On February 24, 2010, the U.S. Securities and Exchange
Commission ("SEC") adopted a new rule to restrict short
sales under certain circumstances. Under the new rule, a circuit
breaker will be imposed once the price of a security drops by 10%
from the previous trading day's closing price. The measure is
intended to prevent short sales from being made once the circuit
breaker is triggered, unless the price of the short sale exceeds
the then current national best bid price. The restrictions remain
in place through the end of the following trading day.
The rule applies to all "national market system
securities", or essentially all securities (of both U.S. and
foreign issuers) listed on a U.S. national stock exchange,
including NASDAQ, regardless of whether the sale takes place on an
exchange or over the counter. The rule does not apply to securities
where U.S. trading is limited to the OTC Bulletin Board or other
over-the-counter markets. The rule requires each U.S. regulated
"trading center" to implement circuit breaker procedures
reasonably designed to prevent the execution or display of a short
sale order at or below the then current national best bid price
after a 10% decline from the prior day's closing price. The
trading centers covered by the rule include U.S. stock exchanges
and other trading markets of all types, as well as broker-dealers
executing orders internally by trading as principal or crossing
orders as agent.
The rule was adopted by a 3-2 vote of the SEC, following over a
year of study, and is likely to be controversial. By limiting short
sales to those above the best bid price after circuit breakers are
imposed (following the so-called "alternate uptick
rule"), the SEC is attempting to assure that "long"
sellers have first access to liquidity in times of a market
downturn. The SEC acknowledged that other instruments, such as
credit default swaps and other derivatives, could be used in lieu
of short sales and could limit the impact of its regulation of
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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