light that industry practice
varies and that the preferred method is not to net multiple accounts.
Specifically, the NYSE indicated in a letter submitted to the
Commission on March 1, 1995, that ``firms will use the gross method of
reporting short interest positions rather than netting.'' The remaining
ISG participants that adopted the rules at hand have confirmed that
industry practice should not be disrupted for purposes of reporting
firm short interest positions. The NYSE requested that the Approval
Order be modified to reflect industry practice at the time of the rule
filing.\6\
\6\See letter from Salvatore Pallante, Senior Vice President,
Member Firm Regulation, NYSE, to Holly Smith, Associate Director,
Division of Market Regulation, Commission, dated March 1, 1995.
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The Commission notes that the method of calculation was not a
determinative factor in the decision to approve the short interest
reporting rules. Rather, the Commission's goal was to assure uniformity
in the calculation of short positions to provide comparable information
to the marketplace. In this regard, the Commission has not identified
advantages of one method over the other and agrees that, consistent
with industry practice, short interest positions for both like and non-
like accounts may be reported gross for purposes of the new reporting
requirements.
The Approval Order included an example to illustrate the method,
net reporting, which the Commission understood to be the industry
standard.\7\ The modification requested by the NYSE would be reflected
in this example by providing that the firm would not net its
proprietary accounts.\8\
\7\See Approval Order, footnote 7.
\8\The example in the Approval Order concerns a broker-dealer
with three accounts--account 1 has short interest of 100 shares,
account 2 has short interest of 225 shares and account 3 is long 150
shares. As indicated in the Approval Order, if the three accounts
are for different customers then the broker-dealer shall report a
gross short interest of 325 (not netted to 175). In contrast to the
Approval Order, however, if account 1 is a firm customer account,
and accounts 2 and 3 are firm proprietary accounts, the broker-
dealer would still report total short interest of 325 (not netted to
75), as the broker-dealer would not net the firm's proprietary
positions but would report a total gross short position (customer
100 and firm 225).
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The Commission finds that the clarification does not alter the
statutory basis relied upon in the Approval Order. The Commission
continues to believe, therefore, that the short interest position
reporting rules and methodology for such calculation as outlined herein
is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange,
and, in particular, with the requirements of Section 6(b) and 15A.\9\
In particular, the Commission believes the proposal is consistent with
the Sections 6(b)(5) and 15A(b)(6) requirements that the rules of an
exchange be designed to promote just and equitable principles of trade,
to prevent fraudulent and manipulative acts, and, in general, to
protect investors and the public, in that the proposal should enhance
the ability of the SROs, both collectively and individually, to monitor
short interest reporting, and to reinforce their regulatory and
surveillance capabilities in this area.
\9\15 U.S.C. 78f(b) and 78o-3 (1988).
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III. Conclusion
It Is Therefore Ordered, pursuant to Section 19(b)(2) of the
Act,\10\ that the Approval Order is hereby revised as described above.
\10\15 U.S.C. 78s(b)(2) (1988).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
\11\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-6163 Filed 3-13-95; 8:45 am]
BILLING CODE 8010-01-M
