Amendment to Regulation SHO, 40201-40203 [E8-15768]
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Federal Register / Vol. 73, No. 135 / Monday, July 14, 2008 / Proposed Rules
use of Methionine, a synthetic
substance, in organic poultry
production until October 1, 2010. The
NOSB evaluated this substance using
criteria in the OFPA. The substance’s
evaluation was initiated by a petition
from the MTF.
The NOSB has determined that while
wholly natural substitute products exist,
they are not presently available in
sufficient supplies to meet poultry
producer needs. Therefore, synthetic
Methionine is presently a necessary
component of a nutritionally adequate
diet for organic poultry. Thus, loss of
the use of Methionine, at this time,
would disrupt the well-established
organic poultry market and cause
substantial economic harm to organic
poultry operations. Accordingly, the
NOSB has recommended extending the
allowed use of synthetic Methionine in
poultry production until October 1,
2010.
AMS believes that a 30-day period for
interested persons to comment on this
rule is appropriate because the
continued use of Methionine is critical
to organic production, and this
rulemaking should be completed before
October 1, 2008, to avoid any
disruptions to the market place.
List of Subjects in 7 CFR part 205
Administrative practice and
procedure, Agriculture, Animals,
Archives and records, Imports, Labeling,
Organically produced products, Plants,
Reporting and recordkeeping
requirements, Seals and insignia, Soil
conservation.
For the reasons set forth in the
preamble, 7 CFR part 205, subpart G is
proposed to be amended as follows:
PART 205—NATIONAL ORGANIC
PROGRAM
1. The authority citation for 7 CFR
part 205 continues to read as follows:
Authority: 7 U.S.C. 6501–6522.
§ 205.603
[Amended]
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2. Section 205.603(d)(1) is amended
by removing ‘‘2008’’ and adding ‘‘2010’’
in its place.
Dated: July 1, 2008.
Lloyd C. Day,
Administrator, Agricultural Marketing
Service.
[FR Doc. E8–15390 Filed 7–11–08; 8:45 am]
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SECURITIES AND EXCHANGE
COMMISSION
17 CFR Part 242
[Release No. 34–58107; File No. S7–19–07]
RIN 3235–AJ57
Amendment to Regulation SHO
Securities and Exchange
Commission.
ACTION: Proposed rule; notice of reopening of comment period.
AGENCY:
SUMMARY: The Securities and Exchange
Commission is re-opening the comment
period on the ‘‘Amendments to
Regulation SHO’’ it re-proposed in
Securities Exchange Act Release No.
56213 (August 7, 2007), 72 FR 45558
(August 14, 2007), (the ‘‘Proposal’’). In
view of the continuing public interest in
the Proposal we believe that it is
appropriate to re-open the comment
period to provide the public with
additional information before we take
action on the Proposal.
DATES: Comments should be received on
or before August 13, 2008.
ADDRESSES: Comments may be
submitted by any of the following
methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/proposed.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number S7–19–07 on the subject line;
or
• Use the Federal eRulemaking Portal
(https://www.regulations.gov). Follow the
instructions for submitting comments.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street, NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number S7–19–07. This file number
should be included on the subject line
if e-mail is used. To help us process and
review your comments more efficiently,
please use only one method. The
Commission will post all comments on
the Commission’s Internet Web site
(https://www.sec.gov/rules/
proposed.shtml). Comments are also
available for public inspection and
copying in the Commission’s Public
Reference Room, 100 F Street, NE.,
Washington, DC 20549 on official
business days between the hours of 10
a.m. and 3 p.m. All comments received
will be posted without change; we do
not edit personal identifying
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40201
information from submissions. You
should submit only information that
you wish to make available publicly.
FOR FURTHER INFORMATION CONTACT:
James A. Brigagliano, Associate
Director, Josephine J. Tao, Assistant
Director, Victoria L. Crane, Branch Chief
and Christina M. Adams, Staff Attorney,
Office of Trading Practices and
Processing, Division of Market
Regulation, at (202) 551–5720, at the
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549.
SUPPLEMENTARY INFORMATION: The
Commission is requesting additional
public comment on proposed
amendments to Rules 200 and 203 of
Regulation SHO [17 CFR 242.200 and
242.203] under the Securities Exchange
Act of 1934 (‘‘Exchange Act’’). In the
Proposal, the Commission re-proposed
amendments to Regulation SHO under
the Exchange Act intended to further
reduce the number of persistent fails to
deliver 1 in certain equity securities by
eliminating the options market maker
exception to the close-out requirement
of Regulation SHO. The Commission
also sought comment on two
alternatives to elimination that would
limit the scope of the options market
maker exception. The Commission is reopening the comment period, which
ended on September 13, 2007, to
provide additional information with
respect to the Proposal to the public.
At the same time that the Commission
re-proposed amendments to Regulation
SHO to eliminate the options market
maker exception to Regulation SHO’s
close-out requirement, the Commission
approved amendments to Regulation
SHO to eliminate the rule’s
‘‘grandfather’’ provision.2 The
‘‘grandfather’’ provision had provided
that fails to deliver established prior to
a security becoming a threshold security
did not have to be closed out in
accordance with Regulation SHO’s
thirteen consecutive settlement day
close-out requirement. The amendment
to eliminate the ‘‘grandfather’’ exception
became effective on October 15, 2007.
1 A ‘‘fail to deliver’’ occurs when the seller of a
security fails to deliver the security by settlement
date. Generally, investors must complete or settle
their security transactions within three business
days. This settlement cycle is known as T+3 (or
‘‘trade date plus three days’’). T+3 means that when
the investor purchases a security, the purchaser’s
payment generally must be received by its
brokerage firm no later than three business days
after the trade is executed. When the investor sells
a security, the seller generally must deliver its
securities, in certificated or electronic form, to its
brokerage firm no later than three business days
after the sale.
2 Securities Exchange Act Release No. 56212
(Aug. 7, 2007), 72 FR 45544 (Aug. 14, 2007).
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Federal Register / Vol. 73, No. 135 / Monday, July 14, 2008 / Proposed Rules
The amendment also contained a onetime phase-in period that provided that
previously-grandfathered fails to deliver
in a security that was a threshold
security on the effective date of the
amendment must be closed out within
35 consecutive settlement days from the
effective date of the amendment. The
phase-in period ended on December 5,
2007.3
In response to the Proposal,
commenters urged the Commission to
obtain empirical data to demonstrate the
relationship between fails to deliver and
the options market maker exception
before it determines whether additional
rulemaking is necessary. In particular,
commenters urged the Commission to
obtain data relating to the impact of the
elimination of the grandfather provision
and connecting fails to deliver to the
options market maker exception.4 The
Commission has obtained additional
data on fails to deliver since the
Proposal was published. Accordingly, in
response to commenters and because
the Commission believes the additional
data will aid the public in commenting
on the Proposal, the Commission is reopening the comment period to share
with the public data obtained by the
Commission regarding fails to deliver
and the options market maker
exception, and to provide the public
with an opportunity to comment on the
data.
To ascertain whether fails to deliver
are not being closed out due to the
options market maker exception to the
close-out requirement since the
elimination of the ‘‘grandfather’’
provision, Commission staff obtained
data on securities with extended fails to
deliver from a National Securities
Clearing Corporation (‘‘NSCC’’)
participant which settles and clears for
a large segment of the options market for
January and February 2008. A review of
this data reveals that a high number of
fails to deliver were not closed out as a
result of the options market maker
exception.5 Specifically, the data
indicated that as of January 31, 2008,
the options market maker exception was
claimed in 16 threshold securities for a
total of 6,365,158 fails to deliver. As of
February 29, 2008, the data indicated
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3 See
id.
4 See e.g., Comments of Keith F. Higgins,
Committee on Federal Regulation of Securities,
American Bar Association, Section of Business Law
(Oct. 5, 2007); comments of John Gilmartin and Ben
Londergan, Group One Trading, LP (Sept. 28, 2007);
see also comments of Gerald D. O’Connell,
Susquehanna Investment Group (Oct. 11, 2007).
5 We note that the data reflects only those
extended fails to deliver not closed out due to the
options market maker exception and, therefore,
does not reflect all fails to deliver in the securities
included in the data.
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that the options market maker exception
was claimed in 20 threshold securities
for a total of 6,963,949 fails to deliver.
In addition, the Commission is
releasing the results of a recent analysis
by the Commissions’ Office of Economic
Analysis (‘‘OEA’’) of fails to deliver
before and after the elimination of
Regulation SHO’s ‘‘grandfather’’
provision.6 As set forth below, these
results show that extended fails to
deliver in non-optionable threshold
securities declined significantly after
the elimination of the ‘‘grandfather’’
provision while extended fails to deliver
in optionable threshold securities
increased significantly. Specifically,
changes for optionable threshold
securities include:
• The average daily number of
optionable threshold list securities
increased by 25.0%.
• The average daily number of new
fail to deliver positions in optionable
threshold securities increased by 45.3%.
• For fails aged more than 17 days in
optionable threshold securities, the
average daily dollar value of fails to
deliver increased by 73.4%.
• For fails aged more than 17 days in
optionable threshold securities, the
average daily number of fail to deliver
positions increased by 30.7%.
• The average daily number of
optionable threshold list securities with
fails aged more than 17 days increased
by 40.9%.
Further, changes for non-optionable
threshold securities include:
• The average daily number of nonoptionable threshold list securities
decreased by 3.5%.
• The average daily number of new
fail to deliver positions in nonoptionable threshold securities
increased by 7.4%.
• For fails aged more than 17 days in
non-optionable threshold securities, the
average daily dollar value of fails to
deliver decreased by 34.5%.
• For fails aged more than 17 days in
non-optionable threshold securities, the
average daily number of fail to deliver
positions decreased by 38.8%.
• The average daily number of nonoptionable threshold list securities with
6 See Memorandum from the Commission’s Office
of Economic Analysis (dated June 9, 2008), which
is available on the Commission’s Internet Web site
at https://www.sec.gov/comments/s7-19-07/
s71907.shtml (the ‘‘OEA Memorandum’’). As
discussed above, the ‘‘grandfather’’ provision was
eliminated as of October 15, 2007 with a one-time
phase in period which expired on December 5,
2007. The sample data used in the OEA
Memorandum compares two time periods: April 9,
2007–October 14, 2007, which is defined as the
‘‘pre-amendment period’’ and December 10, 2007–
March 31, 2008, which is defined as the ‘‘postamendment period.’’
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fails aged more than 17 days decreased
by 32.6%.7
To ascertain the extent to which fails
to deliver were not being closed out due
to the options market maker exception
to the close-out requirement prior to the
elimination of the ‘‘grandfather’’
provision, Commission staff obtained
data from certain self-regulatory
organizations for 2006 and 2007
regarding use of the options market
maker exception. This data is explained
in more detail below.
In 2007, as part of its regular
Regulation SHO surveillance, the
Financial Industry Regulatory Authority
(‘‘FINRA’’) conducted a review of
securities with extended fails to deliver
at the NSCC to ascertain the continuing
cause of fails to deliver, and to also
assess compliance with NYSE Rule 440/
SEA 8 and Regulation SHO. As set forth
below, according to data provided by
one NSCC participant that settles and
clears for a large segment of the options
market, a number of fails to deliver at
that participant were not closed out due
to claims that the fails were excepted
from the close-out requirement as a
result of the options market maker
exception.
A review of the FINRA data for 2007
shows the following:
Month
February .......
March ............
April ...............
May ...............
June ..............
July ...............
August ...........
October .........
November .....
December .....
Fails to
deliver9
35,665
900,276
3,433,639
228,878
2,441,122
462,414
3,065,710
4,456,340
1,841,063
5,621,982
Number of
securities
1
5
8
2
14
6
12
13
2
15
As indicated in the table above, the
options market maker exception to the
close-out requirement was claimed for a
large number of fails to deliver for the
entire year, including both before and
after October 15, 2007, the effective date
of the elimination of Regulation SHO’s
‘‘grandfather’’ provision.
On December 11, 2006 the Chicago
Board of Options Exchange (‘‘CBOE’’)
7 See
id.
Rule 440 requires that ‘‘[e]very member
not associated with a member organization and
every member organization shall make and preserve
books and records as the Exchange may prescribe
and as prescribed by Rule 17a–3.’’
9 These numbers represent fails to deliver which,
as explained in footnote 1 above, are shares of a
security that are not delivered by settlement date.
According to the data provided to FINRA, these
fails to deliver were not closed out due to the
options market maker exception.
8 NYSE
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Federal Register / Vol. 73, No. 135 / Monday, July 14, 2008 / Proposed Rules
rfrederick on PROD1PC67 with PROPOSALS
along with the American Stock
Exchange, NYSE Arca, Inc., and the
Philadelphia Stock Exchange initiated a
Regulation SHO review of options
market makers covering the time period
from May through July 2006. The focus
of these reviews was the options market
maker exception to the close-out
requirement for aged fails to deliver in
threshold securities that were open for
thirteen consecutive settlement days.10
According to CBOE, the reviews
revealed that there were 598 exceptions
claimed, covering 58 threshold
securities for a total of 11,759,799 fails
to deliver. For the 58 threshold
securities identified, the number of fails
to deliver for which an exemption was
claimed from the close-out requirement
ranged from 207 to 1,950,655. The
following is a distribution of the number
of fails to deliver:
Extension of time to file
comments and reply comments.
ACTION:
SUMMARY: The Copyright Office is
extending the time in which comments
and reply comments may be filed in
response to its Notice of Proposed
Rulemaking regarding the
retransmission of digital television
broadcast signals by cable operators
under Section 111 of the Copyright Act.
DATES: Comments are due July 31, 2008.
Reply Comments are due September 16,
2008.
ADDRESSES: If hand delivered by a
private party, an original and five copies
of a comment or reply comment should
be brought to the Library of Congress,
U.S. Copyright Office, Room LM–401,
James Madison Building, 101
Independence Ave., SE, Washington, DC
20559, between 8:30 a.m. and 5 p.m.
The envelope should be addressed as
Number of
follows: Office of the General Counsel,
Number of fails to deliver for
threshold
U.S. Copyright Office.
which exception was claimed
securities
If delivered by a commercial courier,
an original and five copies of a comment
0–100,000 .............................
35
100,001–200,000 ..................
4 or reply comment must be delivered to
200,001–300,000 ..................
4 the Congressional Courier Acceptance
300,001–400,000 ..................
5 Site (‘‘CCAS’’) located at 2nd and D
400,001–500,000 ..................
4 Streets, NE, Washington, DC between
500,001–600,000 ..................
2 8:30 a.m. and 4 p.m. The envelope
600,001–700,000 .................. ........................ should be addressed as follows: Office
700,001–800,000 ..................
1 of the General Counsel, U.S. Copyright
800,001–900,000 .................. ........................ Office, LM–403, James Madison
900,001–1,000,000 ...............
1
Building, 101 Independence Avenue,
>1,000,000 ............................
2
SE, Washington, DC 20559. Please note
that CCAS will not accept delivery by
Therefore, the Commission is remeans of overnight delivery services
opening the comment period for
such as Federal Express, United Parcel
Exchange Act Release No. 56213 from
Service or DHL.
the date of this release through August
If sent by mail (including overnight
13, 2008.
delivery using U.S. Postal Service
Dated: July 7, 2008.
Express Mail), an original and five
By the Commission.
copies of a comment or reply comment
Florence E. Harmon,
should be addressed to U.S. Copyright
Office, Copyright GC/I&R, P.O. Box
Acting Secretary.
70400, Washington, DC 20024.
[FR Doc. E8–15768 Filed 7–11–08; 8:45 am]
FOR FURTHER INFORMATION CONTACT: Ben
BILLING CODE 8010–01–P
Golant, Assistant General Counsel, and
Tanya M. Sandros, General Counsel,
Copyright GC/I&R, P.O. Box 70400,
LIBRARY OF CONGRESS
Washington, DC 20024. Telephone:
(202) 707–8380. Telefax: (202) 707–
Copyright Office
8366.
SUPPLEMENTARY INFORMATION: On June 2,
37 CFR Part 201
2008, the Copyright Office published a
[Docket No. RM 2005–5]
Notice of Proposed Rulemaking
(‘‘NPRM’’) seeking comment on specific
Retransmission of Digital Broadcast
proposals and policy recommendations
Signals Pursuant to the Cable
related to the retransmission of digital
Statutory License
television signals by cable operators
under Section 111 of the Copyright Act.
AGENCY: Copyright Office, Library of
See 73 FR 31399 (June 2, 2008). On June
Congress.
30, 2008, the Copyright Office published
its Section 109 Report to Congress
10 The ‘‘grandfather’’ provision was also in effect
which, inter alia, broadly discussed the
during this period but was not the subject of these
reviews.
continuing need for the cable statutory
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40203
license (‘‘Report’’). The Report also
examined many of the digital signal
retransmission issues that were initially
raised in the NPRM and recommended
changes to the existing statute to
accommodate digital television in the
cable statutory license royalty scheme.
See Satellite Home Viewer Extension
and Reauthorization Act ~109 Report at
108–114.
On July 7, 2008, the National Cable
and Telecommunications Association
(‘‘NCTA’’) filed a request for an
extension of time to file comments and
reply comments in this proceeding.
NCTA asks for an extension because
‘‘(f)urther study of the recently–released
Report is necessary to assess its
relationship to the rules proposed in the
Digital NPRM and its impact, if any, on
comments that may be filed in that
proceeding.’’ NCTA requests a brief two
week extension so that comments would
be due on July 31, 2008 and September
16, 2008.
Given the complexity of the issues
raised in the NPRM, and the publication
of the Section 109 Report to Congress
thereafter, the Office grants the request
to extend the comment and reply
comment dates in this proceeding.
Comments are now due on July 31, 2008
and reply comments are due on
September 16, 2008.
Dated: July 8, 2008
Tanya Sandros,
General Counsel
U.S. Copyright Office
[FR Doc. E8–15951 Filed 7–11–08; 8:45 am]
BILLING CODE 1410–30–S
ENVIRONMENTAL PROTECTION
AGENCY
40 CFR Part 52
[EPA–R06–OAR–2007–0524; FRL–8690–7]
Approval and Promulgation of Air
Quality Implementation Plans; Texas;
Attainment Demonstration for the
Dallas/Fort Worth 1997 8-Hour Ozone
Nonattainment Area
Environmental Protection
Agency (EPA).
ACTION: Proposed rule.
AGENCY:
SUMMARY: EPA is proposing to
conditionally approve the 1997 8-hour
ozone attainment demonstration State
Implementation Plan (SIP) revision for
the Dallas/Fort Worth moderate 8-hour
ozone nonattainment area (DFW area)
submitted by the State of Texas on May
30, 2007 and supplemented on April 23,
2008. We are also proposing to approve
the associated attainment Motor Vehicle
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]]>Agencies
[Federal Register Volume 73, Number 135 (Monday, July 14, 2008)]
[Proposed Rules]
[Pages 40201-40203]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-15768]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 242
[Release No. 34-58107; File No. S7-19-07]
RIN 3235-AJ57
Amendment to Regulation SHO
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule; notice of re-opening of comment period.
-----------------------------------------------------------------------
SUMMARY: The Securities and Exchange Commission is re-opening the
comment period on the ``Amendments to Regulation SHO'' it re-proposed
in Securities Exchange Act Release No. 56213 (August 7, 2007), 72 FR
45558 (August 14, 2007), (the ``Proposal''). In view of the continuing
public interest in the Proposal we believe that it is appropriate to
re-open the comment period to provide the public with additional
information before we take action on the Proposal.
DATES: Comments should be received on or before August 13, 2008.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/proposed.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number S7-19-07 on the subject line; or
Use the Federal eRulemaking Portal (https://
www.regulations.gov). Follow the instructions for submitting comments.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number S7-19-07. This file number
should be included on the subject line if e-mail is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
Internet Web site (https://www.sec.gov/rules/proposed.shtml). Comments
are also available for public inspection and copying in the
Commission's Public Reference Room, 100 F Street, NE., Washington, DC
20549 on official business days between the hours of 10 a.m. and 3 p.m.
All comments received will be posted without change; we do not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly.
FOR FURTHER INFORMATION CONTACT: James A. Brigagliano, Associate
Director, Josephine J. Tao, Assistant Director, Victoria L. Crane,
Branch Chief and Christina M. Adams, Staff Attorney, Office of Trading
Practices and Processing, Division of Market Regulation, at (202) 551-
5720, at the Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549.
SUPPLEMENTARY INFORMATION: The Commission is requesting additional
public comment on proposed amendments to Rules 200 and 203 of
Regulation SHO [17 CFR 242.200 and 242.203] under the Securities
Exchange Act of 1934 (``Exchange Act''). In the Proposal, the
Commission re-proposed amendments to Regulation SHO under the Exchange
Act intended to further reduce the number of persistent fails to
deliver \1\ in certain equity securities by eliminating the options
market maker exception to the close-out requirement of Regulation SHO.
The Commission also sought comment on two alternatives to elimination
that would limit the scope of the options market maker exception. The
Commission is re-opening the comment period, which ended on September
13, 2007, to provide additional information with respect to the
Proposal to the public.
---------------------------------------------------------------------------
\1\ A ``fail to deliver'' occurs when the seller of a security
fails to deliver the security by settlement date. Generally,
investors must complete or settle their security transactions within
three business days. This settlement cycle is known as T+3 (or
``trade date plus three days''). T+3 means that when the investor
purchases a security, the purchaser's payment generally must be
received by its brokerage firm no later than three business days
after the trade is executed. When the investor sells a security, the
seller generally must deliver its securities, in certificated or
electronic form, to its brokerage firm no later than three business
days after the sale.
---------------------------------------------------------------------------
At the same time that the Commission re-proposed amendments to
Regulation SHO to eliminate the options market maker exception to
Regulation SHO's close-out requirement, the Commission approved
amendments to Regulation SHO to eliminate the rule's ``grandfather''
provision.\2\ The ``grandfather'' provision had provided that fails to
deliver established prior to a security becoming a threshold security
did not have to be closed out in accordance with Regulation SHO's
thirteen consecutive settlement day close-out requirement. The
amendment to eliminate the ``grandfather'' exception became effective
on October 15, 2007.
[[Page 40202]]
The amendment also contained a one-time phase-in period that provided
that previously-grandfathered fails to deliver in a security that was a
threshold security on the effective date of the amendment must be
closed out within 35 consecutive settlement days from the effective
date of the amendment. The phase-in period ended on December 5,
2007.\3\
---------------------------------------------------------------------------
\2\ Securities Exchange Act Release No. 56212 (Aug. 7, 2007), 72
FR 45544 (Aug. 14, 2007).
\3\ See id.
---------------------------------------------------------------------------
In response to the Proposal, commenters urged the Commission to
obtain empirical data to demonstrate the relationship between fails to
deliver and the options market maker exception before it determines
whether additional rulemaking is necessary. In particular, commenters
urged the Commission to obtain data relating to the impact of the
elimination of the grandfather provision and connecting fails to
deliver to the options market maker exception.\4\ The Commission has
obtained additional data on fails to deliver since the Proposal was
published. Accordingly, in response to commenters and because the
Commission believes the additional data will aid the public in
commenting on the Proposal, the Commission is re-opening the comment
period to share with the public data obtained by the Commission
regarding fails to deliver and the options market maker exception, and
to provide the public with an opportunity to comment on the data.
---------------------------------------------------------------------------
\4\ See e.g., Comments of Keith F. Higgins, Committee on Federal
Regulation of Securities, American Bar Association, Section of
Business Law (Oct. 5, 2007); comments of John Gilmartin and Ben
Londergan, Group One Trading, LP (Sept. 28, 2007); see also comments
of Gerald D. O'Connell, Susquehanna Investment Group (Oct. 11,
2007).
---------------------------------------------------------------------------
To ascertain whether fails to deliver are not being closed out due
to the options market maker exception to the close-out requirement
since the elimination of the ``grandfather'' provision, Commission
staff obtained data on securities with extended fails to deliver from a
National Securities Clearing Corporation (``NSCC'') participant which
settles and clears for a large segment of the options market for
January and February 2008. A review of this data reveals that a high
number of fails to deliver were not closed out as a result of the
options market maker exception.\5\ Specifically, the data indicated
that as of January 31, 2008, the options market maker exception was
claimed in 16 threshold securities for a total of 6,365,158 fails to
deliver. As of February 29, 2008, the data indicated that the options
market maker exception was claimed in 20 threshold securities for a
total of 6,963,949 fails to deliver.
---------------------------------------------------------------------------
\5\ We note that the data reflects only those extended fails to
deliver not closed out due to the options market maker exception
and, therefore, does not reflect all fails to deliver in the
securities included in the data.
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In addition, the Commission is releasing the results of a recent
analysis by the Commissions' Office of Economic Analysis (``OEA'') of
fails to deliver before and after the elimination of Regulation SHO's
``grandfather'' provision.\6\ As set forth below, these results show
that extended fails to deliver in non-optionable threshold securities
declined significantly after the elimination of the ``grandfather''
provision while extended fails to deliver in optionable threshold
securities increased significantly. Specifically, changes for
optionable threshold securities include:
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\6\ See Memorandum from the Commission's Office of Economic
Analysis (dated June 9, 2008), which is available on the
Commission's Internet Web site at https://www.sec.gov/comments/s7-19-
07/s71907.shtml (the ``OEA Memorandum''). As discussed above, the
``grandfather'' provision was eliminated as of October 15, 2007 with
a one-time phase in period which expired on December 5, 2007. The
sample data used in the OEA Memorandum compares two time periods:
April 9, 2007-October 14, 2007, which is defined as the ``pre-
amendment period'' and December 10, 2007-March 31, 2008, which is
defined as the ``post-amendment period.''
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The average daily number of optionable threshold list
securities increased by 25.0%.
The average daily number of new fail to deliver positions
in optionable threshold securities increased by 45.3%.
For fails aged more than 17 days in optionable threshold
securities, the average daily dollar value of fails to deliver
increased by 73.4%.
For fails aged more than 17 days in optionable threshold
securities, the average daily number of fail to deliver positions
increased by 30.7%.
The average daily number of optionable threshold list
securities with fails aged more than 17 days increased by 40.9%.
Further, changes for non-optionable threshold securities include:
The average daily number of non-optionable threshold list
securities decreased by 3.5%.
The average daily number of new fail to deliver positions
in non-optionable threshold securities increased by 7.4%.
For fails aged more than 17 days in non-optionable
threshold securities, the average daily dollar value of fails to
deliver decreased by 34.5%.
For fails aged more than 17 days in non-optionable
threshold securities, the average daily number of fail to deliver
positions decreased by 38.8%.
The average daily number of non-optionable threshold list
securities with fails aged more than 17 days decreased by 32.6%.\7\
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\7\ See id.
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To ascertain the extent to which fails to deliver were not being
closed out due to the options market maker exception to the close-out
requirement prior to the elimination of the ``grandfather'' provision,
Commission staff obtained data from certain self-regulatory
organizations for 2006 and 2007 regarding use of the options market
maker exception. This data is explained in more detail below.
In 2007, as part of its regular Regulation SHO surveillance, the
Financial Industry Regulatory Authority (``FINRA'') conducted a review
of securities with extended fails to deliver at the NSCC to ascertain
the continuing cause of fails to deliver, and to also assess compliance
with NYSE Rule 440/SEA \8\ and Regulation SHO. As set forth below,
according to data provided by one NSCC participant that settles and
clears for a large segment of the options market, a number of fails to
deliver at that participant were not closed out due to claims that the
fails were excepted from the close-out requirement as a result of the
options market maker exception.
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\8\ NYSE Rule 440 requires that ``[e]very member not associated
with a member organization and every member organization shall make
and preserve books and records as the Exchange may prescribe and as
prescribed by Rule 17a-3.''
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A review of the FINRA data for 2007 shows the following:
------------------------------------------------------------------------
Fails to Number of
Month deliver\9\ securities
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February.................................... 35,665 1
March....................................... 900,276 5
April....................................... 3,433,639 8
May......................................... 228,878 2
June........................................ 2,441,122 14
July........................................ 462,414 6
August...................................... 3,065,710 12
October..................................... 4,456,340 13
November.................................... 1,841,063 2
December.................................... 5,621,982 15
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\9\ These numbers represent fails to deliver which, as explained
in footnote 1 above, are shares of a security that are not delivered
by settlement date. According to the data provided to FINRA, these
fails to deliver were not closed out due to the options market maker
exception.
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As indicated in the table above, the options market maker exception
to the close-out requirement was claimed for a large number of fails to
deliver for the entire year, including both before and after October
15, 2007, the effective date of the elimination of Regulation SHO's
``grandfather'' provision.
On December 11, 2006 the Chicago Board of Options Exchange
(``CBOE'')
[[Page 40203]]
along with the American Stock Exchange, NYSE Arca, Inc., and the
Philadelphia Stock Exchange initiated a Regulation SHO review of
options market makers covering the time period from May through July
2006. The focus of these reviews was the options market maker exception
to the close-out requirement for aged fails to deliver in threshold
securities that were open for thirteen consecutive settlement days.\10\
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\10\ The ``grandfather'' provision was also in effect during
this period but was not the subject of these reviews.
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According to CBOE, the reviews revealed that there were 598
exceptions claimed, covering 58 threshold securities for a total of
11,759,799 fails to deliver. For the 58 threshold securities
identified, the number of fails to deliver for which an exemption was
claimed from the close-out requirement ranged from 207 to 1,950,655.
The following is a distribution of the number of fails to deliver:
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Number of
Number of fails to deliver for which exception was threshold
claimed securities
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0-100,000............................................... 35
100,001-200,000......................................... 4
200,001-300,000......................................... 4
300,001-400,000......................................... 5
400,001-500,000......................................... 4
500,001-600,000......................................... 2
600,001-700,000......................................... ..............
700,001-800,000......................................... 1
800,001-900,000......................................... ..............
900,001-1,000,000....................................... 1
>1,000,000.............................................. 2
------------------------------------------------------------------------
Therefore, the Commission is re-opening the comment period for
Exchange Act Release No. 56213 from the date of this release through
August 13, 2008.
Dated: July 7, 2008.
By the Commission.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-15768 Filed 7-11-08; 8:45 am]
BILLING CODE 8010-01-P
