Advisories

SEC Adopts New Short Sale Rules

August 2004

On July 28, 2004, the Securities and Exchange Commission published Regulation SHO under the Securities Exchange Act of 1934, as amended (the "Exchange Act").  Regulation SHO implements several significant changes to the rules governing short sales. Among its provisions, Regulation SHO provides for suspension of short sale price restrictions for specified securities for a temporary "pilot" period, institutes a uniform SEC "locate" rule that will supercede existing rules of various securities self-regulatory organizations ("SROs"), imposes additional delivery requirements for securities with a substantial number of failures to deliver ("fails"), clarifies the definition of ownership of securities, and requires sales to be marked "long," "short," or "short exempt." The SEC also eliminated the "shelf offering" exception from Rule 105 of Regulation M, and issued guidance regarding certain "sham transactions" designed to evade Rule 105. Most importantly, the SEC deferred consideration of its proposal to replace current short sale price restrictions with a uniform bid test, until the pilot program is completed.