SEC adopts Amendments to Rule 105 of Regulation M, including important exceptions for bona fide purchases and for separate accounts

The purpose of this paper is to provide a detailed description of Amendments to Rule 105 of Regulation M adopted by the US Securities and Exchange Commission (the “SEC”) on June 20, 2007

Presents a general overview of short sales and the purpose of Regulation M, a rule that prohibits purchases and sales of securities during specified periods close in time to public offerings of securities; and describes the Amendments, including an expansion of the prohibition under the Rule from a prohibition on “covering” to a prohibition on purchases generally and including three exceptions that pertain to “bona fide” purchases, “separate accounts,” and investment companies.

The Amendments are important because: they expand the scope of the Rule's basic prohibition; they were expanded in part because SEC perceived that circumvention of the Rule was persistent; they permit notable exceptions; and they were adopted close in time to other amendments to the regulation of short sales, including elimination of the price or “tick” tests.

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