This article was originally published 19 September, 2008

The Securities and Exchange Commission (the "SEC") has issued three new emergency orders in response to unsettled market conditions.

Ban On Short-Selling In Financial Stocks (effective immediately)

No person may effect a short sale in the publicly traded securities of certain financial firms ("Included Financial Firms"). Appendix A of the order contains a list of the Included Financial Firms, but we understand that the SEC may modify the list. Based upon informal discussions with the SEC staff, we understand that, notwithstanding the text of the order, the order is intended only to apply to the publicly traded common stocks of the Included Financial Firms (each, a "Covered Security"). The order has three exceptions:

  • Bona Fide Market Maker Exemption – Excepted from the order are: registered market makers, block positioners, or other market makers obligated to quote in the over-the-counter market, in each case that are selling short a Covered Security as part of bona fide market making in such security (but not in options or other derivatives on such security).
  • Auto-Ex And Assignment Exception – Excepted from the order are short sales that occur as a result of automatic exercise or assignment of an equity option, held prior to effectiveness of the order, due to expiration of the option.
  • Option Market Makers – Only for the rest of the day on Friday, September 19, 2008, the order does not apply to any person that is a market maker that effects a short sale as part of bona fide market making and hedging activity related directly to bona fide market making in derivatives on a Covered Security.

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