The Securities and Exchange Commission is adopting amendments to Regulation SHO under the Securities Exchange Act of 1934 (�Exchange Act�).
The amendments are intended to further reduce the number of persistent fails to deliver in certain equity securities by eliminating the options market maker exception to the close-out requirement of Regulation SHO. As a result of the amendments, fails to deliver in threshold securities that result from hedging activities by options market makers will no longer be excepted from Regulation SHO�s close-out requirement. The Commission is also providing guidance regarding bona fide market making activities for purposes of the market maker exception to Regulation SHO�s locate requirement. Effective date: October 17, 2008.
Finadium, a Concord, MA-based financial research house, has sent the following comments to Opalesque:
�Effective October 17, the SEC has repealed the options market maker exemption of Reg SHO. This means that when an options market maker shorts an equity, even in support of a bona fide options hedge, they will now be required to borrow a security to cover the short position like any other market participant. This closes out persistent fails. It does not entirely eliminate the options market maker exemption for Reg SHO securities.
- New demand from options market makers will substantially increase costs in the securities lending market, especially at a time when many asset holders are carefully evaluating the risks and benefits of their own lending programs.
- The options on harder to borrow securities often have larger spreads and more profit-making opportunities than highly liquid contracts on indices or large cap names. The loss of these options contracts will reduce a source of margin for options market makers. We expect that larger market makers will weather the storm wh......................
Source:
http://www.opalesque.com/AMB2008/47796amendment_to_Reg_SHO_will_increase.html
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