Amendments to Regulation SHO

SIFMA provides comments to the Securities and Exchange Commission (SEC) on proposed amendments to Regulation SHO, Rule 204T, Release No. 34-58773, File No. S7-30-08.  The adopted interim temporary final rule 204T of Regulation SHO (i) imposes a “hard delivery obligation” on long and short sales of equity securities; (ii) requires immediate close-out of open fail to deliver positions by the open of trading hours the day following the settlement, and (iii) imposes penalties for failure to timely close-out open fail positions. SIFMA suggests amending the rule to: (i) extend the Close-Out Date for all transactions to S+3 so that participants can take action to close out fails related to both short and long sale activity on or before the third consecutive settlement date; (ii) permit participants to responsibly close-out the open fail position throughout the trading session on the Close-Out Date, and not only at the beginning of trading, (iii) modify the Pre-Fail Credit provision to better promote early close-out of fail positions; (iv) resolve current inconsistency between Rule 204T and Rule 203 of Regulation SHO; and (v) provide a de minimis exemption for a participant’s fail positions, per security, that are below a certain level.