Comment on Alt Uptick Rule 081909 template

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Investment Management Alert August 2009 Authors: SEC Seeks Comment on Alternative Uptick Kay A. Gordon Rule Proposal [e-mail] +1.212.536.4038 On August 17, 2009, the U.S. Securities and Exchange Commission (the “SEC”) announced that it is seeking public comment on an alternative approach to its April Mark D. Perlow 2009 proposals for short sale price test restrictions, which would permit short sales [e-mail] only at an increment above the national best bid (the “Alternative Uptick Rule”). +1.415.249.1070 Although the initial comment period for the April proposals ended on June 19, 2009, the SEC announced that the comment period will be extended for 30 days from Richard Guidice, Jr. August 20, 2009 (i.e., the date on which the Alternative Uptick Rule proposal is [e-mail] expected to be published in the Federal Register) in order to receive input on the +1.212.536.3982 proposed Alternative Uptick Rule. The SEC believes that the Alternative Uptick Rule may be more easily implemented than its April 2009 proposals regarding price test restrictions on short sales (the K&L Gates is a global law firm with lawyers in 33 offices located in North “April 2009 Proposals”). Under the first approach in the April 2009 Proposals, one America, Europe, Asia and the Middle of two alternative “uptick” rules would apply on a permanent, market-wide basis and East, and represents numerous GLOBAL 500, FORTUNE ...

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• Publié par: Maphag
• Nombre de lectures: 9
• Langue: English

Extrait

Authors:

Kay A. Gordon

[e-mail]

+1.212.536.4038

Mark D. Perlow

[e-mail]

+1.415.249.1070

Richard Guidice, Jr.

[e-mail]

+1.212.536.3982

K&L Gates is a global law firm with

lawyers in 33 offices located in North

America, Europe, Asia and the Middle

East, and represents numerous GLOBAL

500, FORTUNE 100, and FTSE 100

corporations, in addition to growth and

middle market companies,

entrepreneurs, capital market

participants and public sector entities.

For more information, visit

www.klgates.com.

Investment Management Alert

August 2009

SEC Seeks Comment on Alternative Uptick

Rule Proposal

On August 17, 2009, the U.S. Securities and Exchange Commission (the “SEC”)

announced that it is seeking public comment on an alternative approach to its April

2009 proposals for short sale price test restrictions, which would permit short sales

only at an increment above the national best bid (the “Alternative Uptick Rule”).

Although the initial comment period for the April proposals ended on June 19, 2009,

the SEC announced that the comment period will be extended for 30 days from

August 20, 2009 (

i.e.

, the date on which the Alternative Uptick Rule proposal is

expected to be published in the Federal Register) in order to receive input on the

proposed Alternative Uptick Rule.

The SEC believes that the Alternative Uptick Rule may be more easily implemented

than its April 2009 proposals regarding price test restrictions on short sales (the

“April 2009 Proposals”).

Under the first approach in the April 2009 Proposals, one

of two alternative “uptick” rules would apply on a permanent, market-wide basis and

would restrict short selling based on either the national best bid or the last sale price.

The second approach, which is based on “circuit breakers,” would apply only to a

particular security during severe declines in the price of that security.

Once a circuit

breaker is triggered, the rules would impose a halt on short sales or impose short sale

restrictions based on either the last sale price or the national best bid.

Because the

Alternative Uptick Rule would reference only the current national best bid in

determining permissible short sales, it would not require monitoring of the sequence

of bids or last sale prices (

i.e.

, whether the current national best bid or last sale price

is above or below the previous national best bid or last sale price).

The SEC believes

that, as a result, the Alternative Uptick Rule may be implemented more quickly and

with less cost than the other April 2009 Proposals.

According to the SEC, the Alternative Uptick Rule would be similar to the proposed

modified uptick rule in that both would use the current national best bid as a

reference point for short sale orders.

However, unlike the proposed modified uptick

rule (or the proposed uptick rule), the Alternative Uptick Rule would not allow short

selling at the current national best bid (or last sale price), but instead would only

permit short selling at an increment above the current national best bid in an

advancing or declining market, unless an applicable exception applies.

As proposed,

the Alternative Uptick Rule could be implemented through a straight prohibition or

through a policies-and-procedures approach, and it could also be combined with a

circuit breaker.

The Alternative Uptick Rule also could include exceptions similar to

those in the proposed (in April) modified uptick rule, such as “short exempt”

provisions or exceptions for sellers’ delivery delays or for riskless principal

transactions.

The SEC acknowledges that because the Alternative Uptick Rule would not allow

short sales to get immediate execution, even in an advancing market, the Alternative

Uptick Rule would restrict short selling to a greater extent than either the proposed

August 2009

2

Investment Management Alert

modified uptick rule or the proposed uptick rule.

As

a result, the Alternative Uptick Rule could

potentially lessen some of the benefits of legitimate

short selling, including market liquidity and pricing

efficiency,

to a greater extent than the April 2009

Proposals.

The SEC also acknowledged the

potential costs of the Alternative Uptick Rule from

its anticipated impact on quote depths, spread

widths, market liquidity, execution and pricing

inefficiencies.

In the proposing release, the SEC indicates that the

Alternative Uptick Rule was first raised by

commenters on the April 2009 Proposals.

The SEC

also asked for comment on a comprehensive set of

issues presented by the Alternative Uptick Rule as

well as some of the same issues on which it had

asked for comment in the April 2009 Proposals.

In

doing so, the SEC is signaling that it intends to

continue its deliberate approach and pace to the

short selling uptick rule-making process.

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K&L Gates is a global law firm with lawyers in 33 offices located in North America, Europe, Asia and the Middle East, and represents numerous

GLOBAL 500, FORTUNE 100, and FTSE 100 corporations, in addition to growth and middle market companies, entrepreneurs, capital market

participants and public sector entities. For more information, visit www.klgates.com.

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