Thursday, October 23, 2008

Summary of SEC's Final "Naked" Short Selling Rule

Dechert has released an excellent more-or-less plain language discussion of the SEC's final anti-fraud rule that became effective on October 17 addressing "naked" short selling.  The purpose of the new rule is to reduce the incidences of naked short selling of securities and the negative effect 'fails to deliver' securities may have on the market for those securities.  "Naked short selling," though not defined by statute or rules, refers to the short selling of a stock without having the stock available for delivery, and failing to deliver within the standard three-day settlement cycle ("fail to deliver securities").  Although high levels of "fail to deliver securities" exist for only a small percentage of issuers, they can be extremely disruptive, and the rule is intended addresses situations where the level of fails to deliver for a particular stock is so substantial, that it might affect the market for that security. 

The full text of Dechert's legal update is available here:

The full text of the SEC's final short selling rule release is available here: