Division of Corporation Finance, Division of Investment Management, and Division of Trading and Markets Guidance Regarding the Commission's Emergency Order Concerning Disclosure of Short Selling

I. Introduction

Pursuant to Section 12(k)(2) of the Securities Exchange Act of 1934 ("Exchange Act"), on September 18, 2008, the Securities and Exchange Commission ("Commission") issued an Emergency Order, as amended, Exchange Act Release No. 58591A, September 21, 2008 (the "Order"), requiring that institutional investment managers report information concerning daily short sales of certain publicly traded securities. The following questions and answers regarding the Order have been prepared by and represent the views of the Staff of the Divisions of Corporation Finance, Investment Management, and Trading and Markets ("Staff") to assist in the understanding and application of the Order. They are not rules, regulations, or statements of the Commission. Further, the Commission has neither approved nor disapproved these interpretive answers and is not bound by them.

II. Responses to Questions Regarding the Order

Question 1: Who may be required to file Form SH?

Answer: The Order applies to every institutional investment manager who filed or was required to file a Form 13F for the calendar quarter ended June 30, 2008 under Section 13(f) of the Exchange Act and Exchange Act Rule 13f-1(a).

Question 2: How are "short sale" and "short position" defined for purposes of Form SH?

Answer: Form SH uses the definition of "short sale" as found in Rule 200(a) of Regulation SHO, which is "any sale of a security which the seller does not own or any sale which is consummated by the delivery of a security borrowed by, or for the account of, the seller." A "short position" is one resulting from "short sales."

Question 3: When does the requirement to file Form SH begin?

Answer: The Order became effective at 12:01 a.m. on Monday, September 22, 2008, and a Form SH is required to be filed on Monday, September 29, 2008. The Form SH filed on Monday, September 29, 2008 should reflect short sales effected on Monday, September 22, 2008 through Saturday, September 27, 2008.

Question 4: When does the requirement to file Form SH end?

Answer: Unless extended, the Order will terminate at 11:59 p.m. on Thursday, October 2, 2008. If the Commission extends the Order, then managers would need to report on any new short sales of Form SH Securities effected on Sunday, September 28 through Saturday, October 4, and would need to file additional reports of further short sales required by the extended Order. Any additional Form SH filings would need to reflect the short position as of the end of the prior calendar week. If the Order is extended, no Form SH filing is required if a manager has not effected any short sales of a Form SH Security since the previous filing of a Form SH.

Question 5: What transactions are required to be reported on Form SH?

Answer: The Order generally requires institutional investment managers to file a report on Form SH with the Commission on the first business day of the calendar week immediately following a week in which the institutional investment manager effected short sales after the effective date of the Order in a section 13(f) security except for any short sale or position for any option that is on the Official List of Section 13(f) Securities ("Form SH Security" or "Form SH Securities").

"Section 13(f) securities" is defined in Exchange Act Rule 13f-1(c) to include securities of a class described in Section 13(d)(1) of the Exchange Act that are admitted to trading on a national securities exchange. In determining what classes of securities are section 13(f) securities, an institutional investment manager may rely on the Official List of Section 13(f) Securities published by the Commission. This list is available here. As noted above, a short sale or position for any option that is on the Official List of Section 13(f) Securities does not need to be reported on Form SH. All other short sales in section 13(f) securities must be reported on Form SH.

Unless otherwise indicated, these FAQs discuss reporting related to short sales and short positions on Form SH based on the assumption that the de minimis exclusion does not apply.

Question 6: Does the Order require disclosure of existing or outstanding short positions in Form SH Securities held prior to the effective date of the Order?

Answer: No. The disclosure requirement applies only to short sales effected after 12:01 a.m. EDT on September 22, 2008, the effective date of the Order. If a manager has a short position reflecting short sales effected prior to the effective date of the Order ("Pre-Existing Short Position" or, collectively, "Pre-Existing Short Positions"), that Pre-Existing Short Position is not required to be reported under any of the columns on Form SH or for any days throughout the calendar week-long period that must be reported in the Form SH filing. Thus, the manager is not required to add that Pre-Existing Short-Position to any new short positions created after the effective date of the Order. Transactions effected after the effective date of the Order to close out that Pre-Existing Short Position also should not be reported. Pre-Existing Short Positions should not be included for purposes of determining whether the de minimis exclusion applies. See Answer to Question 10.

For example, if Manager A has an open short position of 10,000 shares in a Form SH Security that was effected prior to the effective date of the Order, and on September 22, the effective date of the Order, Manager A effects a short sale of 200 shares in that same Form SH Security, and does not effect any other short sales, Form SH should report the following for that Form SH Security for September 22:

Column 3 - Short Position (Start of Day): zero

Column 4 - Number of Securities Sold Short (Day): 200

Column 5 - Value of Securities Sold Short (Day): 200 X (price of that Form SH Security reported by the primary or listing market for the Form SH Security, as of the close of floor trading on the NYSE)

Column 6 - Short Position (End of Day): 200

Column 7 - Largest Intra-Day Short Position: 200

Column 8 - Time of Day of Largest Intra-Day Short Position: Time of day EDT of the last fill of the 200 short sale

Continuing with the same Manager A, on September 23, if Manager A does not effect additional short sales in the same Form SH Security, but purchases the same Form SH Security to close out 100 of the 200 short sales that Manager A reported in the Short Position at the Start of Day, Form SH should report the following for September 23:

Column 3 - Short Position (Start of Day): 200

Column 4 - Number of Securities Sold Short (Day): zero

Column 5 - Value of Securities Sold Short (Day): zero

Column 6 - Short Position (End of Day): 100

Column 7 - Largest Intra-Day Short Position: 200

Column 8 - Time of Day of Largest Intra-Day Short Position: 9:30 a.m. EDT or "Start of Day"

Question 7: Are short sales resulting from exercising a put or assignment to call writers upon exercise reportable on Form SH?

Answer: Options on section 13(f) securities and short sales of options on section 13(f) securities are not Form SH Securities, and therefore, should not be reported on Form SH. However, certain transactions that involve options are required to be reported on Form SH. For example, if an institutional investment manager exercises a put and is net short pursuant to Rule 200(c) of Regulation SHO, the resulting transaction is a "short sale" and must be reflected in Form SH. Similarly, if the institutional investment manager effects a short sale as a result of assignment to it as a call writer, upon exercise, the resulting transaction is a "short sale" and must be reflected in Form SH. Any short sales of Form SH Securities resulting from exercise of options contracts are reportable as of the date of exercise.

Question 8: If a broker-dealer that is required to file Form SH receives from a customer an order to purchase or sell a Form SH Security, and to execute the customer order on a "riskless principal" basis, the broker-dealer effects a short sale, should the broker-dealer report this short sale on Form SH?

Answer: We understand that a broker-dealer may handle customer orders on a "riskless principal" basis in the following scenarios, which may result in the broker-dealer effecting a short sale: (i) a broker-dealer receives an order to sell a Form SH Security from a customer, and the broker-dealer then seeks to execute that order, either in whole or in part, by selling the Form SH Security as riskless principal, and the broker-dealer has an overall net "short" position in such Form SH Security; or (ii) a broker-dealer receives an order to buy a Form SH Security from a customer, and the broker-dealer then seeks to execute that order, either in whole or in part, by purchasing the Form SH Security as riskless principal, and then selling the Form SH Security to the customer, and the broker-dealer has an overall net "short" position in such Form SH Security. In both scenarios, the broker-dealer essentially acts as a conduit for the customer's order; thus, these short sales by the broker-dealer do not need to be reported on Form SH.

Question 9: Are short swaps excluded from reporting on Form SH, as they would be on the long side for the 13F report?

Answer: Yes.

Question 10: In what situation would the de minimis exclusion result in the institutional investment manager not having to file a Form SH?

Answer: If the short position in the Form SH Security constitutes less than one-quarter of one per cent of that class of the issuer's Form SH Securities issued and outstanding and the fair market value of the short position in the Form SH Security is less than $1,000,000 on every day of the reporting period, the manager need not file Form SH. If the manager fails to satisfy either prong of the de minimis exclusion on any day of a reporting period for any Form SH Security, the manager must file Form SH for that period with respect to that Form SH Security. Pre-Existing Short Positions should not be included for purposes of determining whether the de minimis exclusion applies.

Shares Issued Threshold

For purposes of determining whether the .25% threshold is met, a manager should divide the number of shares of the Form SH Security it sold short that day by the number of issued and outstanding shares of that class of Form SH Security.

The number of shares of the Form SH Security sold short by the manager is reflected for any given day during the reporting period in Column 4 of Form SH.

The number of a class of a Form SH Security outstanding may be determined by reference to the issuer's most recent annual or quarterly report, and any current report subsequent thereto, filed with the Commission pursuant to the Exchange Act, unless the manager knows or has reason to believe the information contained therein is inaccurate.

Short Position Value Threshold

For purposes of determining whether the $1,000,000 threshold is met, a manager should multiply the number of shares of the Form SH Security it sold short that day by the market price as of the close of trading at the NYSE (see Item 9 of the Instructions to Form SH).

Question 11: Does the Order provide any other exceptions to the requirement to file a Form SH?

Answer: Yes. The Order does not require institutional investment managers to file Form SH when the manager has not effected a short sale of a Form SH Security, starting at 12:01 a.m. EDT on September 22, 2008 and thereafter. Transactions effected after the effective date of the Order to close out Pre-Existing Short Positions also should not be reported.

Question 12: Once a Form SH filing is required, may an institutional investment manager take advantage of the de minimis exclusion for purposes of entering data into the specified columns?

Answer: Yes. The institutional investment manager may apply the de minimis exclusion on a day-by-day and column-by-column basis. For example, if the amount of securities sold short on a given day is de minimis for purposes of Column 4, then disclosure of the amount is not required under Column 4. However, the amount of securities sold short should still be taken into account in determining what type of disclosure is required under Columns 6 and 7. In the event the institutional investment manager excludes information using the de minimis exclusion, it should enter "N/A" in the appropriate columns. Pre-Existing Short Positions should not be included for purposes of determining whether the de minimis exclusion applies.

Question 13: How can Form SH be filed, and will a Word copy be available?

Answer: Form SH cannot be filed in Word. Like most EDGAR filings, it may be filed in ASCII or HTML. (This is unlike Form 13F, which may be filed only in ASCII.) The EDGAR submission types, which are explained in Instruction 11 of the Form, are SH-ER and SH-NT. Both of them can be amended by adding /A.

Form SH will be available for filing on EDGARLink by 6:00 a.m. Monday, September 29. Because of time constraints, the staff does not plan to provide any reduced content specifications.

A Word copy of Form SH has been posted on the SEC's web site, available at http://sec.gov/about/forms/formsh.doc.

Although Instruction 3 to Form SH requires that the filer mark each page as non-public, it is not necessary to do anything else different when filing the form than for any other EDGAR filing. The EDGAR system itself will treat all Forms SH as non-public. Two weeks after the due date, these Forms will be made public on our web site. If the date on which the filings would be made public is a non-business day (as in the case with Monday, October 13, which is Columbus Day), the filings will be made public on the next business day.

Question 14: What is the "time" of the largest intraday short position?

Answer: Firms typically track intraday short positions in a Form SH Security for risk management purposes, based upon communications received from execution venues regarding executed orders. The time of the largest intraday short position is the time when the largest intraday short position in that Form SH Security is reached, based on the time of the last fill of the short sales.

Consistent with Rule 12b-21 under the Exchange Act, information that is required need be given only insofar as it is known or reasonably available to the institutional investment manager. If any required information is unknown and not reasonably available to the institutional investment manager, either because the obtaining thereof could involve unreasonable effort or expense, or because it rests peculiarly within the knowledge of another person not affiliated with the institutional investment manager, the information may be omitted, subject to the following conditions: (a) the institutional investment manager shall give information on the subject as it possesses or can acquire without unreasonable effort or expense, together with the sources thereof; and (b) the institutional investment manager shall include a statement either showing that unreasonable effort or expense would be involved or indicating the absence of any affiliation with the person within whose knowledge the information rests and stating the result of a request made to such person for the information.

When information is omitted from Column 8 for these reasons, an institutional investment manager may include on the Summary Page of Form SH, after the Report Summary section and prior to the List of Other Included Managers section, a statement that the time of day of the largest intraday short position has been omitted because it is unknown and not reasonably available ("U-NRA") consistent with Rule 12b-21 under the Exchange Act. The institutional investment manager also may indicate such assertion in Column 8 for each applicable security by using the notation U-NRA.

Question 15: Column 5 requires reporting the "Value of Securities Sold Short (Day)." How should "value" be calculated?

Answer: In valuing securities for purposes of Column 5, the instructions state that managers should use "fair market value." Managers should not use execution prices for valuing securities reported under Column 5 of Form SH. For purposes of determining the fair market value of securities sold short, a manager must use the market price of the Form SH Security on the primary or listing market for the Form SH Security, as of the close of floor trading on the New York Stock Exchange ("NYSE") for the day in question. This market closing time should be used to determine the price of all Form SH Securities irrespective of the U.S. market on which the Form SH Security trades. If the securities are sold short on a non-business day, a manager must use the market price of the Form SH Securities as of the close of the NYSE for the most recent business day. Entered values should be rounded to the nearest one thousand dollars (with "000" omitted). See Item 9 of the Instructions to Form SH. Because Column 5 of Form SH does not specify the value, managers may want to clarify that their Column 5 entries are rounded to the nearest one thousand dollars (with "000" omitted) and, therefore, are reported in thousands of dollars (X $1000). For example, if the value of securities sold short is $4,000,000, the entry in Column 5 of Form SH should be $4,000.

Question 16: Should institutional investment managers aggregate short sales across client accounts, strategies, and funds?

Answer: Under Column 4 of Form SH ("Number of Securities Sold Short (Day)"), the investment manager should report the aggregate gross short sales across all accounts in each Form SH Security effected that day.

Question 17: If an institutional investment manager has one client account that has a short position in a Form SH Security and a second client account that has a long position in the same Form SH Security, how should these positions be reported on Form SH?

Answer: Form SH does not require disclosure of long sales. In addition, long sales should not be netted against short sales either across client accounts or within a client account for purposes of reporting on Form SH. However, if a purchase or other transaction closes out an open short sale that was effected after the effective date of the Order, there will be a decrement (or diminution) of the open short position for that account. For start of day and end of day short position reporting, the manager must determine the total open short positions and aggregate these short positions across all its accounts.

Example Q17a: At the start of the day on September 23, Manager B manages only two accounts, Account Y, which has a long position of 20,000 shares in a Form SH Security, and Account Z, which is flat (no long positions or short positions) in that Form SH Security. During the day, Manager B does not effect any short sales in that Form SH Security for Account Y and effects one short sale for 10,000 shares in that Form SH Security for Account Z. Manager B does not effect any transactions to close out the 10,000 share short position in Account Z. Form SH for September 23 for Manager B should report the following for that Form SH Security:

   Column 3 - Short Position (Start of Day): zero

   Column 4 - Number of Securities Sold Short (Day): 10,000

   Column 5 - Value of Securities Sold Short (Day): 10,000 X (price of that Form SH Security reported by the primary or listing market for the Form SH Security, as of the close of floor trading on the NYSE)

   Column 6 - Short Position (End of Day): 10,000

   Column 7 - Largest Intra-Day Short Position: 10,000

   Column 8 - Time of Day of Largest Intra-Day Short Position: Time of day EDT of the last fill of the 10,000 short sale

Example Q17b: At the start of day on September 23, Manager C manages only two accounts. The first account, Account W, has a long position of 30,000 shares in a Form SH Security, and the second account, Account X, has a short position of 10,000 shares in that Form SH Security. During the day, Manager C effects a short sale for 10,000 shares in that Form SH Security for Account W and a short sale for 15,000 shares in that Form SH Security for Account X. Manager C does not effect any transactions to close-out the Pre-Existing Short Position of 10,000 shares for Account X or any of the new short sales for Accounts W and X. Form SH for September 23 for Manager C should report the following for that Form SH Security:

   Column 3 - Short Position (Start of Day): 10,000

   Column 4 - Number of Securities Sold Short (Day): 25,000

   Column 5 - Value of Securities Sold Short (Day): 25,000 X (price of that Form SH Security reported by the primary or listing market for the Form SH Security, as of the close of floor trading on the NYSE)

   Column 6 - Short Position (End of Day): 35,000

   Column 7 - Largest Intra-Day Short Position: 35,000

   Column 8 - Time of Day of Largest Intra-Day Short Position: Time of day EDT of the last fill of the 35,000 short sales

Example Q17c: At the start of the day on September 24, Manager D manages only two accounts, Account S, which has a long position of 50,000 shares in a Form SH Security, and Account T, which has a short position of 5,000 shares in that Form SH Security, as reported for the end of September 23. During the day, with respect to Account S, Manager D effects a short sale for 10,000 shares in that Form SH Security, which is filled at 11 a.m. EDT; another short sale for 5,000 shares in that Form SH Security, which is filled at 2 p.m. EDT; a transaction to buy 10,000 shares of that Form SH Security, which is filled at 3 p.m. EDT and is used to close out the 10,000 share order that is filled at 11 a.m. EDT. During the day, with respect to Account T, Manager D effects a short sale for 5,000 shares in that Form SH Security, which is filled at 3:30 p.m. EDT. Form SH for September 23 for Manager D should report the following for that Form SH Security:

   Column 3 - Short Position (Start of Day): 5,000

   Column 4 - Number of Securities Sold Short (Day): 20,000

   Column 5 - Value of Securities Sold Short (Day): 20,000 X (price of that Form SH Security reported by the primary or listing market for the Form SH Security, as of the close of floor trading on the NYSE)

   Column 6 - Short Position (End of Day): 15,000 (which includes Short Position (Start of Day) of 5,000 shares in Account T, 5,000 shares sold short at 2 p.m. EDT in Account S, and 5,000 shares sold short at 3:30 p.m. EDT in Account T)

   Column 7 - Largest Intra-Day Short Position: 20,000 (which includes Short Position (Start of Day) of 5,000 shares in Account T, 10,000 shares sold short at 11 a.m. EDT in Account S, and 5,000 shares sold short at 2 p.m. EDT in Account S)

   Column 8 - Time of Day of Largest Intra-Day Short Position: 2 p.m. EDT

Question 18: How can I comment on the Order, or any action the Commission may undertake to expand the scope or duration of the Order?

Answer: The Staff welcomes such comments, which will be considered in any further action the Commission may take with respect to short sales.

People wishing to submit such comments can use any of the following methods:

Electronic Comments:

• Use the Commission's Internet comment form ; or
• Send an e-mail to rule-comments@sec.gov. Please include File Number S7-24-08 on the subject line; or

Paper Comments:

• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090. All submissions should refer to File Number S7-24-08. This file number should be included on the subject line if e-mail is used. To help us process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/). Comments are also available for public inspection and copying in the Commission's Public Reference Room, 100 F Street, NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. All comments received will be posted without change; we do not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly.

http://www.sec.gov/divisions/marketreg/shortsaledisclosurefaq.htm