SEC adopts amendments to regulation SHO

Abstract

Purpose

This paper aims to explain the SEC's new Rule 201 and amended Rule 200(g), which are designed to improve the regulations that address harmful shortselling practices.

Design/methodology/approach

The paper summarizes Rule 201, discusses the reasoning behind the “alternative uptick rule”, defines “covered securities” to which Rule 201 applies, explains why the commission chose the national best bid as the basis of the execution of short sales during the circuit breaker period, discusses the SEC's policies and procedures approach, explains conditions under which a broker‐dealer submitting a short‐sale order after the circuit breaker is triggered submitting a short sale order after the circuit breaker is triggered may mark the order “short exempt,” explains the reason an exception for market making activities is not included in the rule, and discusses the implementation period and the need for broker‐dealers to develop new policies and procedures.

Findings

Broker‐dealers and other market centers will need to dedicate significant compliance and systems resources to develop the policies and procedures and systems enhancements necessary to comply with the rule.

Originality/value

The paper provides practical guidance from experienced securities lawyers.

Citation

Forbes, J., Gnall, G.P. and Lombardo, C.M. (2010), "SEC adopts amendments to regulation SHO", Journal of Investment Compliance, Vol. 11 No. 3, pp. 14-19. https://doi.org/10.1108/15285811011082197