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U.S. Securities and Exchange Commission

Speech by SEC Chairman:
Opening Statement, Day Two of the Securities Lending and Short Sale Roundtable


Chairman Mary L. Schapiro

U.S. Securities and Exchange Commission

Washington, D.C.
September 30, 2009

Good morning.

Welcome to day two of the Securities and Exchange Commission's Securities Lending and Short Sale Roundtable, which will cover the short sale portion of the roundtable. First, on behalf of the Commission, let me thank all who have agreed to participate in today's roundtable. The Commission's consideration of these important short selling issues will be enhanced by what I expect will be informative and interesting comments, insights and recommendations by our panelists.

During my tenure as Chairman, the issue of short selling has been the subject of numerous inquiries, suggestions and expressions of concern to the Commission. We know that the practice of short selling evokes strong opinions from both its supporters and detractors. I have made it a priority to evaluate the issue of short selling regulation and ensure that any future policies in this area are the result of a deliberate and thoughtful process, which is why we are here today.

Today's roundtable discussion includes two panels. Each panelist will take a few moments to share his or her thoughts on the issues being discussed, and when these introductory statements are complete, the floor will be opened to questions from the Commission.

The first panel will consider the merits of imposing a pre-borrow or "hard locate" requirement on short sellers, either permanently or on a pilot basis. The panel will also consider the alternative forms that a pre-borrow or "hard locate" requirement could take to enhance its effectiveness and benefit to investors. Among the many inquiries, suggestions and expressions of concern that the Commission has received concerning short selling, and particularly "naked" short selling, many have recommended that the Commission impose a requirement that anyone effecting a short sale must borrow or arrange to borrow the securities, prior to effecting a short sale. The Commission is concerned about abusive "naked" short selling and persistent fails to deliver and the potentially manipulative effect this activity can have on our markets. Thus, we are examining whether a pre-borrow or "hard locate" requirement or another alternative is necessary or would be effective in addressing such activity and preventing market manipulation.

The discussion will take into account the Commission's existing "locate" requirement under Regulation SHO, which requires broker-dealers, prior to effecting a short sale, to borrow or arrange to borrow the securities, or have reasonable grounds to believe that the securities can be borrowed so that they can be delivered on the date delivery is due. The discussion will also consider the impact of temporary Rule 204T, and now final Rule 204, which requires clearing firms to purchase or borrow shares to closeout a fail to deliver resulting from a short sale by no later than the beginning of trading on T+4.

The second panel will consider additional means to foster short selling transparency so that investors and regulators have greater and more meaningful information about short sale activity. The panel will consider enhanced disclosure methods such as adding a short sale indicator to the tapes to which transactions are reported for exchange-listed securities, or requiring public disclosure of individual large short positions.

In the fall of 2008, the Commission adopted a temporary short sale reporting rule, Rule 10a-3T. The rule required certain market participants to provide short sale and short position information to the Commission.

Instead of renewing the rule, the Commission and its staff, together with several SROs, determined to substantially increase the public availability of short sale-related information by publishing, on a daily basis, aggregate short selling volume data in each individual equity security and, on a one-month delayed basis, publishing information regarding individual short sale transactions in all exchange-listed equity securities. In addition, the Commission has enhanced the publication on its Web site of fails to deliver data so that such information is provided twice per month and provided for all equity securities, regardless of the fails level.

Today's panel discussion will consider whether additional public or non-public disclosure of short selling transactions and short positions would be beneficial, and if so, what type of disclosure should be implemented. I am also particularly interested to hear about the experiences in foreign jurisdictions, such as the United Kingdom, that have implemented short sale reporting regimes.

Today's panelists are leaders and experts in their respective fields. They represent a range of constituencies that includes issuers, financial services firms, self-regulatory organizations, foreign regulators, investors and the academic community. It is a privilege to have them here and we look forward to an informative and interesting discussion.

I'll now turn the meeting over to Jamie Brigagliano, Acting Co-Director of the Division of Trading and Markets, who will introduce and moderate our first panel.


Modified: 09/30/2009