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21 July 2008
[Federal Register: July 21, 2008 (Volume 73, Number 140)]
[Notices]
[Page 42379-42380]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21jy08-95]
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SECURITIES AND EXCHANGE COMMISSION
[Securities Exchange Act of 1934 Release No. 58166/July 15, 2008]
Emergency Order Pursuant to Section 12(k)(2) of the Securities
Exchange Act of 1934 Taking Temporary Action To Respond to Market
Developments
False rumors can lead to a loss of confidence in our markets. Such
loss of confidence can lead to panic selling, which may be further
exacerbated by ``naked'' short selling. As a result, the prices of
securities may artificially and unnecessarily decline well below the
price level that would have resulted from the normal price discovery
process. If significant financial institutions are involved, this chain
of events can threaten disruption of our markets.
The events preceding the sale of The Bear Stearns Companies Inc.
are illustrative of the market impact of rumors. During the week of
March 10, 2008, rumors spread about liquidity problems at Bear Stearns,
which eroded investor confidence in the firm. As Bear Stearns' stock
price fell, its counterparties became concerned, and a crisis of
confidence occurred late in the week. In particular, counterparties to
Bear Stearns were unwilling to make secured funding available to Bear
Stearns on customary terms. In light of the potentially systemic
consequences of a failure of Bear Stearns, the Federal Reserve took
emergency action.
The Commission has taken a series of actions to address concerns
about rumors. For example, in April, 2008, we charged Paul S. Berliner,
a trader, with securities fraud and market manipulation for
intentionally disseminating a false rumor concerning The Blackstone
Group's acquisition of Alliance Data Systems Corp (``ADS''). The
Commission alleged that this false rumor caused the price of ADS stock
to plummet, and that Berliner profited by short selling ADS stock and
covering those sales as the false rumor caused the price of ADS stock
to fall. See http://www.sec.gov/litigation/litreleases/2008/
lr20537.htm.
As another example, on July 13, 2008, the Commission announced that
the SEC and other securities regulators would immediately conduct
examinations aimed at the prevention of the intentional spreading of
false information intended to manipulate securities prices. The
examinations will be conducted by the SEC's Office of Compliance
Inspections and Examinations, as well as the Financial Industry
Regulatory Authority, Inc. and New York Stock Exchange Regulation, Inc.
See http://www.sec.gov/news/press/2008/2008-140.htm.
We intend these and similar actions to provide powerful
disincentives to those who might otherwise engage in illegal market
manipulation through the dissemination of false rumors and thereby over
time to diminish the effect of these activities on our markets. In
recent days, however, false rumors have continued to threaten
significant market disruption. For example, press reports have
described rumors regarding the unwillingness of key counterparties to
deal with certain financial institutions. There also have been rumors
that financial institutions are facing liquidity problems.
As a result of these recent developments, the Commission has
concluded that there now exists a substantial threat of sudden and
excessive fluctuations of securities prices generally and disruption in
the functioning of the securities markets that could threaten fair and
orderly markets. Based on this conclusion, the Commission is exercising
its powers under Section 12(k)(2) of the Securities Exchange Act of
1934.\1\ Pursuant to Section 12(k)(2), in appropriate circumstances the
Commission may issue summarily an order to alter, supplement, suspend,
or impose requirements or restrictions with respect to matters or
actions subject to regulation by the Commission.
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\1\ This finding of an ``emergency'' is solely for purposes of
Section 12(k)(2) of the Exchange Act and is not intended to have any
other effect or meaning or to confer any right or impose any
obligation other than set forth in this Order.
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In these unusual and extraordinary circumstances, we have concluded
that requiring all persons to borrow or arrange to borrow the
securities identified in Appendix A prior to effecting an order for a
short sale of those securities is in the public interest and for the
protection of investors to maintain fair and orderly securities
markets, and to prevent substantial disruption in the securities
markets. This emergency requirement will eliminate any possibility that
naked short selling may contribute to the disruption of markets in
these securities. We described in the releases in which we proposed and
adopted Regulation SHO the bases for the current requirements
Regulation SHO imposes. We believe, however, that the unusual
circumstances we now confront require the temporarily enhanced
requirements we are imposing today.
It is ordered that, pursuant to our Section 12(k)(2) powers, in
connection with transactions in the publicly traded securities of
substantial financial firms, which entities are identified in Appendix
A, no person may effect a short sale \2\ in these securities using the
means or instrumentalities of interstate commerce unless such person or
its agent has borrowed or arranged to borrow the security or otherwise
has the security available to borrow in its inventory prior to
effecting such short sale and delivers the security on settlement
date.\3\
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\2\ The definition of ``short sale'' shall be the same
definition used in Rule 200(a) of Regulation SHO and the
requirements for marking orders ``long'' or ``short'' shall be the
same as provided in Regulation SHO.
\3\ Short sales to be effected as a result of a put options
exercise are subject to this Order. In addition, we note that short
sales used to hedge would also be subject to this Order.
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In order to allow market participants time to adjust their
operations to implement the enhanced requirements, this Order shall
take effect at 12:01 a.m. EDT on Monday, July 21, 2008. This Order
shall terminate at 11:59 p.m. EDT on Tuesday, July 29, 2008 unless
further extended by the Commission.
By the Commission.
Florence E. Harmon,
Acting Secretary.
Appendix A
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Company Ticker symbol(s)
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BNP Paribas Securities Corp................ BNPQF or BNPQY
Bank of America Corporation................ BAC
[[Page 42380]]
Barclays PLC............................... BCS
Citigroup Inc.............................. C
Credit Suisse Group........................ CS
Daiwa Securities Group Inc................. DSECY
Deutsche Bank Group AG..................... DB
Allianz SE................................. AZ
Goldman, Sachs Group Inc................... GS
Royal Bank ADS............................. RBS
HSBC Holdings PLC ADS...................... HBC and HSI
J.P. Morgan Chase & Co..................... JPM
Lehman Brothers Holdings Inc............... LEH
Merrill Lynch & Co., Inc................... MER
Mizuho Financial Group, Inc................ MFG
Morgan Stanley............................. MS
UBS AG..................................... UBS
Freddie Mac................................ FRE
Fannie Mae................................. FNM
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[FR Doc. E8-16545 Filed 7-18-08; 8:45 am]
BILLING CODE 8010-01-P