Corporate Governance

How the Wall Street Reform Act Impacts Smaller Businesses: Enhanced Regulation of Short-Selling

By J Robert Brown Jr.

The Act enhances the SEC's authority over 'naked' short-selling – the practice of investors selling securities of an issuer that the investor does not then own, betting on the price decreasing, and then covering the short sale with the same security at a lower price. These practices are regulated by the SEC in Regulation SHO, originally adopted in 2004.83 Section 929X requires the SEC to enhance the reporting and enforcement requirements against short sellers involved in stock price manipulation. In the past and as required by Regulation SHO, broker-dealers have loaned stock belonging to one customer to other customers to cover short sales when needed. New 1934 Act § 15(e) requires each registered broker-dealer to notify their customers that they may prohibit the broker-dealer from lending the customers' fully-paid securities in short sale transactions.84?

Herrick K. Lidstone, Jr., Burns Figa & Will, PC

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83 SEC Rel. No. 34-50103, 83 S.E.C. Docket 1278, 2004 WL 1697019 (July 28, 2004). See general discussion in Lidstone, Securities Law Deskbook (Bradford Publishing Co.) at § 17.7.3.
84 Section 929X(c) of the Act.

Full post as published by The Race to the Bottom on July 31, 2010 (boomark / email).