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On Thursday, September 18, 2008 the Securities and Exchange Commission ("SEC") issued an order (the "Order") pursuant to Section 12(k)(2) of the Securities Exchange Act of 1934 (the "Exchange Act") temporarily halting short sales in the publicly traded securities of certain financial firms, identified in Appendix A to the Order ("Included Financial Firms"). On September 21, 2008, the SEC amended the Order (the "Amended Order") to, among other things, include additional companies, ("Covered Securities"), which is addressed in Amex Notice 2008-40. The Order can be accessed on the SEC's website at http://www.sec.gov/rules/other/2008/34-58592.pdf, and the Amended Order may be accessed at http://www.sec.gov/rules/other/2008/34-58611.pdf.
The Amended Order includes other changes to the Order as follows:
Options and Futures Contract Expiration
The Order provides an exception to allow short sales that occur as a result of automatic exercise or assignment of an equity option held prior to effectiveness of the Order, due to expiration of the option. The Amended Order also allows short sales that occur as a result of the expiration of futures contracts held prior to effectiveness of the order.
Options Assignments
To allow for the creation of long call options, the Amended Order excepts from its requirements short sales that occur as a result of assignment to call writers upon exercise by the holder of the call.
Market Making and Derivatives
In the Order, the SEC included an exception until 11:59 p.m. on September 19, 2008 for market makers who effected a short sale as part of bona fide market making and hedging activity related directly to bona fide market making in derivatives on the publicly traded securities of any Included Financial Firm. The Amended Order modifies the exception so that it applies for the duration of the Order. In addition, the exception applies to all market makers, including over-the-counter market makers, and it applies to bona fide market making and hedging activity related directly to bona fide market making in exchange traded funds and exchange traded notes of which Covered Securities are a component.
The market making exception is limited, however, in that a market maker may not effect a short sale in the Covered Security if the market maker knows that the customer's or counterparty's transaction will result in the customer or counterparty establishing or increasing an economic net short position (i.e., through actual positions, derivatives, or otherwise) in the issued share capital of a firm covered by the Order.
All market makers relying on this exception to the limitation on short selling shall, as soon as operationally practicable, publish a notice on their internet Web site that, pursuant to the Order, the market maker may not knowingly effect a short sale as part of bona fide market making and hedging activity related directly to bona fide market making in a derivative security based on a Covered Security, if the customer's or counterparty's transaction will result in the customer or counterparty establishing or increasing an economic net short position (i.e., through actual positions, derivatives, or otherwise) in the issued share capital of a firm covered by the Order. The SEC staff verbally confirmed that market makers who do not have a web site are not required to establish one solely for the purpose of displaying this message, however.
Sales of Restricted Securities
The Amended Order clarifies that the Order does not apply to persons that effect sales of Covered Securities pursuant to Rule 144 of the Securities Act of 1933 ("Rule 144 Securities").
Questions regarding this Notice should be directed to Rick Farber at 212-306-5310 or richard.farber@amex.com or to Ellen O'Rourke at 212-306-1865 or ellen.orourke@amex.com.