October 2008

                                     INVESTMENT MANAGEMENT
                                     UPDATE




S...
No Filing Required

An institutional investment manager is not required to file Form SH to report short sales and short
sa...
CHANGES FROM THE EMERGENCY ORDERS

Rule 10a-3T contains several significant modifications to the requirements in the Emerg...
COMMENTS

The SEC is requesting comments on all aspects of Rule 10a-3T and Form SH. Any comments
received will be consider...
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Microsoft Word - ADMIN-#10202307-v1-Investment_Management_Update_-...

  1. 1. October 2008 INVESTMENT MANAGEMENT UPDATE SEC Adopts Interim Temporary Rule Requiring Short Sale Reporting On October 15, 2008, the Securities and Exchange Commission (SEC) adopted an interim final temporary rule requiring certain institutional investment managers to file information on Form SH concerning their short sales and short positions in Section 13(f) securities, other than options. The rule extends the reporting requirements established by the SEC in Emergency Orders dated September 18, 2008, September 21, 2008 and October 2, 2008, with some important modifications. The rule is effective immediately and will expire on August 1, 2009, unless the SEC acts to continue or revise the rule and to extend the effective date. TEMPORARY RULE 10A-3T Beginning October 18, 2008, Rule 10a-3T under the Securities Exchange Act of 1933 requires institutional investment managers to report short sales and short sale positions, including short positions effected prior to September 22, 2008, to the SEC on Form SH. Form SH must be filed by an institutional investment manager who, as of the end of the most recent calendar quarter, has filed, or would be required to file, a Form 13F for the calendar quarter and who has effected short sales in Section 13(f) securities (other than options) during a Sunday to Saturday calendar week.1 Short Sales and Short Positions Rule 10a-3T requires an institutional investment manager to report both short sales and short positions. The term “short sale” is defined to mean any sale of a security that the seller does not own or any sale that is consummated by the delivery of a security borrowed by, or for the account of, the seller.2 “Short position” is defined in Rule 10a-3T to mean the aggregate gross short sales of an issuer’s Section 13(f) securities (excluding options), less purchases to close out a short sale in the same issuer. Under Rule 10a-3T, a reportable short sale position is not net of long position in the issuer. The rule also provides that if a security is on loan and a bona fide recall is initiated within two business days after the trade date, the person lending the security is deemed to own the security for certain purposes under Regulation SHO, and such sale is not treated as a short sale. Finally, options and short sales of options on Section 13(f) securities are not required to be reported on Form SH; however, short sales resulting from the exercise of options contracts are reportable as of the date of the exercise.3
  2. 2. No Filing Required An institutional investment manager is not required to file Form SH to report short sales and short sale positions in Section 13(f) securities where: No short sales of a Section 13(f) security were effected during the reporting period covered by the Form SH filing; On each calendar day during the calendar week, the start-of-day short position, the gross number of securities sold short during the day and the end-of-day short position each constitute less than 0.25 percent of that class of the issuer’s Section 13(f) securities issued and outstanding as reported on the issuer’s most recent annual, quarterly or current report filed with the SEC pursuant to Section 13 of the Exchange Act, unless the manager knows or has reason to believe the information contained therein is inaccurate, and the fair market value of the start-of-day short position, the gross number of securities sold short during the day and the end-of-day short position each are less than $10 million;4 or A broker-dealer seeks to execute a customer order through a riskless principal transaction, and a short sale results from a sale order of a customer who is net long the Section 13(f) security or, a purchase order of a Section 13(f) security. Filing Required, But No Sales or Positions Reported If the institutional investment manager determines that a Form SH filing is otherwise required, but the manager is not required to report short sales or short positions with respect to a particular issuer because of the exceptions cited above, the institutional investment manager may disclose “N/A” in the appropriate place on the form calling for information on the number of securities sold short or regarding short positions. TEMPORARY FORM SH Timing and Nonpublic Nature Form SH must be filed with the SEC on the last business day of each calendar week immediately following the calendar week in which the institutional manager has effected the reportable short sale. All Forms SH filed with the SEC will be nonpublic to the extent permitted by law. Contents and Format of Form SH Form SH requires reporting of the start-of-day short position, the gross number of securities sold short during the day and the end-of-day short position in an issuer’s Section 13(f) securities. Form SH must be filed in XML-tagged data format with the data file containing much of the information previously required by the Emergency Orders to be included in the Information Table. 2
  3. 3. CHANGES FROM THE EMERGENCY ORDERS Rule 10a-3T contains several significant modifications to the requirements in the Emergency Orders, including: Beginning on October 18, 2008, Form SH must be filed by the last business day of the calendar week following the calendar week in which short sales are effected. The Emergency Orders required that the Form be filed on the first business day of the calendar week following the calendar week in which short sales were effected Form SH no longer requires filers to disclose the value of the securities sold short, the largest intraday short position or the time of day of the largest intraday short positions. The Emergency Orders did not require disclosure of existing or outstanding short positions in Section 13(f) securities held before September 22, 2008. Under Rule 10a-3T, Form SH filers will be required to report all short positions, including short positions effected prior to September 22, 2008, when reporting the start-of-day short position, the gross number of securities sold short during the day and the end-of-day short position. Rule 10a-3T raises the de minimis threshold for filing and reporting short sales or short positions from a fair market value of $1 million to a fair market value of $10 million. Form SH must be filed in XML format, rather than in ASCII or HTML as permitted in the Emergency Orders. TRANSITION In order to assist in the transition to Rule 10a-3T and modified Form SH, institutional investment managers that are required to file Form SH on October 24, 2008 or October 31, 2008 must comply with Rule 10a-3T, except: They may exclude disclosure of short positions in Section 13(f) securities held before September 22, 2008 from Form SH reports filed on either or both of those dates.5 They do not have to file Form SH in XML format. Instead, the institutional investment manager may file Form SH on EDGAR in the same manner that the form was filed pursuant to the Emergency Orders. Beginning with the calendar week ending November 1, 2008, institutional investment managers will be required to report as specified in Rule 10a-3T and the filer instructions on the SEC’s web site. 3
  4. 4. COMMENTS The SEC is requesting comments on all aspects of Rule 10a-3T and Form SH. Any comments received will be considered in determining whether to revise Rule 10a-3T and Form SH, as well as whether the SEC should adopt a longer-term or permanent short sale reporting requirement upon expiration of Rule 10a-3T and Form SH on August 1, 2009. FOR MORE INFORMATION For more information, please contact: Michael V. Wible 614.469.3297 Michael.Wible@ThompsonHine.com Richard S. Heller 212.908.3907 Richard.Heller@ThompsonHine.com James P. Jalil 212.908.3976 James.Jalil@ThompsonHine.com Donald S. Mendelsohn 513.352.6546 Don.Mendelsohn@ThompsonHine.com JoAnn M. Strasser 513.352.6725 JoAnn.Strasser@ThompsonHine.com Marc L. Collins 513.352.6774 Marc.Collins@ThompsonHine.com If you do not wish to receive future communications by email, please reply to this email with “unsubscribe” in the subject line. This advisory may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgement of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel. This document may be considered attorney advertising in some jurisdictions. Some of the design images and photographs in this document may be of actors depicting fictional scenes. © 2008 THOMPSON HINE LLP. ALL RIGHTS RESERVED. 1 Form 13F is filed by institutional investment managers who exercise investment discretion over $100 million or more in “Section 13(f) Securities.” Section 13(f) securities generally include equity securities that trade on an exchange (e.g., NYSE, AMEX) or are quoted on the NASDAQ National Market, some equity options and warrants, shares of closed-end investment companies and some convertible debt securities. Shares of open-end investment companies are not Section 13(f) securities. The securities that institutional investment managers must report on Form 13F are found on the Official List of Section 13(f) Securities. Securities that are not on the Official List should not be reported on Form 13F. The Official List is published quarterly and is available free on the SEC’s website. The Official List is not available in paper copy format or on computer disk. 2 Rule 10a-3T defines the term “short sale” by reference to Rule 200 of Regulation SHO. 3 The release adopting Rule 10a-3T provides the following 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 on 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 on Form SH. 4 For purposes of determining whether the $10 million threshold is met, the number of shares sold short that day should be multiplied by the market price as of the time of the close of trading at the NYSE on that day. 5 If short positions in Section 13(f) securities held before September 22, 2008 are excluded, the relevant fair market threshold for reporting short sales and short positions is $1 million. 4

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