Emergency Order Pursuant to Section 12(K)(2) of the Securities Exchange Act of 1934 Taking Temporary Action To Respond to Market Developments, 54875-54877 [E8-22166]

Download as PDF Federal Register / Vol. 73, No. 185 / Tuesday, September 23, 2008 / Notices jlentini on PROD1PC65 with NOTICES Issuer’’ (17 CFR 205.1–205.7). The information collection embedded in the rules is necessary to implement the Standards of Professional Conduct for Attorneys prescribed by the rule and required by Section 307 of the SarbanesOxley Act of 2002 (15 U.S.C. 7245). The rules impose an ‘‘up-the-ladder’’ reporting requirement when attorneys appearing and practicing before the Commission become aware of evidence of a material violation by the issuer or any officer, director, employee, or agent of the issuer. An issuer may choose to establish a qualified legal compliance committee (‘‘QLCC’’) as an alternative procedure for reporting evidence of a material violation. In the rare cases in which a majority of a QLCC has concluded that an issuer did not act appropriately, the information may be communicated to the Commission. The collection of information is, therefore, an important component of the Commission’s program to discourage violations of the federal securities laws and promote ethical behavior of attorneys appearing and practicing before the Commission. The respondents to this collection of information are attorneys who appear and practice before the Commission and, in certain cases, the issuer, and/or officers, directors and committees of the issuer. We believe that, in providing quality representation to issuers, attorneys report evidence of violations to others within the issuer, including the Chief Legal Officer, the Chief Executive Officer, and, where necessary, the directors. In addition, officers and directors investigate evidence of violations and report within the issuer the results of the investigation and the remedial steps they have taken or sanctions they have imposed. Except as discussed below, we therefore believe that the reporting requirements imposed by the rule are ‘‘usual and customary’’ activities that do not add to the burden that would be imposed by the collection of information. Certain aspects of the collection of information, however, may impose a burden. For an issuer to establish a QLCC, the QLCC must adopt written procedures for the confidential receipt, retention, and consideration of any report of evidence of a material violation. We estimate for purposes of the PRA that there are approximately 16,611 issuers that are subject to the rules.1 Of these, we estimate that 1 This estimate is based, in part, on the total number of operating companies that filed annual reports on Form 10–K, Form 10–KSB, Form 20–F, or Form 40–F, during the 2008 fiscal year and an estimate of the average number of issuers that may have a registration statement filed under the VerDate Aug<31>2005 16:54 Sep 22, 2008 Jkt 214001 approximately five percent, or 831, have established or will establish a QLCC.2 Establishing the written procedures required by the rule should not impose a significant burden. We assume that an issuer would incur a greater burden in the year that it first establishes the procedures than in subsequent years, in which the burden would be incurred in updating, reviewing, or modifying the procedures. For purposes of the PRA, we assume that an issuer would spend 6 hours every three-year period on the procedures. This would result in an average burden of 2 hours per year. Thus, we estimate for purposes of the PRA that the total annual burden imposed by the collection of information would be 1,662 hours. Assuming half of the burden hours will be incurred by outside counsel at a rate of $400 per hour would result in a cost of $332,400. The estimate of average burden hours is made solely for the purposes of the Paperwork Reduction Act, and is not derived from a comprehensive or even a representative survey or study. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. Written comments are requested on: (a) Whether the collection of information is necessary for the proper performance of the functions of the Commission, including whether the information has practical utility; (b) the accuracy of the Commission’s estimate of the burden[s] of the collection of information; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Consideration will be given to comments and suggestions submitted in writing within 60 days of this publication. Please direct your written comments to Lewis W. Walker, Acting Director/ Chief Information Officer, Securities and Exchange Commission, C/O Shirley Martinson, 6432 General Green Way, Alexandria, Virginia 22312; or send an e-mail to: PRA_Mailbox@sec.gov. Securities Act pending with the Commission at any time (12,939). In addition, we estimate that approximately 3,672 investment companies currently file periodic reports on Form N–SAR. 2 Indications are that the 2005 estimate of the percentage of issuers that would establish QLCCs (10%) was high. Our adjusted estimate in the percentage of QLCCs (5%) results in a reduced burden estimate as compared to the previouslyapproved collection. PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 54875 September 15, 2008. Florence E. Harmon, Acting Secretary. [FR Doc. E8–22115 Filed 9–22–08; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Securities Exchange Act of 1934; Release No. 34–58572/ September 17, 2008] Emergency Order Pursuant to Section 12(K)(2) of the Securities Exchange Act of 1934 Taking Temporary Action To Respond to Market Developments The Commission continues to be concerned that there is a substantial threat of sudden and excessive fluctuations of securities prices and disruption in the functioning of the securities markets that could threaten fair and orderly markets. As evidenced by our recent publication of an emergency order under Section 12(k) of the Securities Exchange Act of 1934 (the ‘‘July Emergency Order’’),1 we are concerned about the possible unnecessary or artificial price movements based on unfounded rumors regarding the stability of financial institutions and other issuers exacerbated by ‘‘naked’’ short selling. Our concerns, however, are no longer limited to just the financial institutions that were the subject of the July Emergency Order. In addition, we have become concerned that some persons may take advantage of issuers that have become temporarily weakened by current market conditions to engage in inappropriate short selling in the securities of such issuers. Given the importance of confidence in our financial markets as a whole, we have become concerned about sudden and unexplained declines in the prices of securities. Such price declines can give rise to questions about the underlying financial condition of an issuer, which in turn can create a crisis of confidence without a fundamental underlying basis. This crisis of confidence can impair the liquidity and ultimate viability of an issuer, with potentially broad market consequences. As a result of these recent developments, the Commission concluded that there continues to exist a substantial threat of sudden and excessive fluctuations of securities prices generally and disruption in the functioning of the securities markets that could threaten fair and orderly markets. Based on this conclusion, the 1 See Exchange Act Release No. 58166 (July 15, 2008). E:\FR\FM\23SEN1.SGM 23SEN1 54876 Federal Register / Vol. 73, No. 185 / Tuesday, September 23, 2008 / Notices jlentini on PROD1PC65 with NOTICES Commission is exercising its powers under Section 12(k)(2) of the Securities Exchange Act of 1934.2 Pursuant to Section 12(k)(2), in appropriate circumstances the Commission may issue summarily an order to alter, supplement, suspend, or impose requirements or restrictions with respect to matters or actions subject to regulation by the Commission. We have concluded that it is necessary to impose enhanced delivery requirements on sales of all equity securities, by adding and making immediately effective a temporary rule to Regulation SHO, Rule 204T. The temporary rule imposes a penalty on any participant 3 of a registered clearing agency,4 and any broker-dealer from which it receives trades for clearance and settlement, for having a fail to deliver position at a registered clearing agency in any equity security. In addition, we have concluded it is necessary to make immediately effective amendments to Rule 203(b)(3) of Regulation SHO that eliminate the options market maker exception from Regulation SHO’s close-out requirement. We are also making immediately effective Rule 10b–21, a ‘‘naked’’ short selling antifraud rule.5 We intend these enhanced delivery requirements and the antifraud rule to impose powerful disincentives to those who might otherwise exacerbate artificial price movements through ‘‘naked’’ short selling. In addition, in these unusual and extraordinary circumstances, we believe such requirements are in the public interest and for the protection of investors to maintain fair and orderly securities markets, and to prevent substantial disruption in the securities markets. 2 This finding of an ‘‘emergency’’ is solely for purposes of Section 12(k)(2) of the Exchange Act and is not intended to have any other effect or meaning or to confer any right or impose any obligation other than set forth in this Order. 3 The term ‘‘participant’’ has the same meaning as in section 3(a)(24) of the Exchange Act. See 15 U.S.C. 78c(a)(24). 4 The term ‘‘registered clearing agency’’ means a clearing agency, as defined in section 3(a)(23)(A) of the Exchange Act, that is registered as such pursuant to section 17A of the Exchange Act. See 15 U.S.C. 78c(a)(23)(A) and 78q–1, respectively. 5 Rule 204T, as set forth in this Order, applies only to fails to deliver resulting from trades that occur after this Order becomes effective. Rule 203(b)(3) of Regulation SHO, as amended by this Order, continues to apply to fails to deliver that occurred prior to the Order becoming effective. For example, if a participant has a fail to deliver position in a threshold security that has persisted for six consecutive settlement days prior to the effective date of this Order and the fail continues to persist until the thirteenth settlement day, the participant must still close out its position pursuant to Rule 203(b)(3). VerDate Aug<31>2005 16:54 Sep 22, 2008 Jkt 214001 This emergency requirement should significantly reduce any possibility that ‘‘naked’’ short selling may contribute to the disruption of markets in these securities. We described in the releases in which we proposed and adopted Regulation SHO the bases for the current delivery requirements Regulation SHO imposes. We believe, however, that the unusual circumstances we now confront require the enhanced requirements we are imposing today. It is ordered that, pursuant to our Section 12(k)(2) powers, we are adding § 242.204T to read as follows: § 242.204T Short Sales. (a) A participant of a registered clearing agency must deliver securities to a registered clearing agency for clearance and settlement on a long or short sale in any equity security by settlement date, or if a participant of a registered clearing agency has a fail to deliver position at a registered clearing agency in any equity security for a long or short sale transaction in that equity security, the participant shall, by no later than the beginning of regular trading hours on the settlement day following the settlement date, immediately close out the fail to deliver position by borrowing or purchasing securities of like kind and quantity; Provided, however: (1) If a participant of a registered clearing agency has a fail to deliver position at a registered clearing agency in any equity security and the participant can demonstrate on its books and records that such fail to deliver position resulted from a long sale, the participant shall by no later than the beginning of regular trading hours on the third consecutive settlement day following the settlement date, immediately close out the fail to deliver position by purchasing securities of like kind and quantity; or (2) If a participant of a registered clearing agency has a fail to deliver position at a registered clearing agency in any equity security sold pursuant to § 230.144 of this chapter for thirty-five consecutive settlement days after the settlement date for a sale in that equity security, the participant shall, by no later than the beginning of regular trading hours on the thirty-sixth consecutive settlement day following the settlement date for the transaction, immediately close out the fail to deliver position by purchasing securities of like kind and quantity; (b) If a participant of a registered clearing agency has a fail to deliver position in any equity security at a registered clearing agency and does not PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 close out such fail to deliver position in accordance with the requirements of paragraph (a) of this section, the participant and any broker or dealer from which it receives trades for clearance and settlement, including any market maker that would otherwise be entitled to rely on the exception provided in § 242.203(b)(2)(iii), may not accept a short sale order in the equity security from another person, or effect a short sale in the equity security for its own account, to the extent that the broker or dealer submits its short sales to that participant for clearance and settlement, without first borrowing the security, or entering into a bona-fide arrangement to borrow the security, until the participant closes out the fail to deliver position by purchasing securities of like kind and quantity and that purchase has cleared and settled at a registered clearing agency; (c) The participant must notify any broker or dealer from which it receives trades for clearance and settlement, including any market maker that would otherwise be entitled to rely on the exception provided in § 242.203(b)(2)(iii): (1) That the participant has a fail to deliver position in an equity security at a registered clearing agency that has not been closed out in accordance with the requirements of paragraph (a) of this section; and (2) When the purchase that the participant has made to close out the fail to deliver position has cleared and settled at a registered clearing agency; and (d) Definitions: (1) For purposes of this section, the term settlement date shall mean the business day on which delivery of a security and payment of money is to be made through the facilities of a registered clearing agency in connection with the sale of a security. (2) For purposes of this section, the term regular trading hours has the same meaning as in Rule 600(b)(64) of Regulation NMS (17 CFR 242.600(b)(64). It is further ordered that, pursuant to our Section 12(k)(2) powers, § 242.203(b)(3)(iii) of Regulation SHO is amended by revising paragraphs (b)(3)(iii) and (b)(3)(v) to read as follows: (iii) Provided, however, that a participant of a registered clearing agency that has a fail to deliver position at a registered clearing agency in a threshold security on the effective date of this amendment and which, prior to the effective date of this amendment, had been previously excepted from the close-out requirement in paragraph (b)(3) of this section (i.e., because the participant of a registered clearing agency had a fail to deliver position in E:\FR\FM\23SEN1.SGM 23SEN1 Federal Register / Vol. 73, No. 185 / Tuesday, September 23, 2008 / Notices the threshold security that is attributed to short sales effected by a registered options market maker to establish or maintain a hedge on options positions that were created before the security became a threshold security), shall immediately close out that fail to deliver position, including any adjustments to the fail to deliver position, within 35 consecutive settlement days of the effective date of this amendment by purchasing securities of like kind and quantity; * * * * * (v) If a participant of a registered clearing agency entitled to rely on the 35 consecutive settlement day close-out requirement contained in paragraph (b)(3)(i), (b)(3)(ii), or (b)(3)(iii) of this section has a fail to deliver position at a registered clearing agency in the threshold security for 35 consecutive settlement days from the effective date of the amendment, the participant and any broker or dealer for which it clears transactions, including any market maker, that would otherwise be entitled to rely on the exception provided in paragraph (b)(2)(iii) of this section, may not accept a short sale order in the threshold security from another person, or effect a short sale in the threshold security for its own account, without borrowing the security or entering into a bona-fide arrangement to borrow the security, until the participant closes out the fail to deliver position by purchasing securities of like kind and quantity; It is further ordered that, pursuant to our Section 12(k)(2) powers, we are adding § 240.10b–21 to read as follows: jlentini on PROD1PC65 with NOTICES § 240.10b–21 Deception in connection with a seller’s ability or intent to deliver securities on the date delivery is due. PRELIMINARY NOTE to rule 10b–21: This rule is not intended to limit, or restrict, the applicability of the general antifraud provisions of the federal securities laws, such as section 10(b) of the Act and rule 10b–5 thereunder. It shall also constitute a ‘‘manipulative or deceptive device or contrivance’’ as used in section 10(b) of this Act for any person to submit an order to sell an equity security if such person deceives a broker or dealer, a participant of a registered clearing agency, or a purchaser about its intention or ability to deliver the security on or before the settlement date, and such person fails to deliver the security on or before the settlement date. For purposes of this section, settlement date is as defined in § 242.204T of this chapter. This Order shall be effective at 12:01 a.m. EDT on September 18, 2008, and VerDate Aug<31>2005 16:54 Sep 22, 2008 Jkt 214001 shall terminate at 11:59 p.m. on October 1, 2008 unless further extended by the Commission. By the Commission. Florence E. Harmon, Acting Secretary. [FR Doc. E8–22166 Filed 9–22–08; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION Sunshine Act Meeting FEDERAL REGISTER CITATION OF PREVIOUS ANNOUNCEMENT: [to be published]. Closed Meeting. 100 F Street, NE., Washington, STATUS: PLACE: DC. periodic reports since the period ended December 31, 2000. The Commission is of the opinion that the public interest and the protection of investors require a suspension of trading in the securities of the above-listed companies. Therefore, it is ordered, pursuant to Section 12(k) of the Securities Exchange Act of 1934, that trading in the securities of the above-listed companies is suspended for the period from 9:30 a.m. EDT on September 19, 2008, through 11:59 p.m. EDT on October 2, 2008. By the Commission. J. Lynn Taylor, Assistant Secretary. [FR Doc. E8–22373 Filed 9–19–08; 4:15 pm] BILLING CODE 8010–01–P DATE AND TIME OF PREVIOUSLY ANNOUNCED MEETING: Thursday, September 18, 2008 at 1 p.m. Cancellation of Meeting. The Closed Meeting scheduled for Thursday, September 18, 2008 has been cancelled. For further information please contact the Office of the Secretary at (202) 551– 5400. CHANGE IN THE MEETING: Dated: September 18, 2008. Florence E. Harmon, Acting Secretary. [FR Doc. E8–22195 Filed 9–22–08; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [File No. 500–1] In the Matter of Quality Resorts of America, Inc., Quentra Networks, Inc., and Quokka Sports, Inc.; Order of Suspension of Trading September 19, 2008. It appears to the Securities and Exchange Commission that there is a lack of current and accurate information concerning the securities of Quality Resorts of America, Inc. because it has not filed any periodic reports since the period ended June 30, 1997. It appears to the Securities and Exchange Commission that there is a lack of current and accurate information concerning the securities of Quentra Networks, Inc. because it has not filed any periodic reports since the period ended September 30, 2000. It appears to the Securities and Exchange Commission that there is a lack of current and accurate information concerning the securities of Quokka Sports, Inc. because it has not filed any PO 00000 54877 Frm 00097 Fmt 4703 Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [File No. 500–1] In the Matter of Ragen Corp. Rainwire Partners, Inc., Rako Capital Corp., Ramtek Corp. (n/k/a Ramtek I Corp.), Ranger Industries, Inc., RCS Holdings, Inc., and Recycling Industries, Inc., Respondents.; Order of Suspension of Trading September 19, 2008. It appears to the Securities and Exchange Commission that there is a lack of current and accurate information concerning the securities of Ragen Corp. because it has not filed any periodic reports since the period ended June 30, 1993. It appears to the Securities and Exchange Commission that there is a lack of current and accurate information concerning the securities of Rainwire Partners, Inc. because it has not filed any periodic reports since the period ended March 31, 2003. It appears to the Securities and Exchange Commission that there is a lack of current and accurate information concerning the securities of Rako Capital Corp. because it has not filed any periodic reports since the period ended March 31, 2003. It appears to the Securities and Exchange Commission that there is a lack of current and accurate information concerning the securities of Ramtek Corp. (n/k/a Ramtek I Corp.) because it has not filed any periodic reports since April 2, 1993. It appears to the Securities and Exchange Commission that there is a lack of current and accurate information concerning the securities of Ranger Industries, Inc. because it has not filed E:\FR\FM\23SEN1.SGM 23SEN1

Agencies

[Federal Register Volume 73, Number 185 (Tuesday, September 23, 2008)]
[Notices]
[Pages 54875-54877]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-22166]


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SECURITIES AND EXCHANGE COMMISSION

[Securities Exchange Act of 1934; Release No. 34-58572/ September 17, 
2008]


Emergency Order Pursuant to Section 12(K)(2) of the Securities 
Exchange Act of 1934 Taking Temporary Action To Respond to Market 
Developments

    The Commission continues to be concerned that there is a 
substantial threat of sudden and excessive fluctuations of securities 
prices and disruption in the functioning of the securities markets that 
could threaten fair and orderly markets. As evidenced by our recent 
publication of an emergency order under Section 12(k) of the Securities 
Exchange Act of 1934 (the ``July Emergency Order''),\1\ we are 
concerned about the possible unnecessary or artificial price movements 
based on unfounded rumors regarding the stability of financial 
institutions and other issuers exacerbated by ``naked'' short selling. 
Our concerns, however, are no longer limited to just the financial 
institutions that were the subject of the July Emergency Order. In 
addition, we have become concerned that some persons may take advantage 
of issuers that have become temporarily weakened by current market 
conditions to engage in inappropriate short selling in the securities 
of such issuers.
---------------------------------------------------------------------------

    \1\ See Exchange Act Release No. 58166 (July 15, 2008).
---------------------------------------------------------------------------

    Given the importance of confidence in our financial markets as a 
whole, we have become concerned about sudden and unexplained declines 
in the prices of securities. Such price declines can give rise to 
questions about the underlying financial condition of an issuer, which 
in turn can create a crisis of confidence without a fundamental 
underlying basis. This crisis of confidence can impair the liquidity 
and ultimate viability of an issuer, with potentially broad market 
consequences.
    As a result of these recent developments, the Commission concluded 
that there continues to exist a substantial threat of sudden and 
excessive fluctuations of securities prices generally and disruption in 
the functioning of the securities markets that could threaten fair and 
orderly markets. Based on this conclusion, the

[[Page 54876]]

Commission is exercising its powers under Section 12(k)(2) of the 
Securities Exchange Act of 1934.\2\ Pursuant to Section 12(k)(2), in 
appropriate circumstances the Commission may issue summarily an order 
to alter, supplement, suspend, or impose requirements or restrictions 
with respect to matters or actions subject to regulation by the 
Commission.
---------------------------------------------------------------------------

    \2\ This finding of an ``emergency'' is solely for purposes of 
Section 12(k)(2) of the Exchange Act and is not intended to have any 
other effect or meaning or to confer any right or impose any 
obligation other than set forth in this Order.
---------------------------------------------------------------------------

    We have concluded that it is necessary to impose enhanced delivery 
requirements on sales of all equity securities, by adding and making 
immediately effective a temporary rule to Regulation SHO, Rule 204T. 
The temporary rule imposes a penalty on any participant \3\ of a 
registered clearing agency,\4\ and any broker-dealer from which it 
receives trades for clearance and settlement, for having a fail to 
deliver position at a registered clearing agency in any equity 
security. In addition, we have concluded it is necessary to make 
immediately effective amendments to Rule 203(b)(3) of Regulation SHO 
that eliminate the options market maker exception from Regulation SHO's 
close-out requirement. We are also making immediately effective Rule 
10b-21, a ``naked'' short selling antifraud rule.\5\ We intend these 
enhanced delivery requirements and the antifraud rule to impose 
powerful disincentives to those who might otherwise exacerbate 
artificial price movements through ``naked'' short selling.
---------------------------------------------------------------------------

    \3\ The term ``participant'' has the same meaning as in section 
3(a)(24) of the Exchange Act. See 15 U.S.C. 78c(a)(24).
    \4\ The term ``registered clearing agency'' means a clearing 
agency, as defined in section 3(a)(23)(A) of the Exchange Act, that 
is registered as such pursuant to section 17A of the Exchange Act. 
See 15 U.S.C. 78c(a)(23)(A) and 78q-1, respectively.
    \5\ Rule 204T, as set forth in this Order, applies only to fails 
to deliver resulting from trades that occur after this Order becomes 
effective. Rule 203(b)(3) of Regulation SHO, as amended by this 
Order, continues to apply to fails to deliver that occurred prior to 
the Order becoming effective. For example, if a participant has a 
fail to deliver position in a threshold security that has persisted 
for six consecutive settlement days prior to the effective date of 
this Order and the fail continues to persist until the thirteenth 
settlement day, the participant must still close out its position 
pursuant to Rule 203(b)(3).
---------------------------------------------------------------------------

    In addition, in these unusual and extraordinary circumstances, we 
believe such requirements are in the public interest and for the 
protection of investors to maintain fair and orderly securities 
markets, and to prevent substantial disruption in the securities 
markets.
    This emergency requirement should significantly reduce any 
possibility that ``naked'' short selling may contribute to the 
disruption of markets in these securities. We described in the releases 
in which we proposed and adopted Regulation SHO the bases for the 
current delivery requirements Regulation SHO imposes. We believe, 
however, that the unusual circumstances we now confront require the 
enhanced requirements we are imposing today.
    It is ordered that, pursuant to our Section 12(k)(2) powers, we are 
adding Sec.  242.204T to read as follows:


Sec.  242.204T  Short Sales.

    (a) A participant of a registered clearing agency must deliver 
securities to a registered clearing agency for clearance and settlement 
on a long or short sale in any equity security by settlement date, or 
if a participant of a registered clearing agency has a fail to deliver 
position at a registered clearing agency in any equity security for a 
long or short sale transaction in that equity security, the participant 
shall, by no later than the beginning of regular trading hours on the 
settlement day following the settlement date, immediately close out the 
fail to deliver position by borrowing or purchasing securities of like 
kind and quantity; Provided, however:
    (1) If a participant of a registered clearing agency has a fail to 
deliver position at a registered clearing agency in any equity security 
and the participant can demonstrate on its books and records that such 
fail to deliver position resulted from a long sale, the participant 
shall by no later than the beginning of regular trading hours on the 
third consecutive settlement day following the settlement date, 
immediately close out the fail to deliver position by purchasing 
securities of like kind and quantity; or
    (2) If a participant of a registered clearing agency has a fail to 
deliver position at a registered clearing agency in any equity security 
sold pursuant to Sec.  230.144 of this chapter for thirty-five 
consecutive settlement days after the settlement date for a sale in 
that equity security, the participant shall, by no later than the 
beginning of regular trading hours on the thirty-sixth consecutive 
settlement day following the settlement date for the transaction, 
immediately close out the fail to deliver position by purchasing 
securities of like kind and quantity;
    (b) If a participant of a registered clearing agency has a fail to 
deliver position in any equity security at a registered clearing agency 
and does not close out such fail to deliver position in accordance with 
the requirements of paragraph (a) of this section, the participant and 
any broker or dealer from which it receives trades for clearance and 
settlement, including any market maker that would otherwise be entitled 
to rely on the exception provided in Sec.  242.203(b)(2)(iii), may not 
accept a short sale order in the equity security from another person, 
or effect a short sale in the equity security for its own account, to 
the extent that the broker or dealer submits its short sales to that 
participant for clearance and settlement, without first borrowing the 
security, or entering into a bona-fide arrangement to borrow the 
security, until the participant closes out the fail to deliver position 
by purchasing securities of like kind and quantity and that purchase 
has cleared and settled at a registered clearing agency;
    (c) The participant must notify any broker or dealer from which it 
receives trades for clearance and settlement, including any market 
maker that would otherwise be entitled to rely on the exception 
provided in Sec.  242.203(b)(2)(iii):
    (1) That the participant has a fail to deliver position in an 
equity security at a registered clearing agency that has not been 
closed out in accordance with the requirements of paragraph (a) of this 
section; and
    (2) When the purchase that the participant has made to close out 
the fail to deliver position has cleared and settled at a registered 
clearing agency; and
    (d) Definitions: (1) For purposes of this section, the term 
settlement date shall mean the business day on which delivery of a 
security and payment of money is to be made through the facilities of a 
registered clearing agency in connection with the sale of a security.
    (2) For purposes of this section, the term regular trading hours 
has the same meaning as in Rule 600(b)(64) of Regulation NMS (17 CFR 
242.600(b)(64).
    It is further ordered that, pursuant to our Section 12(k)(2) 
powers, Sec.  242.203(b)(3)(iii) of Regulation SHO is amended by 
revising paragraphs (b)(3)(iii) and (b)(3)(v) to read as follows:
    (iii) Provided, however, that a participant of a registered 
clearing agency that has a fail to deliver position at a registered 
clearing agency in a threshold security on the effective date of this 
amendment and which, prior to the effective date of this amendment, had 
been previously excepted from the close-out requirement in paragraph 
(b)(3) of this section (i.e., because the participant of a registered 
clearing agency had a fail to deliver position in

[[Page 54877]]

the threshold security that is attributed to short sales effected by a 
registered options market maker to establish or maintain a hedge on 
options positions that were created before the security became a 
threshold security), shall immediately close out that fail to deliver 
position, including any adjustments to the fail to deliver position, 
within 35 consecutive settlement days of the effective date of this 
amendment by purchasing securities of like kind and quantity;
* * * * *
    (v) If a participant of a registered clearing agency entitled to 
rely on the 35 consecutive settlement day close-out requirement 
contained in paragraph (b)(3)(i), (b)(3)(ii), or (b)(3)(iii) of this 
section has a fail to deliver position at a registered clearing agency 
in the threshold security for 35 consecutive settlement days from the 
effective date of the amendment, the participant and any broker or 
dealer for which it clears transactions, including any market maker, 
that would otherwise be entitled to rely on the exception provided in 
paragraph (b)(2)(iii) of this section, may not accept a short sale 
order in the threshold security from another person, or effect a short 
sale in the threshold security for its own account, without borrowing 
the security or entering into a bona-fide arrangement to borrow the 
security, until the participant closes out the fail to deliver position 
by purchasing securities of like kind and quantity;
    It is further ordered that, pursuant to our Section 12(k)(2) 
powers, we are adding Sec.  240.10b-21 to read as follows:


Sec.  240.10b-21  Deception in connection with a seller's ability or 
intent to deliver securities on the date delivery is due.

    PRELIMINARY NOTE to rule 10b-21: This rule is not intended to 
limit, or restrict, the applicability of the general antifraud 
provisions of the federal securities laws, such as section 10(b) of the 
Act and rule 10b-5 thereunder.
    It shall also constitute a ``manipulative or deceptive device or 
contrivance'' as used in section 10(b) of this Act for any person to 
submit an order to sell an equity security if such person deceives a 
broker or dealer, a participant of a registered clearing agency, or a 
purchaser about its intention or ability to deliver the security on or 
before the settlement date, and such person fails to deliver the 
security on or before the settlement date. For purposes of this 
section, settlement date is as defined in Sec.  242.204T of this 
chapter.
    This Order shall be effective at 12:01 a.m. EDT on September 18, 
2008, and shall terminate at 11:59 p.m. on October 1, 2008 unless 
further extended by the Commission.

    By the Commission.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-22166 Filed 9-22-08; 8:45 am]
BILLING CODE 8010-01-P