SEC Adopts Interim Close-Out Requirements for Short Sales

As a follow up to the emergency order it issued in September, the Securities and Exchange Commission (SEC) has issued interim final rules imposing close-out requirements on short sales. The new rules take effect October 17, 2008 and expire on July 31, 2009. While these rules generally codify the SEC’s earlier emergency order and related guidance from the SEC staff, the interim rules and the SEC’s release modify certain aspects of the requirements under the emergency order. Accordingly, we have updated our Q&As regarding the close-out requirements; the following Q&As replace those we sent on September 25.

The SEC’s interim rules require that clearing brokers deliver securities to settle long and short sale transactions on the scheduled settlement date for the security (generally Trade Date (T)+3) (Settlement Date). The rules also require that the clearing broker close out most fails to deliver at the beginning of the first settlement day following the Settlement Date, or T+4 (Close-Out Date).

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