Good morning.
Welcome to day two of the Securities and Exchange
Commission's Securities Lending and Short
Sale Roundtable, which will cover the short
sale portion of the roundtable. First, on
behalf of the Commission, let me thank all
who have agreed to participate in today's
roundtable. The Commission's consideration
of these important short selling issues will
be enhanced by what I expect will be informative
and interesting comments, insights and recommendations
by our panelists.
During my tenure as Chairman, the issue of
short selling has been the subject of numerous
inquiries, suggestions and expressions of
concern to the Commission. We know that the
practice of short selling evokes strong opinions
from both its supporters and detractors. I
have made it a priority to evaluate the issue
of short selling regulation and ensure that
any future policies in this area are the result
of a deliberate and thoughtful process, which
is why we are here today.
Today's roundtable discussion includes two
panels. Each panelist will take a few moments
to share his or her thoughts on the issues
being discussed, and when these introductory
statements are complete, the floor will be
opened to questions from the Commission.
The first panel will consider the merits of
imposing a pre-borrow or "hard locate" requirement
on short sellers, either permanently or on
a pilot basis. The panel will also consider
the alternative forms that a pre-borrow or
"hard locate" requirement could take to enhance
its effectiveness and benefit to investors.
Among the many inquiries, suggestions and
expressions of concern that the Commission
has received concerning short selling, and
particularly "naked" short selling, many have
recommended that the Commission impose a requirement
that anyone effecting a short sale must borrow
or arrange to borrow the securities, prior
to effecting a short sale. The Commission
is concerned about abusive "naked" short selling
and persistent fails to deliver and the potentially
manipulative effect this activity can have
on our markets. Thus, we are examining whether
a pre-borrow or "hard locate" requirement
or another alternative is necessary or would
be effective in addressing such activity and
preventing market manipulation.
The discussion will take into account the
Commission's existing "locate" requirement
under Regulation SHO, which requires broker-dealers,
prior to effecting a short sale, to borrow
or arrange to borrow the securities, or have
reasonable grounds to believe that the securities
can be borrowed so that they can be delivered
on the date delivery is due. The discussion
will also consider the impact of temporary
Rule 204T, and now final Rule 204, which requires
clearing firms to purchase or borrow shares
to closeout a fail to deliver resulting from
a short sale by no later than the beginning
of trading on T+4.
The second panel will consider additional
means to foster short selling transparency
so that investors and regulators have greater
and more meaningful information about short
sale activity. The panel will consider enhanced
disclosure methods such as adding a short
sale indicator to the tapes to which transactions
are reported for exchange-listed securities,
or requiring public disclosure of individual
large short positions.
In the fall of 2008, the Commission adopted
a temporary short sale reporting rule, Rule
10a-3T. The rule required certain market participants
to provide short sale and short position information
to the Commission.
Instead of renewing the rule, the Commission
and its staff, together with several SROs,
determined to substantially increase the public
availability of short sale-related information
by publishing, on a daily basis, aggregate
short selling volume data in each individual
equity security and, on a one-month delayed
basis, publishing information regarding individual
short sale transactions in all exchange-listed
equity securities. In addition, the Commission
has enhanced the publication on its Web site
of fails to deliver data so that such information
is provided twice per month and provided for
all equity securities, regardless of the fails
level.
Today's panel discussion will consider whether
additional public or non-public disclosure
of short selling transactions and short positions
would be beneficial, and if so, what type
of disclosure should be implemented. I am
also particularly interested to hear about
the experiences in foreign jurisdictions,
such as the United Kingdom, that have implemented
short sale reporting regimes.
Today's panelists are leaders and experts
in their respective fields. They represent
a range of constituencies that includes issuers,
financial services firms, self-regulatory
organizations, foreign regulators, investors
and the academic community. It is a privilege
to have them here and we look forward to an
informative and interesting discussion.
I'll now turn the meeting over to Jamie Brigagliano,
Acting Co-Director of the Division of Trading
and Markets, who will introduce and moderate
our first panel.
