
[Federal Register Volume 76, Number 89 (Monday, May 9, 2011)]
[Notices]
[Pages 26787-26791]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-11188]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64383; File No. 4-627]


Short Sale Reporting Study Required by Dodd-Frank Act Section 
417(a)(2)

AGENCY: Securities and Exchange Commission.

ACTION: Request for comment.

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SUMMARY: The Securities and Exchange Commission (``Commission''), on 
behalf of its Division of Risk, Strategy, and Financial Innovation 
(``Division''), is requesting public comment with regard to studies 
required by the Dodd-Frank Wall Street Reform and Consumer Protection 
Act of the feasibility, benefits, and costs of requiring reporting in 
real time, either publicly or, in the alternative, only to the 
Commission and the Financial Industry Regulatory Authority (``FINRA''), 
of short sale positions of publicly listed securities, and of 
conducting a voluntary pilot program in which public companies would 
agree to have all trades of their shares marked ``long,'' ``short,'' 
``market maker short,'' ``buy,'' or ``buy-to-cover,'' and reported as 
such in real time through the Consolidated Tape.

DATES: Comments should be received on or before June 23, 2011.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/other.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number 4-627 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, U.S. Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number 4-627. To help us process 
and review your comments more efficiently, please use only one method. 
The Commission will post all comments on the Commission's Internet Web 
site (http://www.sec.gov). Comments will also be available for Web site 
viewing and printing in the Commission's Public Reference Room, 100 F 
Street, NE., Washington, DC 20549, on official business days between 
the hours of 10 a.m. and 3 p.m. All comments received will be posted 
without change; we do not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly.

FOR FURTHER INFORMATION CONTACT: Amy Edwards, Assistant Director, Bruce 
Kraus, Co-Chief Counsel, Lillian Hagen, Special Counsel, Sandra Mortal, 
Financial Economist, Division of Risk, Strategy, and Financial 
Innovation, at (202) 551-6655, Securities and Exchange Commission, 100 
F Street, NE., Washington, DC 20549-4977.
    Discussion:
    Under Section 417(a)(2) of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (the Dodd-Frank Act),\1\ the Commission's 
Division of Risk, Strategy, and Financial Innovation is required to 
conduct studies of the feasibility, benefits, and costs of (A) 
requiring reporting in real time, publicly or, in the alternative, only 
to the Commission and the Financial Industry Regulatory Authority, 
short sale positions in publicly listed securities, and (B) conducting 
a voluntary pilot program in which public companies could agree to have 
sales of their shares marked ``long,'' ``short,'' or ``market maker 
short,'' and purchases of their shares marked ``buy'' or ``buy-to-
cover,'' and reported as such in real time through the Consolidated 
Tape.\2\
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    \1\ Public Law 111-203 (July 21, 2010).
    \2\ The term ``Consolidated Tape,'' as used throughout this 
release, refers to the current reporting systems for transactions in 
all exchange-listed stocks and ETFs. These systems include Tapes A 
and B of the Consolidated Tape Plan and Tape C of the Unlisted 
Trading Privileges or ``UTP'' Plan. Trades in New York Stock 
Exchange (``NYSE'')-listed securities are reported to Tape A; trades 
in NYSE-Amex, NYSE-Arca, and regional exchange-listed securities are 
reported to Tape B; and trades in NASDAQ-listed securities are 
reported to Tape C. Transactions in unlisted equities, options, or 
non-equity securities are not currently reported to the Consolidated 
Tape. For more information see http://www.nyxdata.com/cta and http://www.utpplan.com/.
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    In the Division's estimation, data made public by certain self-
regulatory organizations (``SROs'') indicate that orders marked 
``short'' under current regulations account for nearly 50% of listed 
equity share volume.\3\ Short

[[Page 26788]]

selling involves a sale of a security that the seller does not own or a 
sale that is consummated by the delivery of a security borrowed by, or 
for the account of, the seller.\4\ Typically, the short seller later 
closes out the position by purchasing equivalent securities on the open 
market and returning the security to the lender.\5\ In general, short 
selling is used to profit from an expected downward price movement, to 
provide liquidity in response to unanticipated demand, or to hedge the 
risk of an economic long position in the same security or in a related 
security.\6\
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    \3\ This estimate was made by the Division based on short 
selling volume data for June 2010 made available by SROs. This 
estimate is consistent with estimates for prior months, and the 
short percentage varied little from day to day. The underlying data 
can be found at hyperlinks available at http://www.sec.gov/answers/shortsalevolume.htm, and have been provided since August 2009 by the 
SROs listed therein. As indicated on these hyperlinks, ``short 
selling volume'' is the volume of executed orders marked ``short'' 
or ``short exempt'' pursuant to Rule 200(g) of Regulation SHO (which 
requires broker-dealers to mark all equity sell orders as either 
``long,'' ``short,'' or ``short-exempt''). See 17 CFR 242.200(g). 
Under current rules, these order marks are not submitted to or 
reported on the Consolidated Tape, but are maintained as part of 
broker-dealers' books and records pursuant to Rules 17a-3 and 17a-4. 
See 17 CFR 240.17a-3(a)(5)-(7) and 240.17a-4(b)(8).
    \4\ See 17 CFR 242.200(a).
    \5\ See Exchange Act Release No. 50103 (July 28, 2004), 69 FR 
48008 (Aug. 6, 2004) (``Regulation SHO Adopting Release''), 
available at http://www.sec.gov/rules/final/34-50103.htm.
    \6\ See, e.g., id.
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    To better inform the study required by Section 417(a)(2) of the 
Dodd-Frank Act, the Commission, on behalf of the Division, seeks 
comment on both the existing uses of short selling in securities 
markets and the adequacy or inadequacy of currently available 
information regarding short sales, as well as comment on the likely 
effect of these possible future reporting regimes on the securities 
markets, including their feasibility, benefits, and costs.
    The Commission is required to submit a report on the results of 
these studies to Congress no later than July 21, 2011. All interested 
parties are invited to submit their views, in writing. Empirical 
evidence relevant to any part of the Division's study is expressly 
requested.

I. Baseline

    Certain information regarding short sales is currently available to 
the public. This information includes the total ``short interest'' in 
each listed security (i.e., total shares in short positions in that 
security in all customer and proprietary firm accounts of FINRA member 
firms), which has been reported twice each month since 2007,\7\ as well 
as data made available more recently on the short selling volume for 
each listed equity security that is reported on a daily basis,\8\ and 
trade-by-trade short sale transaction data that is released on a 
delayed (no more than 30 days after the end of the month) basis.\9\ 
Additionally, certain data vendors offer stock lending data, including 
stock loan volume, lending costs, and the percentage of available stock 
out on loan, which some market commentators have used as measures of 
short selling.\10\ Further, Section 929X(a) of the Dodd-Frank Act 
amended Section 13(f) of the Securities Exchange Act of 1934 
(``Exchange Act'') to require the Commission to adopt rules requiring 
monthly (or potentially more frequent) public short sale disclosures by 
security, including the ``aggregate amount of the number of short sales 
of each security, and any additional information determined by the 
Commission.'' \11\
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    \7\ See FINRA Rule 4560. FINRA member firms must report total 
shares in short positions in all of their customer and proprietary 
firm accounts in all equity securities twice per month through 
FINRA's Web-based Regulation Filing Application (``RFA'') system. 
The short interest data in listed stocks is released by exchanges 
that list those stocks. Further, FINRA releases the short interest 
data in unlisted stocks.
    \8\ See supra note 3 for more information on this data and how 
to obtain it.
    \9\ These data sets include one observation for each execution 
involving a short sale and typically date from August 2009. These 
data sets can be found at hyperlinks available at http://www.sec.gov/answers/shortsalevolume.htm.
    \10\ Data Explorers and SunGard, for example, provide data on 
securities lending to clients. As some commentators have noted, 
stock lending facilitates short selling (see, e.g., Speech by 
Chester Spatt, available at http://www.sec.gov/news/speech/2007/spch042007css.htm). As noted above, a number of data vendors sell 
information as to shares that have been loaned to other investors. 
Among other things, this information may include volume of loans, 
lending costs, and the percentage of available stock out on loan. 
This data offers indirect evidence of short selling, and some 
research has used stock lending data as a proxy for actual short 
sales. See, e.g., Oliver Wyman, ``The effects of short selling 
public disclosure of individual positions on equity markets'' (Feb. 
2011), available at http://www.oliverwyman.com/ow/pdf_files/OW_EN_FS_Publ_2011_Short_Selling_Public_Disclosure_Equity_Markets.pdf.
    \11\ See Exchange Act Section 13(f)(2), as amended.
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    Q1. How are currently available data used by issuers, market 
participants, and others (such as SROs, data vendors, media, analysts, 
and academics) today? How widely distributed are currently available 
data? Do costs or other factors limit access to currently available 
data? Are there other important sources of information as to short 
sales and short sale positions in addition to those mentioned above?
    Q2. The Division understands that equity market makers rely on 
short selling to facilitate customer buy orders and to ensure that they 
can maintain two-sided markets without carrying large risky positions. 
The Division also understands that option market makers frequently sell 
short to hedge positions taken in the course of market making 
activities.\12\ Why else might market makers sell short? How much of 
all short selling is accounted for by bona fide market making? Do 
market makers sell short for purposes other than bona fide market 
making? \13\ Are there ways in which short sales by market makers and 
other market participants performing similar roles or functions (but 
that are not subject to some or all of the requirements applicable to 
market makers) could be viewed as problematic?
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    \12\ See, e.g., Exchange Act Release No. 58775 (Oct. 14, 2008), 
73 FR 61690 (Oct. 17, 2008).
    \13\ In adopting Regulation SHO, the Commission discussed 
several activities that are not bona fide market making. 
Specifically, the Commission stated bona fide market making: (1) 
``does not include activity that is related to speculative selling 
strategies or investment purposes of the broker-dealer and is 
disproportionate to the usual market making patterns or practices of 
the broker-dealer in that security''; (2) ``where a market maker 
posts continually at or near the best offer, but does not also post 
at or near the best bid, the market maker's activities would not 
generally qualify as bona fide market making for purposes of the 
exception''; and (3) ``does not include transactions whereby a 
market maker enters into an arrangement with another broker-dealer 
or customer in an attempt to use the market maker's exception for 
the purpose of avoiding compliance with Rule 203(b)(1) by the other 
broker-dealer or customer.'' Exchange Act Release No. 50103, 69 FR 
48008, 48015 (Aug. 6, 2004) (citations omitted).
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    Q3. The Commission requests comment on the ways and the extent to 
which, if any, commenters believe that short selling has been 
associated with abusive market practices, such as ``bear raids'' where 
an equity security is sold short in an effort to drive down the 
security's price by creating an imbalance of sell-side interest? \14\ 
In addition, the Commission requests comment on the ways and extent to 
which, if any, commenters believe trade-based manipulation (i.e., 
manipulating without a corporate action or spreading false information) 
\15\ using short sales is possible? Would greater transparency of short 
positions or short sale transactions help to better deter or prevent 
such abuses, or assist in additional appropriate actions to prevent 
them? If so, what new disclosures should be required?
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    \14\ See, e.g., Exchange Act Release No. 61595 (Feb. 26, 2010), 
75 FR 11232, 11235 (Mar. 10, 2010).
    \15\ For a discussion of the theory regarding trade based 
manipulation, See Allen, F. and D. Gale, ``Stock Price 
Manipulation,'' (1992) Review of Financial Studies, 5(3), 503-529.
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II. Position Reporting

    Section 417(a)(2)(A) of the Dodd-Frank Act requires the Division to 
conduct a study of short ``position''

[[Page 26789]]

reporting; the term ``position'' is not defined in the Exchange Act or 
in Section 417 of the Dodd-Frank Act. For purposes of this study, the 
Division plans to use ``position'' to refer to outstanding holdings at 
a point in time. Further, Section 417 of the Dodd-Frank Act does not 
specify a particular level of aggregation and netting, address whose 
positions would be reported, or indicate whether derivatives or other 
ways to obtain economic exposure to a stock are covered and existing 
U.S. regulatory definitions vary in this dimension.\16\ ``Economic 
exposure'' as used by the Division in this request for comment refers 
to any financial interest in a company, however acquired. For example, 
an investor may have economic exposure to a company by owning the stock 
itself, or through ownership of an index or of derivatives. Likewise, 
the short sale position reporting requirements in foreign 
jurisdictions, implemented or proposed, differ from one another in a 
number of areas with respect to the definition of ``position,'' 
including inclusion or exclusion of derivatives in the short interest 
calculation, and reporting of net or gross position. For example, the 
short interest calculation in Australia \17\ and Hong Kong \18\ does 
not or would not include derivatives, whereas the U.K. \19\ and a 
proposal by the European Union (the ``E.U. Proposal'') \20\ both 
include or would include them. In Australia,\21\ the E.U. Proposal,\22\ 
and the U.K.,\23\ the reportable position is or would be the net short 
position, while in Hong Kong, long interest and short positions are 
calculated separately and are not netted.\24\
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    \16\ FINRA defines a short position as resulting from ``short 
sales'' as that term is defined in Rule 200(a) of Regulation SHO, 
but captures the position as of a settlement date as opposed to a 
trading date. See FINRA Rule 4560. The Commission defined a short 
selling position in former Rule 10a3-T as ``the aggregate gross 
short sales of an issuer's Section 13(f) securities (excluding 
options), less purchases to close out a short sale in the same 
issuer,'' and stated that ``the Form SH short position is not net of 
long position.'' See Exchange Act Release No. 58785 (Oct. 15, 2008), 
73 FR 61678 (Oct. 17, 2008). The reporting requirements of Form SH 
were in effect from September 22, 2008 to August 1, 2009.
    \17\ See Corporations Regulations 2001 (Commonwealth), 
regulation 7.9.99(2) (Australia), indicating that the short interest 
calculation includes securities, managed investment products, and 
sovereign debentures, stocks or bonds.
    \18\ See Hong Kong Securities and Futures Commission, 
Consultation Conclusions on Increasing Short Position Transparency 
(Mar. 2, 2010), available at http://www.sfc.hk/sfc/doc/EN/speeches/consult/consultationconclusion2march2010english.pdf.
    \19\ Short Selling Rules, 2010, FINMAR 2010 (U.K.), ] 2.3.6.
    \20\ The Committee for European Securities Regulators (``CESR'') 
proposed to require that positions be netted at the legal entity 
level and include all financial instruments that create economic 
exposure to an issue. See CESR, Model for a Pan-European Short 
Selling Disclosure Regime, CESR/10-088 (Mar. 2010) (``E.U. Model''), 
at 9.
    \21\ See Corporations Regulations 2001 regulation 7.9.99 
(Australia), which states that ``a short position is short sales net 
of long positions.''
    \22\ E.U. Model, at 9.
    \23\ FINMAR (U.K.), at ] 2.3.2.
    \24\ See Hong Kong Securities and Futures Commission, 
Consultation Conclusions on Increasing Short Position Transparency 
(Mar. 2, 2010), available at http://www.sfc.hk/sfc/doc/EN/speeches/consult/consultationconclusion2march2010english.pdf.
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    Q4. Would real time reporting of the short positions of all 
investors, intermediaries, and market participants be feasible, and if 
so, in what ways would it be beneficial? What problems would it 
address? What would be any reasons, in terms of benefits and costs, for 
treating short sale position reporting differently than long position 
reporting? Would ``real time'' reporting be necessary to achieve these 
benefits, or is ``prompt'' updating for material changes in the short 
position (such as Schedule 13D updating requirements) sufficient? \25\ 
If real time reporting would be beneficial, should ``real time'' be 
defined as ``continuously updated as soon as practicable,'' or as 
frequent ``snapshots'' of short positions throughout the trading day? 
Should ``as soon as practicable'' be defined and, if so, how? If 
frequent short sale position reporting of some kind would be 
beneficial, how frequently should such reports be made in order to 
realize those benefits? Would real time data be more or less accurate 
than data reported on a delay? Please explain why or why not.
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    \25\ Exchange Act Rule 13d-2 requires that if there is any 
material change in the facts set forth in a Schedule 13D, including, 
but not limited to, any material increase or decrease in the 
percentage of the class beneficially owned, the person required to 
file the statement must promptly file an amendment disclosing the 
change. See 17 CFR 240.13d-2.
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    Q5. Who would be likely to use real time short position data, and 
how? Would the short sale position data be too voluminous to be used 
directly by investors? Could such data help to detect more easily, 
better deter, or better prevent short selling abuses? Would market 
commentators and others use real time short position data to help the 
public better understand the U.S. securities markets? Would users of 
real time short position data be able to derive reasonably clear 
interpretations of the data in real time, and, to the extent they could 
not, how would the costs and benefits of any reporting regime be 
affected? Would real time data on short positions help or hinder long-
term investors in making ``efficient investments?''\26\
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    \26\ See, e.g., Biagio Bossone, Sandeep Mahajan, and Farah 
Zahir, Financial Infrastructure, Group Interests, and Capital 
Formation (International Monetary Fund, Working Paper 03/24, 2003), 
available at http://www.imf.org/external/pubs/ft/wp/2003/wp0324.pdf. 
Efficient investments optimize an investor's utility when trading 
off expected return and risk. If investors can more accurately 
estimate expected returns and risk, then they are better able to 
make efficient investments. For a summary of the underlying theory, 
see Bodie, Kane, and Marcus Investments, 7th ed. Chapters 8, 11, and 
12.
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    Q6. How would real time data on short positions affect the behavior 
of short sellers and other investors? Would it affect abusive short 
selling, in particular? To what extent, if any, would such data deter 
non-abusive short selling? For example, would such data reveal the 
trading strategies of non-abusive short sellers? Could the availability 
of such data create new opportunities for unfair or otherwise abusive 
market practices, such as bear raids or short squeezes? Could real time 
data on short positions lead to copycat trading? \27\ How would real 
time data on short positions affect investor confidence?
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    \27\ Copycat trading is a form of ``herd behavior,'' which has 
been described as ``[t]he tendency of investors, like herd animals, 
to follow the group. Such conformity can give rise to bubbles in 
individual securities and market sectors.'' Library of Congress, 
Federal Research Division, Annotated Bibliography on the Behavioral 
Characteristics of U.S. Investors (Aug. 2010), available at http://www.loc.gov/rr/frd/pdf-files/SEC_Annotated-Bibliography.pdf.
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    Q7. How would real time data on short positions affect liquidity, 
volatility, price efficiency, competition, and capital formation? Would 
real time short position reporting affect equity-related securities 
markets, such as option or other derivative markets, convertible bond 
or other debt markets? If so, in what ways?
    Q8. How should ``position'' be defined to help ensure any short 
sale position reports would be useful in detecting and deterring 
abusive short sale practices? Should ``position'' be defined 
differently to accomplish another purpose? If so, how, and what purpose 
would such a definition help accomplish? Would there be a trade-off 
between minimizing incremental implementation costs, above the cost of 
existing short reporting systems and procedures, in the context of a 
short position reporting regime and its utility? For maximum utility, 
should short positions be reported gross, or net of long positions, or 
in both ways? Should short positions include derivatives and index 
components? Should short positions be the net economic exposure to a 
stock across all instruments? Should short positions be defined as in 
former Rule 10a3-T, in which ``the Form SH short position is

[[Page 26790]]

not net of long position?'' \28\ In the case of broker-dealers, should 
position reporting be based on existing Regulation SHO aggregation 
units within broker-dealers,\29\ for the broker-dealer taken as a 
whole, or for its holding company? Please describe the feasibility of 
any incremental changes to the existing short sale reporting systems 
that would be necessary to report short sale ``positions.'' Would any 
potential definitions of short positions be infeasible in real time?
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    \28\ See supra note 16.
    \29\ Rule 200(f) of Regulation SHO permits a broker-dealer, 
under certain conditions, to calculate its long or short position by 
independent trading-unit, rather than on a firm-wide basis. 17 CFR 
242.200(f).
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    Q9. What would be the benefits and costs of short position 
reporting if ``position'' was defined to mean short interest,\30\ which 
would be the aggregate number of shares short in each stock? Would real 
time public reporting of aggregate short interest be feasible? If so, 
what problems would it address, and how (and by whom) would this data 
be used? Should the position reporting to be examined in the Division's 
study be more comprehensive than the current bi-monthly short interest 
reporting? For example, ``arranged financing'' (which would include 
borrowing from a foreign bank or affiliate to cover short positions) is 
not currently included in short interest. What would be the impact of 
including arranged financing in a definition of short position?
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    \30\ See supra note 7.
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    Q10. What would be the feasibility, benefits, and costs of real 
time short position reporting to regulators only, and not to the 
public? What would the benefits and costs be if this real time 
reporting information were to be made public on a delayed basis? What 
length of delay might best balance any benefits and costs?
    Q11. Who would be in a position to report short positions in real 
time? Would broker-dealers be able to accurately report customer short 
positions in real time? Would anyone else be better suited? Would short 
sellers themselves be equipped to report their own short positions in 
real time? Would anyone but the short seller be in a position to report 
the short seller's short position, whether or not the short position 
was defined as the short seller's economic position including 
derivatives? What would be the feasibility of adapting the technology 
infrastructure that supports existing reporting requirements to support 
real time short position reporting?
    Q12. Who would be in a position to collect and disseminate short 
positions in real time? Would it be feasible for listing exchanges to 
collect and disseminate this information? Would a consolidator be 
better suited to collect this information? What would be the 
feasibility of adapting the technology infrastructure supporting 
existing reporting requirements to support real time short position 
collection and dissemination? Would short position data developed from 
existing systems be less meaningful than data from a new system 
designed for this purpose? Why or why not?
    Q13. What would be the direct, quantifiable costs of short position 
reporting for those compiling, reporting, collecting, or disseminating 
the data? Please differentiate implementation costs from ongoing costs 
and include opportunity costs. How feasible would it be for brokers, 
exchanges, and others to create or modify a reporting and dissemination 
system? What would be the particular technological challenges faced in 
creating or modifying a reporting and dissemination system? Responses 
based on the costs of implementing the 2007 modifications to short 
interest reporting \31\ or the 2008 implementation of Form SH \32\ are 
particularly requested.
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    \31\ See supra note 7.
    \32\ This requirement was instituted via three emergency orders 
(dated Sep. 18, 2008, Sep. 21, 2008, and Oct. 2, 2008), which 
implemented Exchange Act Rule 10a-3T (See Exchange Act Release No. 
58785 (Oct. 15, 2008), 73 FR 61678 (Oct. 17, 2008)). Comments are 
available at http://www.sec.gov/comments/s7-31-08/s73108.shtml.
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    Q14. How would the establishment of a significant reporting 
threshold, which would limit short position reporting requirements to 
holders of significant net short positions, affect costs and the 
utility of the short position information? If reporting thresholds 
would be useful, would thresholds at the 5% level used under Section 
13(g) of the Exchange Act or the 0.25% level used in former Form SH 
\33\ be appropriate, or would a lower threshold, such as that used in 
the U.K. model, be preferable? \34\ Or would a higher threshold be 
appropriate? Please explain why or why not. Would thresholds (computed 
on a net basis) at U.K. levels (or the lower levels being contemplated 
by the E.U.) \35\ capture ordinary course, bona fide market maker 
positions, or would they tend generally to capture only the positions 
of investors taking a view as to the stock's future price direction? 
Would a general exemption from position reporting (or public position 
reporting) for market makers be appropriate? Why or why not?
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    \33\ Certain institutional investment managers were required to 
report short sales of certain securities on former Form SH unless 
the short position constituted less than 0.25% of the class of 
shares and had a fair market value of less than $10,000,000. See 
Exchange Act Release No. 58785 (Oct. 15, 2008), 73 FR 61678 (Oct. 
17, 2008).
    \34\ Two types of short positions must be publicly disclosed in 
the U.K. A net short position of 0.25% and above of issued capital 
in a U.K. company involved in a rights issue must be disclosed. In 
addition, a net short position in a U.K. financial sector company 
must be disclosed initially when such interest exceeds 0.25% of 
total share capital, and on an ongoing basis when the position 
exceeds or falls below 0.25%, 0.35%, 0.45% and 0.55% and each 0.1% 
threshold thereafter. See FINMAR Sec. Sec.  2.2.1, 2.1.2. See also 
U.K. Financial Services Authority, ``Implementing Aspects of the 
Financial Services Act 2010'' (2010), at 2.13.
    \35\ The E.U. Model would require reporting to regulators when 
short interest exceeds 0.2% of issued share capital, and reporting 
to the public when it exceeds 0.5% of issued share capital. See E.U. 
Model, at 8-9.
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    Q15. How should experiences with short sale position reporting 
regimes in foreign jurisdictions \36\ inform the analysis of 
feasibility, benefits, and costs? How relevant are any analyses of 
other reporting regimes to the Division's study? \37\ The Commission 
requests information on any relevant studies not cited in this request 
for comment.
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    \36\ See supra notes 17-24, 34, and 35 for examples.
    \37\ See Oliver Wyman Report, supra note 10, and also U.K. 
Financial Services Authority, Short selling: Feedback on DP09/1, 09/
4 (Oct. 2009), available at http://www.fsa.gov.uk/pubs/discussion/fs09_04.pdf; European Commission, Impact Assessment on the Proposal 
for a Regulation of the European Parliament and of the Council on 
Short Selling and Certain Aspects of Credit Default Swaps, SEC(2010) 
1055 (Sep. 15, 2010), available at http://ec.europa.eu/internal_market/securities/docs/short_selling/20100915_impact_assessment_en.pdf.
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 III. Transaction Reporting

    The Commission requests comment, on behalf of the Division, on the 
feasibility, benefits, and costs of the Consolidated Tape collecting 
and disseminating certain transaction marks. Specifically, Section 
417(a)(2)(B) of the Dodd-Frank Act requires the Division to study the 
feasibility, benefits, and costs of conducting a voluntary pilot 
program in which public companies would agree to have all trades of 
their shares marked ``long,'' ``short,'' and/or ``market maker short'' 
(for the sell portion(s) of the trade), and ``buy'' and/or ``buy to 
cover'' (for the buy portion(s) of the trade) and reported in real time 
through the Consolidated Tape.
    Q16. What benefits, costs, or unintended consequences would flow 
from adding these transaction marks to the Consolidated Tape? Who would 
use these marks, and how? Would data from the Consolidated Tape be 
accessible to the market participants who are most interested in short 
selling information? Would the Consolidated Tape data be too voluminous 
to be used directly by

[[Page 26791]]

interested market participants? How would the Consolidated Tape marks 
affect the behavior of short sellers and other investors? Would 
Consolidated Tape marks help or hinder long-term investors in making 
``efficient investments?'' \38\ Would market commentators and others 
use Consolidated Tape marks to help the public better understand 
markets? Could such marks help to better detect, deter, or prevent 
identified short selling abuses? Alternatively, could such marks 
themselves present opportunities for alleged unfair or otherwise 
abusive market practices, such as bear raids or short squeezes? Would 
real time Consolidated Tape marks lead to copycat trading? How would 
Consolidated Tape marks affect investor confidence?
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    \38\ See supra note 26.
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    Q17. Please discuss the feasibility, benefits, and costs related to 
the ``short sale,'' ``market maker short,'' and ``buy-to-cover'' marks 
specifically, and the effects of any choices that would be made when 
defining such terms. Would there be a trade-off between defining the 
trades that would be subject to these marks for maximum utility and 
accuracy to investors, and minimizing implementation costs by building 
on existing definitions and order marking infrastructure? \39\ If so, 
how should the tension between these goals be best resolved? Would 
there be any other potential issues associated with the accuracy or 
clarity of Consolidated Tape marks? Would the Consolidated Tape marks 
present possibilities for misinterpretation of the data that could 
impact any benefits and costs?
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    \39\ See supra note 3.
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    Q18. How would any additions to Consolidated Tape marks affect 
liquidity, volatility, price efficiency, competition, and capital 
formation? To what extent, if any, would such data deter short selling 
activity not associated with abusive market practices, but that 
enhances market quality, for example, by revealing trading strategies? 
What are the consequences of such deterrence? Would any additions to 
Consolidated Tape marks have consequences (including benefits or costs) 
for equity-related securities markets, such as options or other 
derivative markets, convertible bond or other debt markets? If so, 
please explain. What would the feasibility, benefits, and costs be if 
this real time reporting information were to be made public on a 
delayed basis? What length of delay might best balance any benefits and 
costs?
    Q19. What would be the direct, quantifiable costs of adding the 
additional fields to the Consolidated Tape to support new marks? Please 
differentiate implementation costs from ongoing costs and include 
opportunity costs. How feasible would it be for brokers, exchanges, and 
others to modify order management systems, or other systems, for these 
marks? What would be the potential technological challenges faced in 
implementing these marks? Would the Consolidated Tape bear significant 
implementation or ongoing costs? For example, would capacity 
requirements be significantly higher? Would vendors and others who 
receive feeds from the Consolidated Tape bear significant 
implementation or ongoing costs? Responses based on the costs of 
implementing Regulation SHO Rule 201,\40\ Regulation NMS,\41\ and Form 
SH \42\ are particularly requested.
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    \40\ 17 CFR 242.201.
    \41\ 17 CFR 242.600 et seq.
    \42\ See supra note 33.
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    Q20. What would be the benefits and costs (including the direct, 
quantifiable costs) of conducting a pilot for the Consolidated Tape 
marking? Would a pilot for Consolidated Tape marking be feasible? Would 
the direct, quantifiable costs of implementing and maintaining a pilot 
be any less, or more, than those of implementing and maintaining 
Consolidated Tape marking on all listed issuers? Would market 
participants be likely to behave differently during a pilot, for 
example by hesitating to develop new trading strategies? \43\
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    \43\ For example, in 2004, the Commission adopted Rule 202T, 
which provided for the temporary suspension of the short sale uptick 
rule in certain securities so that the Commission could study 
trading behavior in the absence of a price test. See Exchange Act 
Release No. 50103 (July 28, 2004), 69 FR 48008 (Aug. 6, 2004). In 
the view of Division Staff, Boehmer, Jones, and Zhang provide 
evidence suggesting that trading behavior may not have completely 
adjusted to the Regulation SHO Pilot. See Boehmer, Jones, and Zhang, 
``Unshackling Short Sellers: The Repeal of the Uptick Rule'' (2008), 
available at http://www.gsb.columbia.edu/mygsb/faculty/research/pubfiles/3231/UptickRepealDec11.pdf.
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    Q21. What would be the benefits and costs of the voluntary 
component of the pilot? What types of issuers would likely volunteer to 
participate in a pilot? How would this self-selection affect the 
usefulness of any data derived from a pilot? Are there other 
consequences from a voluntary pilot? To maximize the utility of any 
pilot, should the pilot be designed to limit participation in a way 
that facilitates comparisons of trading in pilot companies and trading 
in non-pilot companies? If participation should be limited, how should 
the Commission determine which volunteers to include or exclude from 
the pilot?
    Q22. How should experiences with transaction marking regimes in 
foreign jurisdictions \44\ inform analysis of the feasibility, 
benefits, and costs? Are there any analyses of transaction marking 
regimes that are relevant to the Division's study?
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    \44\ Several foreign jurisdictions have short sale marking 
requirements in place including Australia (Australian Securities and 
Investment Commission, Regulatory Guide, RG 196.12 (April 2010)), 
Canada (Universal Market Integrity Rules, Rule 3.2), Hong Kong (Hong 
Kong Exchange Rules, Eleventh Schedule, Rule 5), and Japan (Japan 
Financial Services Agency, ``FSA Extends Temporary Measures 
Regarding Restrictions on Short Selling and Purchases of Own Stocks 
by Listed Companies'' (Jan. 21, 2011) (effective until Apr. 30, 
2011)).
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    Q23. To what extent would Consolidated Tape marks be a substitute 
or compliment to real time short position reporting? How would the 
benefits and costs of any Consolidated Tape marks be impacted if real 
time position reporting existed and vice versa?

    Dated: May 3, 2011.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-11188 Filed 5-6-11; 8:45 am]
BILLING CODE 8011-01-P


