FINRA Manual: Contents
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85-77 NASD Actions in the Area of Short Sale Regulation
TO: All NASD Members and Other Interested Persons
At its November meeting, the NASD's Board of Governors determined to take several actions in the area of short sale regulation in the over-the-counter securities market. This notice summarizes these actions.
Reporting of Open Short Interest Positions
The first such action will require members to report to the NASD, for purposes of surveillance and study, the aggregate over-the-counter short interest positions of their customer and proprietary accounts on a monthly basis. This information will be used for internal NASD purposes only and will not be distributed to the public.
In view of the NASD's need for over-the-counter short interest information for a study now underway (see below) and surveillance purposes, the NASD Board has determined to adopt this monthly reporting requirement on an expedited basis, with actual reporting expected to begin in early 1986.
Proposed Rules to be Published for Comment
The Board also determined to issue for public comment rules to require (l) that customer order tickets for each sale transaction in an over-the-counter security include a notation that the order is either a long sale or a short sale, and (2) that NASD members make an affirmative determination, before accepting a customer's order to sell an over-the-counter stock short, that delivery of the shares can be made within five business days. Both of these proposals parallel existing requirements in exchange markets.
Expert Selected to Conduct Study of Current Short Selling Practices
The NASD Board also determined to retain Irving M. Pollack, a recognized expert in the field of securities regulation and surveillance, to conduct a comprehensive study of current short selling practices, complete with findings and recommendations. Mr. Pollack formerly served as an SEG Commissioner following nearly three decades on the SEC staff, including several years as Director of the Division of Enforcement and its predecessor, the Division of Trading and Markets.
This study is being undertaken in light of the profound changes that have taken place in the composition, structure and surveillance of our nation's securities markets since today's system of short sale regulation in exchange markets was adopted in the 1930's. Because of this, Mr. Pollack's study will produce recommendations that take into account (l) the fundamental differences between the over-the-counter market and exchange market in terms of structure and mechanics; (2) the evolution of markets; and (3) the 1980's environment in which markets now operate where the use of technology abounds, where quote and transaction information flows are virtually instantaneous, and where a multitude of derivative products facilitating programmed strategies now exist.
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More detailed information concerning each of the above items will be sent to members shortly. In the meantime, questions regarding this notice may be directed to S. William Broka at (202) 728-8050.
Gordon S. Macklin