Utah Settlement and Clearing Law
Background
Utah Legislature Votes to Repeal ‘Fail to Deliver Law’ Challenged by SIFMA* - March 1, 2007
* In November, 2006, the Securities Industry Association (SIA) merged with the Bond Market Association to form SIFMA. SIA was the original party to the lawsuit.
The Securities Industry Association (SIA) filed suit in federal court to overturn Utah legislation that requires broker-dealers to inform that state's Division of Securities when there is a "failure to deliver" securities issued by Utah companies that are traded on national markets. In the suit, filed in July of 2006, SIA argues the Utah legislation illegally usurps the jurisdiction of the Securities and Exchange Commission and is expressly preempted by federal securities law. As part of its complaint, SIA is seeking a temporary restraining order and has requested a permanent injunction prohibiting the application of the law.
The Utah law, SB 3004, would affect transactions after October 1, 2006. Despite the fact that it is intended to regulate "naked" or uncovered short selling, the new regulatory requirements are not narrowly tailored to address only instances of "naked" or uncovered short selling. Rather, the law applies to all "fails to deliver," including covered short selling and purchases of a stock when the buyer expects the price to rise.
On August 11, 2006, SIA and the Utah Division of Securities stipulated to a preliminary injunction (pdf) (set to expire on June 1, 2007), which may create an opportunity to reach a permanent resolution of the matter. If that does not occur, the preliminary injunction does not forego any of SIA's options to continue to press all of its legal claims.
The menu on the left provides source documents and additional resources.