Self-Regulatory Organizations; New York Stock Exchange, Inc., Philadelphia Stock Exchange, Inc., Pacific Stock Exchange, Inc., Boston Stock Exchange, Inc., Chicago Stock Exchange, Inc., National Association of Securities Dealers, Inc., and Chicago Board Options Exchange; Order Granting Accelerated Approval to Proposed Rule Change Adopting Rules for Short Position Reporting

[Federal Register Volume 60, Number 23 (Friday, February 3, 1995)]
[Notices]
[Pages 6743-6744]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-2653]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35287; File No. SR-NYSE-39; SR-Phlx-94-29; SR-PSE-94-
34; SR-BSE-94-15; SR-CHX-94-28; SR-NASD-94-67; SR-CBOE-94-55]


Self-Regulatory Organizations; New York Stock Exchange, Inc., 
Philadelphia Stock Exchange, Inc., Pacific Stock Exchange, Inc., Boston 
Stock Exchange, Inc., Chicago Stock Exchange, Inc., National 
Association of Securities Dealers, Inc., and Chicago Board Options 
Exchange; Order Granting Accelerated Approval to Proposed Rule Change 
Adopting Rules for Short Position Reporting

January 27, 1995.
    On October 27, 1994, the New York Stock Exchange, Inc. (``NYSE''), 
October 20, 1994, the Philadelphia Stock Exchange, Inc. (``Phlx''), 
November 23, 1994, the Pacific Stock Exchange, Inc. (``PSE''), November 
28, 1994, the Boston Stock Exchange, Inc. (``BSE''), December 12, 1994, 
the Chicago Stock Exchange, Inc. (``CHX''), December 2, 1994, the 
National Association of Securities Dealers, Inc. (``NASD''),\1\ and on 
January 3, 1995, the Chicago Board Options Exchange (``CBOE'') 
(collectively, the ``SROs'') submitted to the Securities and Exchange 
Commission (``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'')\2\ and Rule 19b-4 
thereunder,\3\ proposed rule changes to facilitate uniform short 
position reporting requirements.\4\

    \1\In addition, the NASD filed Amendment No. 1 on January 11, 
1995, to clarify who must report to the NASD, what the entities must 
report, and the mechanics of how to transmit such report. Because 
the Amendment does not substantively change the proposal, the 
Commission is not publishing it for comment. See letter from Joan C. 
Conley, Secretary, NASD, to Mark Barracca, Attorney, SEC, dated 
January 11, 1995.
    \2\15 U.S.C. 78s(b)(1) (1988).
    \3\17 CFR 240.19b-4 (1991).
    \4\``Short'' positions to be reported are those resulting from 
``short'' sales as defined in SEC Rule 3b-3, but excludes positions 
resulting from sales specified in clauses (1), (6), (7), (8), (9) 
and (10) of paragraph (e) of SEC Rule 10a-1. Also to be excluded are 
``short'' positions carried for other members and member 
organizations reporting for themselves.
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    The proposed rule change filed by the CBOE was published for 
comment in Securities Exchange Act Release No. 35227 (January 13, 
1995), 60 FR 4208 (January 20, 1995). In addition, all of the other 
proposed rule changes were published for comment in Securities Exchange 
Act Release No. 35147 (December 23, 1994), 60 FR 518 (January 4, 1995). 
No comments were received on the proposal from either notice 
publication.
    The proposed rule changes emanated from an initiative by the SROs, 
as Intermarket Surveillance Group (``ISG'')\5\ members, to ensure 
uniform short position reporting in U.S. traded securities.\6\ Although 
the specific language of each proposed rule change differs slightly, 
the goal of the SROs is uniform in proposing the adoption of the above 
referenced rules. Generally, the SROs' goal is to ensure that a broker-
dealer registered in the United States reports its open short positions 
to the SRO that is the broker-dealer's Designated Examining Authority 
(``DEA''). If the particular broker-dealer's DEA does not have rules 
governing the reporting of short interest positions, then the broker-
dealer is to report to another SRO of which it is a member. Non-self-
clearing broker-dealers, however, will be considered to have satisfied 
their reporting requirements by making the appropriate arrangements 
with their respective clearing organizations.

    \5\ISG was formed on July 14, 1983 to, among other things, 
coordinate more effectively surveillance and investigative 
information sharing arrangements. See Intermarket Surveillance Group 
Agreement, July 14, 1983.
    \6\Specifically: (1) The BSE is adding Sec. 38 to Chapter II of 
its Rules; (2) the CBOE is adopting interpretation and policy .02 to 
its Rule 15.1; (3) the CHX is adopting Article XI, Rule 9, and an 
interpretation thereto; (4) the NASD is amending Article III, 
Section 41; (5) the NYSE is amending Rule 421; (6) the PSE is 
adopting Rule 2.6(f); and (7) the Phlx is adopting Rule 786.
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    Substantively, the new reporting requirements will continue to 
include stocks and warrants, including odd lots, in each such security 
traded on a United States securities exchange or association. Further, 
the reports will continue to include both customer and proprietary 
positions, and for those broker-dealers with more then one ``account'' 
with a short position in the same stock or warrant, the combined 
aggregate should be reported. In this regard, the Commission notes that 
like accounts should be netted, and then multiple accounts should be 
aggregated.\7\

    \7\The aggregation requirement, however, does not include the 
netting of short interest against long in a given security across 
``non-like'' accounts. For example, if a broker dealer has three 
accounts for different customers, and account 1 has short interest 
of 100 shares, account 2 has short interest of 225 shares, and 
account 3 is long 150 shares, the broker dealer shall report short 
interest of 325, not 175. See CHX proposed Article XI, Rule 9, 
Interpretation and Policy .01. If, however, in the above example 
account 1 was the firm's customer account, and accounts 2 and 3 were 
the firm's proprietary accounts, then the firm would net accounts 2 
and 3 to ascertain its proprietary account position (in this case 
short 75 shares). The firm would then report the aggregate of its 
customer account short interest position of 100 shares and its 
proprietary short interest position of 75 shares--175 shares short 
in total--for the firm in the particular security.
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    The format, time, and method of reporting will be prescribed by 
each SRO receiving short interest data.\8\ Each such SRO will 
electronically send the data to the Securities Industry Automation 
Corporation (``SIAC'').\9\ With respect to listed securities, SIAC will 
in turn consolidate all data in each security to generate a number 
representing the national short position in each such security. The 
NASD, however, will be performing this function with respect to Nasdaq 
securities. All Nasdaq short interest will be reported to the NASD by 
its members. Firms not members of the NASD will report their short 
interest positions in Nasdaq securities to an SRO, which will forward 
it to SIAC, which will then forward Nasdaq data to the NASD. The NASD 
will compile all short interest data in Nasdaq securities and send it, 
along with a consolidated national short interest position for each 
security, to SIAC for dissemination purposes.

    \8\Monthly reporting will remain in effect for the present but 
more frequent reporting might be initiated in the future. See 
Circular sent by the ISG to all members and member organizations 
titled ``Consolidated Reporting of Short Interest Positions.''
    \9\SIAC is a jointly owned subsidiary of the NYSE and the Amex. 
Among other things, it handles the majority of the automation needs 
of the ISG.
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    Several exceptions to the general requirements outlined above are 
clarified in the ISG circular to members entitled ``Consolidated 
Reporting of Short Interest Positions.'' First, members and member 
organizations for which the CHX is the DEA, and who are self-clearing 
members of the Midwest Clearing Corporation (``MCC''), will have their 
reporting requirement satisfied automatically through the CHX's ability 
to capture the required information from the MCC. Further, 
[[Page 6744]] certain CHX members which trade Nasdaq National Market 
System securities as specialists may be required by the CHX to report 
their short interest positions in those securities directly to the 
NASD.
    Second, short interest position information for member 
organizations which act as specialists on the BSE, PSE or Phlx, will be 
processed by the clearing corporations utilized by these organizations.
    Third, pursuant to an amendment of CBOE Rule 15.1, clearing members 
of the CBOE for which the CBOE is the DEA, will be required to report 
any short interest positions to another exchange or the NASD, even if 
solely a member of the CBOE. The CBOE will designate an exchange or the 
NASD to receive such reports on a case-by-case basis.\10\

    \10\The CBOE and NASD have represented to the Commission that 
currently this exception applies to only one firm. That firm will be 
reporting to the NASD pursuant to an agreement between the CBOE and 
the NASD. Conversations between Amy Bilbija, Attorney, SEC, and Jim 
Cangiano, NASD, on January 23, 1995; and Jeff Schroer, CBOE, on 
January 23, 1995.
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    Fourth, the Amex will be sending out a circular to its members 
informing them of the new requirements. The Amex did not submit a new 
filing because it is relying on the general language in its Rule 30 to 
encompass the proposal at hand.\11\

    \11\See Amex Rule 30 requiring every member to file with the 
Amex such periodic reports or special reports as the Board of 
Governors may authorize. The Amex currently requires short interest 
position reporting of its membership pursuant to this Rule, and will 
continue to rely on this Rule to require the new reporting.
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    The new reporting requirements being approved herein will be tested 
by SIAC and the ISG members during the months of March and April, 1995. 
Testing will be conducted to ensure the reliability of the new 
reporting requirements, but the new figures will not be reported to the 
public. During the test period, broker-dealers currently subject to a 
reporting requirement must report open short interest positions under 
both the new reporting requirements and such current reporting 
requirement. After this test period, the new reporting requirements 
will be the only reporting requirements, and will be mandatory for all 
short positions. Thus, beginning in May, 1995, all broker-dealers will 
be reporting open short positions to an SRO under the new requirements. 
The national numbers generated as of that date will be reported to the 
public.
    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange, and, in 
particular, with the requirements of Sections 6(b) and 15A.\12\ In 
particular, the Commission believes the proposal is consistent with the 
Section 6(b)(5) and 15A(b)(6) requirements that the rules of an 
exchange be designed to promote just and equitable principles of trade, 
to prevent fraudulent and manipulative acts, and, in general, to 
protect investors and the public, in that the proposal should enhance 
the ability of the SROs, both collectively and individually, to monitor 
short interest reporting, and to reinforce their regulatory and 
surveillance capabilities in this area. In this regard, the Commission 
commends the ISG in recognizing that consolidated short interest 
figures, that would include the regional exchanges, would serve as an 
important surveillance tool to monitor trading activity. Further, the 
Commission believes that uniform short interest reporting requirements, 
and subsequent aggregation and reporting by SIAC, will enable the 
public to make more informed investment decisions in the United States 
market.

    \12\15 U.S.C. Secs. 78f(b), 78o-3 (1988).
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    Finally, the Commission finds good cause for approving the proposed 
rule changes prior to the thirtieth day after the date of publication 
of notice of filing thereof in the Federal Register. The Commission 
believes that accelerated approval of the proposal is appropriate in 
order to allow the SROs to inform their members about the new short 
interest reporting rules and how the new reporting requirements will be 
tested and implemented. Further, shortly after the approval date 
hereof, a circular will be sent out by the ISG, as indicated above, 
which will contain some additional clarifying information. The 
Commission notes that the new procedures were noticed in the Federal 
Register for the full statutory period and the Commission did not 
receive any comments on it. Although the CBOE filing was not published 
for the full period, the Commission notes that the intent of all of the 
proposals encompassed herein is the same. To facilitate the orderly 
implementation of the changes in short interest reporting requirements, 
the Commission is approving all filings simultaneously.
    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule changes (SR-NYSE-94-39; SR-Phlx-94-29; 
SR-PSE-94-34; SR-BSE-94-15; SR-CHX-94-28; SR-NASD-94-67; SR-CBOE-94-55) 
are approved.

    \13\15 U.S.C. Sec. 78s(b)(2) (1988).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\

    \14\17 CFR 200.30-3(a)(12) (1991).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-2653 Filed 2-2-95; 8:45 am]
BILLING CODE 8010-01-M