Self-Regulatory Organizations; New York Stock Exchange, Inc., Philadelphia Stock Exchange, Inc., Pacific Stock Exchange, Inc., Boston Stock Exchange, Inc., Chicago Stock Exchange, Inc., National Association of Securities Dealers, Inc., and Chicago Board Options Exchange; Order Granting Accelerated Approval to Proposed Rule Change Adopting Rules for Short Position Reporting

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35287; File No. SR-NYSE-39; SR-Phlx-94-29; SR-PSE-94-

34; SR-BSE-94-15; SR-CHX-94-28; SR-NASD-94-67; SR-CBOE-94-55]

Self-Regulatory Organizations; New York Stock Exchange, Inc.,

Philadelphia Stock Exchange, Inc., Pacific Stock Exchange, Inc., Boston

Stock Exchange, Inc., Chicago Stock Exchange, Inc., National

Association of Securities Dealers, Inc., and Chicago Board Options

Exchange; Order Granting Accelerated Approval to Proposed Rule Change

Adopting Rules for Short Position Reporting

January 27, 1995.

On October 27, 1994, the New York Stock Exchange, Inc. (``NYSE''),

October 20, 1994, the Philadelphia Stock Exchange, Inc. (``Phlx''),

November 23, 1994, the Pacific Stock Exchange, Inc. (``PSE''), November

28, 1994, the Boston Stock Exchange, Inc. (``BSE''), December 12, 1994,

the Chicago Stock Exchange, Inc. (``CHX''), December 2, 1994, the

National Association of Securities Dealers, Inc. (``NASD''),\1\ and on

January 3, 1995, the Chicago Board Options Exchange (``CBOE'')

(collectively, the ``SROs'') submitted to the Securities and Exchange

Commission (``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of

the Securities Exchange Act of 1934 (``Act'')\2\ and Rule 19b-4

thereunder,\3\ proposed rule changes to facilitate uniform short

position reporting requirements.\4\

\1\In addition, the NASD filed Amendment No. 1 on January 11,

1995, to clarify who must report to the NASD, what the entities must

report, and the mechanics of how to transmit such report. Because

the Amendment does not substantively change the proposal, the

Commission is not publishing it for comment. See letter from Joan C.

Conley, Secretary, NASD, to Mark Barracca, Attorney, SEC, dated

January 11, 1995.

\2\15 U.S.C. 78s(b)(1) (1988).

\3\17 CFR 240.19b-4 (1991).

\4\``Short'' positions to be reported are those resulting from

``short'' sales as defined in SEC Rule 3b-3, but excludes positions

resulting from sales specified in clauses (1), (6), (7), (8), (9)

and (10) of paragraph (e) of SEC Rule 10a-1. Also to be excluded are

``short'' positions carried for other members and member

organizations reporting for themselves.

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The proposed rule change filed by the CBOE was published for

comment in Securities Exchange Act Release No. 35227 (January 13,

1995), 60 FR 4208 (January 20, 1995). In addition, all of the other

proposed rule changes were published for comment in Securities Exchange

Act Release No. 35147 (December 23, 1994), 60 FR 518 (January 4, 1995).

No comments were received on the proposal from either notice

publication.

The proposed rule changes emanated from an initiative by the SROs,

as Intermarket Surveillance Group (``ISG'')\5\ members, to ensure

uniform short position reporting in U.S. traded securities.\6\ Although

the specific language of each proposed rule change differs slightly,

the goal of the SROs is uniform in proposing the adoption of the above

referenced rules. Generally, the SROs' goal is to ensure that a broker-

dealer registered in the United States reports its open short positions

to the SRO that is the broker-dealer's Designated Examining Authority

(``DEA''). If the particular broker-dealer's DEA does not have rules

governing the reporting of short interest positions, then the broker-

dealer is to report to another SRO of which it is a member. Non-self-

clearing broker-dealers, however, will be considered to have satisfied

their reporting requirements by making the appropriate arrangements

with their respective clearing organizations.

\5\ISG was formed on July 14, 1983 to, among other things,

coordinate more effectively surveillance and investigative

information sharing arrangements. See Intermarket Surveillance Group

Agreement, July 14, 1983.

\6\Specifically: (1) The BSE is adding Sec. 38 to Chapter II of

its Rules; (2) the CBOE is adopting interpretation and policy .02 to

its Rule 15.1; (3) the CHX is adopting Article XI, Rule 9, and an

interpretation thereto; (4) the NASD is amending Article III,

Section 41; (5) the NYSE is amending Rule 421; (6) the PSE is

adopting Rule 2.6(f); and (7) the Phlx is adopting Rule 786.

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Substantively, the new reporting requirements will continue to

include stocks and warrants, including odd lots, in each such security

traded on a United States securities exchange or association. Further,

the reports will continue to include both customer and proprietary

positions, and for those broker-dealers with more then one ``account''

with a short position in the same stock or warrant, the combined

aggregate should be reported. In this regard, the Commission notes that

like accounts should be netted, and then multiple accounts should be

aggregated.\7\

\7\The aggregation requirement, however, does not include the

netting of short interest against long in a given security across

``non-like'' accounts. For example, if a broker dealer has three

accounts for different customers, and account 1 has short interest

of 100 shares, account 2 has short interest of 225 shares, and

account 3 is long 150 shares, the broker dealer shall report short

interest of 325, not 175. See CHX proposed Article XI, Rule 9,

Interpretation and Policy .01. If, however, in the above example

account 1 was the firm's customer account, and accounts 2 and 3 were

the firm's proprietary accounts, then the firm would net accounts 2

and 3 to ascertain its proprietary account position (in this case

short 75 shares). The firm would then report the aggregate of its

customer account short interest position of 100 shares and its

proprietary short interest position of 75 shares--175 shares short

in total--for the firm in the particular security.

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The format, time, and method of reporting will be prescribed by

each SRO receiving short interest data.\8\ Each such SRO will

electronically send the data to the Securities Industry Automation

Corporation (``SIAC'').\9\ With respect to listed securities, SIAC will

in turn consolidate all data in each security to generate a number

representing the national short position in each such security. The

NASD, however, will be performing this function with respect to Nasdaq

securities. All Nasdaq short interest will be reported to the NASD by

its members. Firms not members of the NASD will report their short

interest positions in Nasdaq securities to an SRO, which will forward

it to SIAC, which will then forward Nasdaq data to the NASD. The NASD

will compile all short interest data in Nasdaq securities and send it,

along with a consolidated national short interest position for each

security, to SIAC for dissemination purposes.

\8\Monthly reporting will remain in effect for the present but

more frequent reporting might be initiated in the future. See

Circular sent by the ISG to all members and member organizations

titled ``Consolidated Reporting of Short Interest Positions.''

\9\SIAC is a jointly owned subsidiary of the NYSE and the Amex.

Among other things, it handles the majority of the automation needs

of the ISG.

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Several exceptions to the general requirements outlined above are

clarified in the ISG circular to members entitled ``Consolidated

Reporting of Short Interest Positions.'' First, members and member

organizations for which the CHX is the DEA, and who are self-clearing

members of the Midwest Clearing Corporation (``MCC''), will have their

reporting requirement satisfied automatically through the CHX's ability

to capture the required information from the MCC. Further,

[[Page 6744]] certain CHX members which trade Nasdaq National Market

System securities as specialists may be required by the CHX to report

their short interest positions in those securities directly to the

NASD.

Second, short interest position information for member

organizations which act as specialists on the BSE, PSE or Phlx, will be

processed by the clearing corporations utilized by these organizations.

Third, pursuant to an amendment of CBOE Rule 15.1, clearing members

of the CBOE for which the CBOE is the DEA, will be required to report

any short interest positions to another exchange or the NASD, even if

solely a member of the CBOE. The CBOE will designate an exchange or the

NASD to receive such reports on a case-by-case basis.\10\

\10\The CBOE and NASD have represented to the Commission that

currently this exception applies to only one firm. That firm will be

reporting to the NASD pursuant to an agreement between the CBOE and

the NASD. Conversations between Amy Bilbija, Attorney, SEC, and Jim

Cangiano, NASD, on January 23, 1995; and Jeff Schroer, CBOE, on

January 23, 1995.

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Fourth, the Amex will be sending out a circular to its members

informing them of the new requirements. The Amex did not submit a new

filing because it is relying on the general language in its Rule 30 to

encompass the proposal at hand.\11\

\11\See Amex Rule 30 requiring every member to file with the

Amex such periodic reports or special reports as the Board of

Governors may authorize. The Amex currently requires short interest

position reporting of its membership pursuant to this Rule, and will

continue to rely on this Rule to require the new reporting.

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The new reporting requirements being approved herein will be tested

by SIAC and the ISG members during the months of March and April, 1995.

Testing will be conducted to ensure the reliability of the new

reporting requirements, but the new figures will not be reported to the

public. During the test period, broker-dealers currently subject to a

reporting requirement must report open short interest positions under

both the new reporting requirements and such current reporting

requirement. After this test period, the new reporting requirements

will be the only reporting requirements, and will be mandatory for all

short positions. Thus, beginning in May, 1995, all broker-dealers will

be reporting open short positions to an SRO under the new requirements.

The national numbers generated as of that date will be reported to the

public.

The Commission finds that the proposed rule change is consistent

with the requirements of the Act and the rules and regulations

thereunder applicable to a national securities exchange, and, in

particular, with the requirements of Sections 6(b) and 15A.\12\ In

particular, the Commission believes the proposal is consistent with the

Section 6(b)(5) and 15A(b)(6) requirements that the rules of an

exchange be designed to promote just and equitable principles of trade,

to prevent fraudulent and manipulative acts, and, in general, to

protect investors and the public, in that the proposal should enhance

the ability of the SROs, both collectively and individually, to monitor

short interest reporting, and to reinforce their regulatory and

surveillance capabilities in this area. In this regard, the Commission

commends the ISG in recognizing that consolidated short interest

figures, that would include the regional exchanges, would serve as an

important surveillance tool to monitor trading activity. Further, the

Commission believes that uniform short interest reporting requirements,

and subsequent aggregation and reporting by SIAC, will enable the

public to make more informed investment decisions in the United States

market.

\12\15 U.S.C. Secs. 78f(b), 78o-3 (1988).

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Finally, the Commission finds good cause for approving the proposed

rule changes prior to the thirtieth day after the date of publication

of notice of filing thereof in the Federal Register. The Commission

believes that accelerated approval of the proposal is appropriate in

order to allow the SROs to inform their members about the new short

interest reporting rules and how the new reporting requirements will be

tested and implemented. Further, shortly after the approval date

hereof, a circular will be sent out by the ISG, as indicated above,

which will contain some additional clarifying information. The

Commission notes that the new procedures were noticed in the Federal

Register for the full statutory period and the Commission did not

receive any comments on it. Although the CBOE filing was not published

for the full period, the Commission notes that the intent of all of the

proposals encompassed herein is the same. To facilitate the orderly

implementation of the changes in short interest reporting requirements,

the Commission is approving all filings simultaneously.

It Is Therefore Ordered, pursuant to Section 19(b)(2) of the

Act,\13\ that the proposed rule changes (SR-NYSE-94-39; SR-Phlx-94-29;

SR-PSE-94-34; SR-BSE-94-15; SR-CHX-94-28; SR-NASD-94-67; SR-CBOE-94-55)

are approved.

\13\15 U.S.C. Sec. 78s(b)(2) (1988).

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For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\14\

\14\17 CFR 200.30-3(a)(12) (1991).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95-2653 Filed 2-2-95; 8:45 am]

BILLING CODE 8010-01-M