[Federal Register Volume 73, Number 140 (Monday, July 21, 2008)]
[Notices]
[Pages 42379-42380]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-16545]


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SECURITIES AND EXCHANGE COMMISSION

[Securities Exchange Act of 1934 Release No. 58166/July 15, 2008]


Emergency Order Pursuant to Section 12(k)(2) of the Securities 
Exchange Act of 1934 Taking Temporary Action To Respond to Market 
Developments

    False rumors can lead to a loss of confidence in our markets. Such 
loss of confidence can lead to panic selling, which may be further 
exacerbated by ``naked'' short selling. As a result, the prices of 
securities may artificially and unnecessarily decline well below the 
price level that would have resulted from the normal price discovery 
process. If significant financial institutions are involved, this chain 
of events can threaten disruption of our markets.
    The events preceding the sale of The Bear Stearns Companies Inc. 
are illustrative of the market impact of rumors. During the week of 
March 10, 2008, rumors spread about liquidity problems at Bear Stearns, 
which eroded investor confidence in the firm. As Bear Stearns' stock 
price fell, its counterparties became concerned, and a crisis of 
confidence occurred late in the week. In particular, counterparties to 
Bear Stearns were unwilling to make secured funding available to Bear 
Stearns on customary terms. In light of the potentially systemic 
consequences of a failure of Bear Stearns, the Federal Reserve took 
emergency action.
    The Commission has taken a series of actions to address concerns 
about rumors. For example, in April, 2008, we charged Paul S. Berliner, 
a trader, with securities fraud and market manipulation for 
intentionally disseminating a false rumor concerning The Blackstone 
Group's acquisition of Alliance Data Systems Corp (``ADS''). The 
Commission alleged that this false rumor caused the price of ADS stock 
to plummet, and that Berliner profited by short selling ADS stock and 
covering those sales as the false rumor caused the price of ADS stock 
to fall. See http://www.sec.gov/litigation/litreleases/2008/lr20537.htm.
    As another example, on July 13, 2008, the Commission announced that 
the SEC and other securities regulators would immediately conduct 
examinations aimed at the prevention of the intentional spreading of 
false information intended to manipulate securities prices. The 
examinations will be conducted by the SEC's Office of Compliance 
Inspections and Examinations, as well as the Financial Industry 
Regulatory Authority, Inc. and New York Stock Exchange Regulation, Inc. 
See http://www.sec.gov/news/press/2008/2008-140.htm.
    We intend these and similar actions to provide powerful 
disincentives to those who might otherwise engage in illegal market 
manipulation through the dissemination of false rumors and thereby over 
time to diminish the effect of these activities on our markets. In 
recent days, however, false rumors have continued to threaten 
significant market disruption. For example, press reports have 
described rumors regarding the unwillingness of key counterparties to 
deal with certain financial institutions. There also have been rumors 
that financial institutions are facing liquidity problems.
    As a result of these recent developments, the Commission has 
concluded that there now exists a substantial threat of sudden and 
excessive fluctuations of securities prices generally and disruption in 
the functioning of the securities markets that could threaten fair and 
orderly markets. Based on this conclusion, the Commission is exercising 
its powers under Section 12(k)(2) of the Securities Exchange Act of 
1934.\1\ Pursuant to Section 12(k)(2), in appropriate circumstances the 
Commission may issue summarily an order to alter, supplement, suspend, 
or impose requirements or restrictions with respect to matters or 
actions subject to regulation by the Commission.
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    \1\ This finding of an ``emergency'' is solely for purposes of 
Section 12(k)(2) of the Exchange Act and is not intended to have any 
other effect or meaning or to confer any right or impose any 
obligation other than set forth in this Order.
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    In these unusual and extraordinary circumstances, we have concluded 
that requiring all persons to borrow or arrange to borrow the 
securities identified in Appendix A prior to effecting an order for a 
short sale of those securities is in the public interest and for the 
protection of investors to maintain fair and orderly securities 
markets, and to prevent substantial disruption in the securities 
markets. This emergency requirement will eliminate any possibility that 
naked short selling may contribute to the disruption of markets in 
these securities. We described in the releases in which we proposed and 
adopted Regulation SHO the bases for the current requirements 
Regulation SHO imposes. We believe, however, that the unusual 
circumstances we now confront require the temporarily enhanced 
requirements we are imposing today.
    It is ordered that, pursuant to our Section 12(k)(2) powers, in 
connection with transactions in the publicly traded securities of 
substantial financial firms, which entities are identified in Appendix 
A, no person may effect a short sale \2\ in these securities using the 
means or instrumentalities of interstate commerce unless such person or 
its agent has borrowed or arranged to borrow the security or otherwise 
has the security available to borrow in its inventory prior to 
effecting such short sale and delivers the security on settlement 
date.\3\
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    \2\ The definition of ``short sale'' shall be the same 
definition used in Rule 200(a) of Regulation SHO and the 
requirements for marking orders ``long'' or ``short'' shall be the 
same as provided in Regulation SHO.
    \3\ Short sales to be effected as a result of a put options 
exercise are subject to this Order. In addition, we note that short 
sales used to hedge would also be subject to this Order.
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    In order to allow market participants time to adjust their 
operations to implement the enhanced requirements, this Order shall 
take effect at 12:01 a.m. EDT on Monday, July 21, 2008. This Order 
shall terminate at 11:59 p.m. EDT on Tuesday, July 29, 2008 unless 
further extended by the Commission.

    By the Commission.
Florence E. Harmon,
Acting Secretary.

                               Appendix A
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                  Company                          Ticker symbol(s)
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BNP Paribas Securities Corp................  BNPQF or BNPQY
Bank of America Corporation................  BAC

[[Page 42380]]

 
Barclays PLC...............................  BCS
Citigroup Inc..............................  C
Credit Suisse Group........................  CS
Daiwa Securities Group Inc.................  DSECY
Deutsche Bank Group AG.....................  DB
Allianz SE.................................  AZ
Goldman, Sachs Group Inc...................  GS
Royal Bank ADS.............................  RBS
HSBC Holdings PLC ADS......................  HBC and HSI
J.P. Morgan Chase & Co.....................  JPM
Lehman Brothers Holdings Inc...............  LEH
Merrill Lynch & Co., Inc...................  MER
Mizuho Financial Group, Inc................  MFG
Morgan Stanley.............................  MS
UBS AG.....................................  UBS
Freddie Mac................................  FRE
Fannie Mae.................................  FNM
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[FR Doc. E8-16545 Filed 7-18-08; 8:45 am]
BILLING CODE 8010-01-P